What’s in store for retail? Maybe not much at all …
There have been quite a few news reports about store closings since the beginning of this year — many of them focused on big brands like Kmart, JCPenney and Abercrombie & Fitch.
But what about the retail industry as a whole?
Recently, GetApp conducted research among a more general group of U.S. retailers that run online retail operations as well as a physical stores.
Among this group of respondents, two out of three believe that they could be closing their physical stores within the coming decade and operating their business solely online:
Extremely likely to be running my business solely online by 2027: ~23%
Not sure: ~17%
Extremely unlikely: ~4%
If these figures turn out to be even somewhat accurate, the “retail apocalypse” some news organizations are talking about will have become even more of a reality than even the most hyperventilating journalists are predicting.
It certainly lends additional credibility to current narrative about the downward slide of shopping malls across the United States …
I doubt I know a single person under the age of 75 who hasn’t purchased at least one item of merchandise from Amazon over the years. And I know quite a few people whose only shopping experience for the holidays is a date with the Amazon website.
Still, some of the breathless stories and statistics that are put forward about Amazon and its business model seem almost too impressive to be true.
I’m not just talking about news reports of drone deliveries (a whole lot of “hat” and far less “cattle” there) or the idea that fully-robotic warehouses are just around the corner – although these stories do make for attention-grabbing headlines. (Despite the continued need for human involvement, the way that robots are being used inside Amazon warehouses is still quite impressive.)
Moreover, a study published recently by BloomReach based on a survey of ~2,200 U.S. online consumers finds that Amazon is involved in most online shopping excursions, with nine out of ten online shoppers reporting that they check Amazon’s site even if they end up finding the product they want via another e-commerce resource.
More than half of the BloomReach survey respondents reports that they check on the Amazon site first — which is a new high for the company.
But are all of the reports about Amazon as credible?
Recently Doug Garnett, CEO of advertising agency Atomic Direct, penned a piece that was published in the December 2016 edition of Response Magazine. In it, he threw a dose of cold-water reality on some of the narratives surrounding Amazon and its business accomplishments.
Here are several of them that seem to contradict some of the commonly held perceptions:
“Amazon is a $100 billion retailer.”
Garnett notes that once subtracting Amazon’s non-retail revenue for 2015 (the last year for which financial data is available), the worldwide figure is more like half of that.
In the United States, Amazon’s retail sales are closer to $25 billion, which means it makes up approximately 6% of total retail sales.
That’s still very significant, but it isn’t the dominating presence as it might seem from all of the press hype.
“Amazon is profitable now.”
Yes, it is – and that’s after many years when the company wasn’t. However, approximately three-fourths of Amazon’s profits are due to selling cloud-based services, and the vast majority of the remaining profit dollars come from content delivery such as e-books plus music and video downloads. So traditional retail hard-goods still aren’t generating profits for Amazon.
It turns out, just as retailers like Wal-Mart, Target and K-Mart have discovered, that replicating a retail store online is almost always a money-losing proposition.
To underscore this point, Garnett references this example of a merchandising campaign in 2016 as typical:
“When one unit was sold on Amazon, eight were sold at the retailer’s website and 80 were sold in the brick-and-mortar stores. The profit is in the store.
For mass-market products, brick-and-mortar still dominates. Amazon is a nice incremental revenue stream, [but] not a valid alternative when you’re playing in the big game.”
It also means that companies that are looking to Amazon as a way to push their products into the marketplace should probably think twice.
At the very least, they should keep their expectations realistically modest.
America’s department store chains – and anchor stores at countless shopping malls across the country – are reporting another rounds of disappointing sales and profit figures following the 2016 holiday season.
It underscores what we’ve been seeing all over the country – dead or dying malls.
In fact, retail industry analyst Jan Rogers Kniffen predicts that about one-third of malls in the United States will shut their doors in the coming years.
That’s about 400 of the ~1,100 enclosed malls.
Equally startling, of the ~700 that remain, all but around 250 are expected to continue to struggle.
The problem is multi-faceted. At an estimated 48 sq. ft. of retail space for every man, woman and child in America, that’s a footprint that gotten too big.
“On an apples-to-apples basis, we have twice as much per-capita retail space than any other place in the world,” Kniffen says, adding that the United States is “the most over-stored” country anywhere.
The oversupply of retail space is challenged by changing customer tastes, too. Online shopping is a huge problem for malls, as is the rising popularity of off-price stores in lieu of the department stores like Macy’s and Penneys that have served as important anchors for mall properties all over the country.
Now we hear reports that Macy’s is planning to close numerous store locations during 2017, joining Sears and Penneys which have been doing the same thing over the past several years.
Entertainment – Even in the age of “interactive everything,” consumers – particularly younger ones – continue to seek out gathering places and “experiences.” It’s one reason why some shopping malls have had to deal with large numbers of young people flooding their spaces – not always with pleasant results. Malls seeking out tenants that provide entertainment hubs — such as theme parks and gaming parlors, edutainment, and even virtual-reality content and immersive experiences — will be able to draw customers from a wider geographic area who crave social interaction.
Food and drink – “Food is the new fashion,” some people like to say. Successful malls are getting on that action, incorporating popular dining options along with unique ones as a way of becoming destination locations.
Retail – Still a core aspect of malls, but with new twists, such as creating retail centers that are also learning zones that bring together consumers, retailers and entertainment. McKinsey uses the example of a sporting goods store that also includes a fitness studio, or offline showrooms for online retail players. More reconfigurable spaces that can be used for pop-up stores, special product launches and seasonal offerings are also options with potential.
Transportation – Getting to and from mall properties with ease is growing in importance, and where some creative thinking might go a way towards making some malls more attractive than others.
Technology – The more that malls can create a “seamless chain” between online and on-site shopping, the better their chances are for staying relevant in the new retail environment. McKinsey posits a number of initiatives, such as creating “virtu-real” formats that provide consumers with a more interactive retail experience through the use of touchscreen navigation portals, virtual fitting rooms, allowing smartphones for e-checkouts, and click-and-collect services to help blend the offline and online shopping experience.
In sum, for shopping malls it means fundamentally rethinking their role — and then adapting their strengths to those of the virtual/interactive world.
If we check back in another five years or so, we should have a pretty good idea which tactics have been successful – and which mall properties, too.
Hopefully, the shopping mall closest to your home won’t look like the one at the top of this article.
One of the neat aspects of online shopping is the ability to learn about consumer behaviors almost in real-time. No waiting around for published reports that are released months after the fact.
Moreover, we can know quite a bit more than simply gross sales figures, including traffic stats.
In fact, we already have extensive information available about consumer online shopping activities in the 2016 holiday season, thanks to data released by firms such as Connexity’s Hitwise division, which measures consumer behaviors across desktop, tablet and smartphone devices.
From Hitwise, we know that its Top 500 retail websites received more than 335 million visits on Thanksgiving Day alone. That averages out to just under 14 million visits per hour … but the time period of 8 pm to 11 pm had more than 50% greater traffic compared to the hourly average for the day.
Amazon.com was among the retailers receiving extensive traffic volume from 8 pm onward – in its case ~25% of its total traffic on Thanksgiving came in those final four hours of the day.
One supposes that after the “big meal,” the “big game” and the “big cleanup,” consumers decided cap off the day by plunking down at their computers or smartphones for some heavy-duty online shopping.
Hitwise found that Black Friday online shopping dynamics were different, with the top retail sites being busiest in the late morning hours, when site visits were around half again larger than Black Friday’s daily hourly average.
As for Cyber Monday, Hitwise found that consumer online shopping dynamics weren’t very much different from any other typical Monday – except that the overall volume (nearly 330 million visits) was substantially higher than the typical Monday volume of ~200 million visits. That, and a slightly greater-than-average share of online shopping happening in the early morning hours of 6, 7 and 8 am.
As for the persistent belief that Cyber Monday has more people shopping online during their time in the office, Hitwise is not seeing that phenomenon any longer.
Again, not very surprising in that more consumers have 24/7 access to digital devices in 2016 than they did ten or even just five years ago.
The Hitwise report for 2016 includes extensive findings not just on hourly shopping patterns, but also on product searches and key traffic drivers for the major online shopping websites. More data can be found on the Connexity/Hitwise website.
With online shopping so popular these days, why are consumers electing to pick up the merchandise they’ve ordered at the store?
While it isn’t a pervasive practice, a study published recently by consumer analytics firm Connexity/Bizrate Insights finds that more than 30% of online shoppers have used in-store pick-up at least once during the past 12 months.
Even more surprising, perhaps, is that ~13% of respondents reported that they had considered abandoning a purchase because in-store pick-up wasn’t offered as an option.
As it turns out, people choose the in-store pick-up option for four major reasons:
To avoid paying shipping charges: ~55% cited
For the convenience: ~43%
Need to receive the order quickly: ~36%
Shopping online to ensure the item is available: ~29%
At first blush, I wouldn’t think that “convenience” means having to drive to a store versus having the product delivered right to the house. But perhaps “convenience” in this sense is related to product availability – avoiding a fruitless trip to the store only to find out after-the-fact that the desired product isn’t in stock.
But the other reasons cited make good sense, too. Everyone understands the desire to save money – if not on the product itself, then by avoiding shipping charges. And if a quick drive to the store gets you the items compared to waiting a few days for the shipment to arrive, that’s understandable as well.
The Connexity findings underscore how important it is for retailers to align their e-commerce setups to allow for in-store pick-up – especially if the economics don’t allow them to offer a free shipping option. There’s simply too much competition from online-only retailers to afford losing sale to them based on any of the four factors listed above.
Here’s a statistic that surprises no one, probably: As of November 1st, more than one in five U.S. consumers had already begun their holiday season shopping.
Considering that many merchants begin pushing online and in-store holiday sales in October, it’s hardly any wonder.
In fact, marketing firm IgnitionOne is predicting that American consumers will spend 11% more during Thanksgiving weekend than they did last year.
Some of the increase is undoubtedly due to the calendar; Thanksgiving weekend is nearly a full week later than it was in 2012.
And other forecasting data don’t presage a big jump in holiday sales this year.
According to the National Retail Federation, sales are expected to be “not too hot … not too cold” – up a tad from 2012 but not at the growth level witnessed in 2010 and 2011:
2009: 0.5% sales increase over previous year
2010: 5.3% increase
2011: 5.1% increase
2012: 3.5% increase
2013 (forecast): 3.9% increase to $602 billion
Clues to the reasons behind the middling sales growth forecast can be found in Nielsen’s Holiday Spending Forecast report, in which American consumers describe their financial circumstances in these terms:
Two-thirds still feel like they’re in a recession.
Half are limited to spending funds on only the basics.
One in five has no spare cash at all.
How this translates to the amount of dollars consumers expect to spend on their holiday shopping breaks down as follows:
~44% will spend less than $250 this season
~30% will spend between $250 and $500
~20% will spend between $500 and $1,000
~6% will spend more than $1,000
As in years past, the most popular gift item promises to be … gift cards. Technology products, toys, food and apparel round out the “top five” holiday gifts. This is little changed from last year.
And here’s one other stat that retail establishments must be looking at: Mobile commerce sales grew by ~16% during the holiday season between 2011 and 2012, and ~18% of shoppers checked out deals on their mobile devices.
Those percentages are bound to increase this year.
Are the days of the lowly printed sales circular numbered?
Judging from the flurry of newfangled activity by key retail marketers, it would seem so.
This past week, CVS Pharmacy announced a complete makeover of its weekly circular. The new digital version, dubbed myWeekly Ad, incorporates customized promotions focused on the products that are deemed of greatest interest to individual consumers.
The personalized sale items are determined from scanning the trove of customer buying behavior information housed in CVS’s ExtraCare Rewards database, which now numbers more than 70 million active users.
The myWeekly Ad circular determines which items to feature based on the products that each targeted consumer buys most frequently, along with showcasing deals on other products in related categories that may also be of interest based on the purchase history of each customer.
CVS’s digital circular provides other user-friendly options as well:
Consumers can scan the savings and rewards currently available to them, and print coupons or digitally send special offers to their card before visiting a CVS store.
Shopping lists can be created, shared and sent to mobile devices.
Shoppers can view their own purchase history showing all products bought at CVS previously going back 18 months.
And CVS is hardly alone in digitizing its MarComm materials. Thanks to the continuing evolution of rewards cards and the voluminous customer data they can collect, new personalized circular announcements are coming with regularity now.
Here are some of the latest new developments:
Shoplocal is a Gannett-owned print and digital circular publisher. It has gotten together with personalized video firm Eyeview to create a new digital ad promo piece known as V-circular. This vehicle allows retailers and major brands to target customers on a local level based on geographic, demographic and behavioral data – along with factoring in “real-time” conditions like the weather.
National coupon clearinghouse Valpak has introduced a novel “augmented reality” feature for its digital circulars. Simply pointing a smartphone toward the horizon will enable shoppers to see which nearby businesses are offering coupons.
Direct mail media and marketing services firm Valassis has unveiled Geo-Commerce Retail Zone, a new ad-targeting capability that applies transaction and behavior data from consumers to local store trading areas, enabling targeted advertising to be delivered cross-platform.
No one questions the fact that more and more information on individual consumers is being collected, archived and applied on an individualized basis. Anonymity is fast becoming a quaint notion of the past.
Of course, this couldn’t happen without the cooperation and willing engagement of consumers.
Considering the benefits – special discounts and even freebies on goods and services – is it any wonder that these programs have been able to grow in size and comprehensiveness over time?
What are your thoughts about the tradeoffs? Feel free to add your thoughts to the discussion.