We like following the retail sector, working with several clients in the space. And I--as a shopper--enjoy seeing brands innovate to surprise and delight me to earn my business in this current era of e- and m-commerce. It has certainly been a tumultuous year for retail, though with weekly announcements of store closings by stalwart industry brands like Macy's and Sears. The evolution to online shopping by the average American consumer has been especially swift in recent months, led by e-commerce giant Amazon. Prime membership is now estimated to be up to 80 million in the US, most of them in affluent households; and Amazon has shown no signs of slowing its aggressive stance in retail, with announcements late last month aimed at disrupting both grocery (Whole Foods Market purchase) and clothing stores (Prime Wardrobe). The stakes for retailers couldn't be higher and the demand to adapt couldn't be greater. But does all this mean brick-and-mortar storefronts are dead? That all successful retail brands will be 100% online? I don't think so. Here's why....
Amazon itself is investing in retail. Besides the aforementioned purchase of Whole Foods Market, Amazon has tested a grocery concept, Amazon Go in some markets, as well as rolled out a few bookstores. Why? There must be something appealing about having physical storefronts, right? More on that later...
Millennials prefer retail. I know, I'm as tired as the next guy of studies about millennials being used to justify every business decision (and I am one, albeit an Oregon Trail one). But it's hard to ignore this generation that will have the buying power for the foreseeable future. Studies show that 70% of millennials prefer in-store shopping to online for the immediacy, convenience and experience it offers. That's a strong number that physical retailers can rally around.
The brands that are closing stores were weak already. Many of these brands had too wide a footprint, and were propped up by a good economy and slow adaptation to Amazon Prime. They didn't have a strategy to meet the changing needs of today's shopper among many other reasons. And the record Q4 for online shopping last holiday season sealed the fate for these overstored companies - but it shouldn't be seen as a harbinger for bad things to come for the entire sector. In fact, there are many numbers that indicate retail is actually quite healthy in 2017, including brands that are expanding like Dick's and TJ Maxx.
Still Amazon remains a formidable foe and the status quo for retailers is not a viable option.
How can physical retail brands survive?
In short, it comes down to leveraging the strengths they can offer as a physical retailer that Amazon cannot as an e-tailer. As this article explains, Amazon has removed all friction from the online buying process, removing hurdles like shipping costs through Prime, and minimizing the time between desire and purchase through its patented "one-click" buying button*. But in making this buying process nearly mindless, it has also removed much of the joy and brand experience. "Friends don’t meet for dinner and then go on an Amazon shopping spree. People don’t take selfies of themselves ordering things on Amazon." This is one of the main reasons I believe Amazon is getting into the storefront game - to bring a brand interaction into the shopping experience. In this arena physical storefronts already have a leg-up on Amazon.
Which brands are doing this well?
A couple come to mind immediately. First, Walmart. They have taken the Amazon threat seriously, especially this past year by acquiring Jet.com for $3.3 billion, enhancing grocery pick-up services, and recently buying Bonobos for $310 million. They are even fighting back operationally, threatening to cut ties with vendors that use Amazon for their cloud services. The best idea I've seen Walmart roll out is hefty discounts for shipping to store, knocking as much as $50 off electronics if a customer ships to one of their 4,700 US locations instead of their home. This is brilliant, leveraging Walmart's strength - their wide footprint - passing along shipping cost savings to customers, and attacking Amazon at their main strength, ease of shipping. But this also highlights why the Whole Foods purchase is such a big deal for Amazon because it gives them a footprint as well.
The other brand I think is well-positioned is Carter's due to their diversification. They have strong brands that are household names; and they sell those products across several platforms - in Carter's brand stores, in big box stores like Walmart, and through their e-commerce site which they rolled out years ahead of other retailers. They even recently introduced a clothing line exclusive to Amazon. They also are good marketers, using a strong blend of both digital and traditional advertising to reach new parents (of which I am one; maybe that's why I've taken notice!)
So, I don't think it's all doom and gloom for physical retailers. There are some new challenges, absolutely. But if brands continue to restructure and innovate as needed, they will likely emerge stronger than ever, ready to compete and win against Amazon.
What do you think? Agree or disagree? Leave a comment and let us know.
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*This patent actually expires in September, so look for these buttons on a lot more sites this fall.