The great, disappearing retail store act.

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%
  • Likely: ~43%
  • Not sure: ~17%
  • Unlikely: ~12%
  • 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 …

All those narratives about Amazon? They’re not exactly accurate.

abI 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?

Doug Garnett
Doug Garnett

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 shopping malls struggle to avoid becoming dinosaurs.

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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.

How will malls survive in the future? Recently, the McKinsey & Co. consulting firm issued a report that highlighted five ways malls can remain relevant to consumers today and in the future:

Mall of America (Bloomington, MN): Expansion Rendering
Mall of America (Bloomington, MN): Expansion Rendering

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.

Online shopping insights: Why is the in-store pick-up option so popular?

With online shopping so popular these days, why are consumers electing to pick up the merchandise they’ve ordered at the store?

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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.

Antisocial behavior: Major retailers do much better broadcasting on social media than they do responding.

untitledWhen it comes to social media, it turns out that the major U.S. retail brands are a lot better at dishing it out than consuming it.

On the “dishing out” side of the ledger, these retailers have been posting an ever-increasing number of social messages aimed at their target audiences.

A recent report from Sprout Social Index titled Snubbed on Social shows just how much:  In the 3rd Quarter of 2014, the average number of messages deployed by the typical major retailer was around 150, but in the 3rd Quarter of 2015, the number had grown to in excess of 350.

But what happens when these retailers are on the receiving end of social messages? Sprout Social has determined that the typical retailer receives around 1,500 inbound social messages over a busy quarter (such as during the holiday season).

Of these, approximately 40% of the messages are ones that warrant a response.

But only about 1 in 6 – fewer than 20% of them — actually get one.

And those consumers who are fortunate enough to receive a response are waiting approximately 12 hours to get it. That’s up from ~11 hours a year earlier.

One interesting factoid from the Sprout Social reporting is that customer messages on Twitter tend to get a better response from brands.

But it’s the difference between merely poor (~14% on Twitter) and downright embarrassing (~9% on Facebook).

untitledScott Brandt, chief marketing officer at Sprout Social, states it succinctly: “More often than not, brands are silent when their customers reach out.”

What are the implications of this (non-)behavior?

For one thing, interacting with customers helps drive more interesting and more purchases.  Sprout reports that consumers are seven times more likely to respond to social promotions and other social news if they have had meaningful interaction with the brand.

Obviously, ignoring the social messages that come through isn’t the way to build that engagement.

One dynamic that appears to be at work is that brands continue to use social media as a vehicle for broadcast messaging, whereas many consumers view social platforms as the place for a more conversational, two-way level of engagement.

You know – just like social media is supposed to work.

But there are some seemingly intractable reasons why it’s difficult to put the “theory” of social interaction into “practice.”

For starters, there are so many ways for people to communicate with companies and brands today (versus only by letter, phone or in person not that many years ago), that too many businesses are either stretched to thin or simply don’t feel the need to respond urgently if at all.

Another issue is similarly personnel-related. For brands to respond better would mean hiring and training people who possess the authorization to actually do something about a question or concern.  Low-level staff with low wages and benefits and with no authority to resolve issues is a clear ticket to nowhere.

At the very least, putting a process in place that provides a quick response to all inquiries – even if the initial response is auto-generated – is just plain common sense. The value to the consumer of a response that comes within just a few minutes – even if the message was posted in the dead of night – is what makes consumers bond with a brand.  (Just having their existence validated is huge for some people.)

Contrast that to the other, more common experience of brands ignoring their consumers to death … and where people never forget which companies aren’t good at responding to their questions or concerns. Does anyone think that reputation doesn’t have a dampening effect on sales?

More information about the Spout Social Index can be found here.

Holiday Sales: “Many Happy Returns”

retHere’s an interesting statistic coming out of the holiday season this year: Nearly one in four consumers has returned at least one of the gifts they received.

For gifts purchased online, returns are an even bigger part of the equation – as in one third of all online gift purchases being returned.

It’s part of a trend that’s growing at a pretty swift pace. In 2014, a total of $285 billion worth of merchandise was returned in the U.S., a 6% increase over the previous year and more than double the growth rate of retail sales as a whole.

Industry observers are expecting higher figures again for 2015 once the stats are fully tallied.

Which holiday gift items tend to be returned most often? In a survey of ~500 U.S. consumers conducted between December 28 and 31, 2015 by mobile app shopping circular developer Retale, the following gift categories were cited most frequently by respondents:

  • Jewelry: ~32%
  • Electronic products: ~29%
  • Gift cards: ~27%
  • Clothes/apparel: ~26%
  • Home décor/home improvement items: ~23%

Consumers may have gravitated to online shopping big-time this past holiday season, but as for the gift return “experience,” it’s pretty clear that consumers continue to prefer making a return at the store (~64%) rather than online (~12%).

Evidently, the “hassle factor” of shipping merchandise back to the seller – not to mention the cost of return shipping if that isn’t offered free of charge – is more onerous than getting in the car and driving to the store outlet.

As for the mountains of merchandise that retailers are having to deal with, it’s caused the growth of an entirely new business niche: reverse logistics firms.

These companies input information on each returned item and determine the most lucrative way for the retailer to dispose of it – which can include sending it to a wholesaler, selling it to a liquidator for scrap, or sending it to a distribution center to be repaired and resold.  Online “refurbished products” stores on Amazon and eBay enable retailers realize up to 70% of an item’s worth by selling those items directly to value-conscious consumers, compared to recouping only 20% or 30% in the past.

It’s part of the action –> reaction aspects of retail that pretty much define this industry.