RIP Retail… Long Live Retail

Once upon a time, owning your own store was the American dream. Shopping malls were always packed — especially on the weekends. Stripmalls were mini neighborhood versions of their overcrowded mall-cousins, complete with shopping and food options galore. Just a couple years ago, stores like Target and Lululemon continued to expand to new physical locations to meet high demand from in-store customers. Now, however, those days seem like a distant memory. Retail stores continue to take a hit as online shopping becomes more prevalent (and easy) than ever before. Are brick and mortar stores doomed?

What is Happening to Retail?

These days, going to the mall isn’t nearly as challenging as it used to be. Parking is plentiful, and foot traffic is minimal. And while that’s great for the consumer, it’s a troubling sign for retailers. Even the holiday season, which traditionally can account for as much as 30 percent of a store’s annual revenue, has seen a decline. With malls struggling to attract customers, it should come as no surprise that retail giants such as Macy’s and Sears are closing locations and struggling financially.

What’s led to the decline of retail?

Online Shopping: 2016 was the first year that saw more shoppers buying online than in physical stores. That trend will only continue up as 54% of consumers opted to buy from online retailers, with Amazon leading the way, accounting for 60% of total U.S. online sales growth in 2015 alone..

As online technology gets smarter, shopping gets more personalized. Consumers can go through more options more quickly, then try on the options from the comfort of home, often at more affordable prices. The convenience of online shopping has been a dagger to the heart of retail.

Overextending Physically: Brands opened more and more stores to meet rising demand, assuming that demand would continue to rise, as well. But that wasn’t the case. A perfect example of this? Lululemon Athletica. Everyone’s favorite yoga outfitter has seen shares plummet as 2017 has gotten off to an extremely poor start, with sales and guidance dropping.

When stores invest in new locations, they’re also investing in

New mortgages
More merchandise to stock the shelves
More employees (with more training)
Construction, renovations, and maintenance

Opening a new location is taxing for any business. But when retailers open several new locations, it takes an incredible financial toll on the brand, which is why big retailers such as Macy’s and Sears are shutting down so many locations.

Promotions: As physical store visits become fewer and further between, stores have turned more and more often to promotions to bring in new and returning customers. However, promotions are an inefficient way to run a business.

Promotions drastically cut into a store’s profit margins, and also train consumers to be extremely price sensitive. Promotions will bring in customers, but only when there are sales and specials available at that particular store. If customers aren’t returning without promotions, stores can’t realize their needed margins to provide the revenue necessary to operate the physical location.

Is retail dead?

Surprisingly, no. But if retailers don’t change with the times, they’re doomed to fail. Mall traffic may be down, but specialized stores such as Home Depot, Best Buy, and Apple have all seen growth in physical store sales.

What can retailers do to adapt?

Small is the new big: For starters, the days of the “department store” seem to be done. Massive stores split into multiple, huge sections can be overwhelming and confusing to consumers. Smaller stores seem to be the way of the future, as Target looks to experiment with small stores focused on specific audiences, such as college students.

Even Amazon is going from online to offline and opening small corner stores. These neighborhood stores look to offer retail solutions to areas with a focus on a smaller, more specific selection of goods, rather than one size fits all. This approach may not offer all things to all people, but having a smaller location means smaller rent/mortgage costs, smaller stocking costs as less merchandise is needed, and significantly lower training costs as a smaller space means fewer employees, all amounting to massive savings for brands while still maintaining a physical presence.

Service with a smile: Consumers have become accustomed to being greeted promptly and courteously, and seem to be able to tell when that’s authentic. If a retailer can staff and train their stores properly, and create a true service experience for customers, those customers will keep coming back.

Wal-Mart has used greeters for years, but it goes further than that. Stores should know everything they can about customers, and integrate online and technology strategies into their sales. For example, for stores that collect email addresses to send coupons and sales offers, those same email addresses could be used to build a relationship by providing content such as fashion tips or special fall selection previews. Or ff a customer is interested in something at the store that’s not in stock, the store could have it same/next day shipped from its warehouse.

All it takes is one bad service experience for a customer to swear off a store forever. Unfortunately, as far as retail is concerned, that’s never been too much of a priority.

Customization: One of the biggest reasons online shopping is so popular is because of the ability of the user to customize their purchase and payment options. Physical retail stores need to mimic that experience by blending technology into the offline world.

Examples include apps to allow customers to see what stores have in stock and communicate with stores in real time. Payment options are a must for physical stores. “Cash or credit” isn’t enough anymore. Retailers need more options. PayPal, Apple Pay, Android Pay, and Venmo are just some of the options popping up around the globe as cash and credit cards become more and more unnecessary.

While retail stores may be struggling, retail brands can still survive. It’s all about what brands adapt to blend online strategies with offline locations. Retail isn’t dead, it’s just changing for the better.

Watch this video from CNN Money regarding America's top retailers in trouble:

For traders, avoid big box department stores, and focus on smaller, specialized retailers who aren’t overextended physically, such as Home Depot (HD), Apple, Inc. (AAPL), and Best Buy Co., Inc. (BBY), all of which are up in 2017.

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