When web-based shopping gained popularity over the last two decades, spearheaded by the likes of Amazon and major retailers’ internet storefronts, the imminent demise of brick-and-mortar establishments seemed likely. War was declared between bricks and clicks.
The win-lose conversations are fading into the background as researchers suggest a more symbiotic relationship between the two.
Stores such as Birchbox, Warby Parker and Bonobos are retailers that began as e-commerce only and are moving into physical storefronts. Amazon.com, which reportedly controls about half of online-only sales in the U.S. (and 5 percent of U.S. retail sales), has also announced plans to open a physical storefront in New York City.
“Several national directors of real estate have indicated that zip code specific sales suffer when a proximate brick-and-mortar store is closed,” says Joel Moyes, principal of Kinetic Companies and Arizona and New Mexico state director for the International Council of Shopping Centers (ICSC).
No one denies the retail sector, plagued by high vacancy due to abandoned big box spaces waiting for alternative uses or to be broken down into smaller storefronts, is one of the hardest hit by the economic downturn. Moreover, it is having to evolve with a changing base of consumers.
Despite the pressures of technology, not that much has really changed at the core of retail’s purpose, says Dave Cheatham, president of Velocity Retail Group, LLC.
“Retail is about getting product to a customer,” he says. “Whether the customer comes into the store and looks at the product but then purchases it over the internet or whether the customer shops online and then goes into the store to purchase is irrelevant. The bottom line is that the retailer is still selling their product.”
According to IDC Retail Insights, omni-channel customers shop three times more frequently and spend 3.5 times as much as single-channel shoppers. A survey of 100 senior executives at leading retailers as reported by the Retail Industry Outlook Report compiled by KPMG LLP reported the biggest revenue driver in the next one to three years is customer retention.
Omni-channeling is paving the way for this. One example, Cheatham points out, is a store’s ability to search inventory at all surrounding stores to find and ensure delivery of the product carried by the company but not at the store within 24 to 48 hours.
“This newer offering is better for the customer, who now gets the product they wanted, and the retailer does not lose a sale,” he says. “Additionally, it helps the retailer utilize their inventory more efficiently by pushing product to the customer, rather than sitting in a back room.”
This kind of technology, employed by heavy hitters such as Wal-Mart and Target, do require significant technological upgrades. More than half of the senior executives surveyed said investing in technological updates, which include company website, brick-and-mortar stores and social media, then mobile, in that order, were a high priority. However, about that same number of executives cited cost as a hindrance in technological upgrades.
According to a January 2014 report by Business Insider, the number of smartphone users using mobile coupons was estimated to reach 47.1M last year — this equates to about 41 percent of department store customers. Mobile payments are a focus of about 40 percent of the KPMG surveyed retail executives.
“Retail is constantly evolving,” says Cheatham. “From the size of the prototypical store for each retailer, to their product mix, changes occur continually. More importantly, how a retailer reaches their customer has also changed. Omni-channel retailing is nothing more than a continuation of this evolution.”
Many luxury name brands are continuing to expand worldwide, including H&M, which is adding 375 stories, including one that will land at Tempe Marketplace this fall. RBC Capital Markets reported 40,000 U.S. retail store openings planned between November 2014 and 2015. Overseas, Dubai is building the world’s largest mall (8MSF) this year, reports Colliers International in its Global Retail Highlights for the second half of 2014.
Right-sizing is still very much a thing, while retailers feeling the crush of online shopping are becoming more creative with the brick-and-mortar space they do have.
National vacancy for retail is 6.3 percent as of 2Q 2014, according to Colliers International. Phoenix saw an increase in rent per square foot rise to $22, a 26 percent year-over-year rent increase.
In June 2014, UPS published “UPS Pulse of the Online Shopper,” a white paper featuring research by comScore, Inc. It found “long-term infrastructure investment will be required to support growing customer demand.”
This begins with distribution centers, which allows orders to be fulfilled and increase transparency across retail channels, the paper continues. According to 2014 Forrester research, more than half of U.S. retail sales will be influenced by online store visits. This includes shipping items to a store for pickup, which has a 40 percent chance of leading to more on-site purchases.
UPS reports that two-thirds of smartphone owners use their phones in-store for shopping to compare prices (36%), read reviews (27%), text friends about the product (25%). That same percentage of people, according to A.T. Kearney’s Omni-channel Shopping Preferences study, visit a physical store before or after making an online purchase.
Obviously, with e-commerce and distribution centers, retailers are thinking about delivery times, which can influence retention of a customer — 50 percent of shoppers have abandoned an online shopping cart due to long delivery estimates or a lack of an estimate, according to UPS. However, about 83 percent of customers are willing to wait an additional two days for delivery in exchange for free shipping, this is particularly true for people who are ordering items that are not available at local retailers.
“Shopping is one of America’s favorite entertainment venues, and that is not likely to change. A case in point is that the Mall of America has more visitors than Disney World in a given year,” says Cheatham. “It’s not about bricks or clicks. It’s about bricks, clicks and happy customers.”