August 20, 2014

Retail Is Bleeding Out Into E-Commerce

I keep seeing this, folks.
  • 2005 = Pure Retail Customer Spends $200 Next Year:  $185 In Stores, $15 In E-Commerce
  • 2013 = Pure Retail Customer Spends $200 Next Year:  $160 In Stores, $40 In E-Commerce
Retail is bleeding out into e-commerce. Slowly. Terribly, terribly slowly. The impact on comp store sales might be between 1% and 2% a year - for some, higher, for others, 0% to 1%.

But make no mistake, it keeps happening. Eventually, there won't be enough traffic in the bottom 25% of stores to justify keeping lousy stores, regardless of the fact that customers are spending the same amount of $ in total. That's when the bottom 25% of stores close, and then customer spending decreases because e-commerce won't recapture the sales lost by the store closing. And imagine what happens to the mall that contains a disproportionate number of stores in the bottom 25% of a retail portfolio?

Please, please, think carefully about this dynamic. 

Omnichannel isn't going to save retail. If anything, the digitization of the business will eat retail ... why go into a store at all if the store is nothing more than a digital distribution center for stuff that can be analyzed online? And I use the word "analyzed" on purpose, because that's what we've trained people to do. Customers are not browsing, that's a quaint notion from last decade. Customers are analyzing:
  • Do I have time to drive 18 minutes to the store and try on the item, then drive 18 minutes back home?
  • If the item isn't available in the store and can be shipped from another store, why bother going at all when I can just get the item online and have it shipped to me?
  • Is the item cheaper somewhere else? I'd hate to get burned in the store.
  • Why should I buy the item in the store and pay 6% sales tax when I can get the same item online somewhere else?
  • Is somebody running a 20% off promotion online? Because if they are, the item is a lot cheaper than it is in the store.
  • Why do I know more about merchandise than the employees in the store? Is it because the retailer pays employees $11 an hour? I want to talk to somebody smart and passionate, and it's really hard to be passionate about the merchandise I want to buy when the employee is poor and is worried about eating.
  • Why go to a boring retail store when I can watch any program ever created on television, or digest any piece of information ever digitized online?
  • Do I buy something I don't really need in a store, or do I add 2gig a month on my mobile line for an additional $10?
  • Why don't I just wait for my favorite brand to offer 30% off in an email campaign? Why drive to the store when a favorable email offer is likely to arrive in the next few weeks?
That's a customer analyzing, folks. Be honest, you do it. Omnichannel cannot fix this, if anything, omnichannel accelerates this problem.

There has to be an entertainment component to retail - a reason for a customer to drive to a store to buy something. Without the entertainment component to retail, we're stuck with a situation where low-performing stores are going to close at accelerated rates, and mid-performing stores are going to be forced into smaller footprints. Both dynamics will reduce sales, opposite of the desired outcome of omnichannel.

Thoughts?

MLV

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