January 29, 2017

Retail: We Got It All Wrong, Didn't We?

Several years ago, a retail CEO contacted me. This individual couldn't understand why retail comps were great and online sales weren't growing much. I had a simple response.
  • "Maybe it is because customers love your stores and actually want to visit your stores?"
Today, this company is healthy.

Most of traditional retail is not healthy.

On Twitter, I frequently ask readers a common question.
  • "Who benefits by getting the reader to do what the author of the article advocates?"
A few weeks ago, the National Retail Federation (via Shop.org) spoke of an article about JCP. The article talked about how JCP announced store closures. The headline, however, said that JCP feels that stores are an important part of an omnichannel strategy. This means that we must ask ourselves a question.
  • "Who benefits by getting the reader to believe that stores are an important part of an omnichannel strategy independent of the fact that many traditional retailers are closing stores because their stores have become unprofitable?"
I think we messed up retail. Every one of us, me included.

Here's what we messed up.

We never, ever, ever considered that the most important thing about being a retail brand is having a store full of shoppers - a store filled with vibrant noise and energy.

When we integrate the website to align with the store, we discourage the customer from visiting a store.

When we align prices across channels and align the experience across channels, we discourage the customer from visiting a store.

When we strongly encourage a customer to interact with us "digitally", we discourage the customer from visiting a store and worse, we encourage the customer to interact with Amazon.

When I performed retail projects in 2007, 2008, and 2009, "digital" activities drove traffic into stores.

When I perform retail projects in 2014, 2015, 2016 and today, "digital" activities are more likely to drive "digital" outcomes than in-store outcomes compared to 2007-2009. This is a sign that digital prowess improved. Retailers have become better at "digital" marketing. And by becoming "better", digital dissuades customers from visiting stores.

As store traffic decreases (#digital), weak stores become unprofitable.

Retailers close weak stores.

When retailers close weak stores, other stores in the same shopping center / mall lose foot traffic. Their performance weakens. They become inclined to close stores. The process snowballs. All traditional retailers are hurt by the "first movers" - the weakest retailers who close stores.

Amazon is not big enough to cause this dynamic to happen alone.

Our perpetual lust to "be digital" causes this to happen.

Marriage to digital is causing the ruthless optimization of traditional retail.

Digital strategy drives customers online, dissuading store visits. Retailers respond to a lack of store traffic (which retailers caused) by discounting merchandise. Discounts and promotions reduce profit. Reduced profit weakens poorly performing stores. Poorly performing stores are closed, reducing traffic for all other retail brands, weakening their performance, causing other brands to close stores, reducing traffic for all other brands.

It's conceivable that 30% to 50% of retail square footage is going to disappear (short-term).

We caused this. All of us. Our desire to be #digital trained customers to not visit stores.

From 2017 - 2027, the smartest retailers will figure out how to get customers to get in a car and visit a store. This, not #digital, is the future ... if we want our stores to succeed. If not, keep pursuing a #digital strategy - that's fine. But don't expect traditional retail to be healthy.