Two years ago I wrote about the struggle of retailers. At that time the big story was Target’s retreat from Canada. The chain closed 133 stores, laid-off 17,600 employees and absorbed US$2-billion in losses. That figure did not include the $7 billion the company invested to enter the market.
Target dominated the headlines but at the same time in Canada Sony closed all 14 of its stores, Mexx 95, Smart Set 107, and Jacob 92. In North America, Staples shuttered 225 stores, Office Depot 500, Radio Shack 200, Abercrombie & Fitch 180, Aeropostale 250, JC Penny 39, Wet Seal 338 and Coach 70.
Are they missed? Not really and the numbers and types of stores shedding physical locations continues to grow. Credit consulting firm F&D Reports that in the U.S. 3,600 stores have closed since January. That is about 20 a day. The firm expects the number will reach 10,000 by the end of the year. Vulnerable brands include Neiman Marcus, Sears (no surprise), Claire’s, and J. Crew.
The gifted analyst and writer, Derek Thompson of The Atlantic, is covering retail in rich detail. In April he penned, What in the World Is Causing the Retail Meltdown of 2017? Check out this sobering paragraph, “There have been nine retail bankruptcies in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Last week, several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of several brands to abandon that iconic thoroughfare.”
As staggering as this news and statistics are, it is the reason given for this “Retail Apocalypse” that truly shocks. Experts attribute it to the irrational exuberance of the ‘90’s and ‘00’s when American overbuilt retail space. This suggests retailers fail only when it comes to real estate. That is not the case no matter how much the cost of carrying bricks and mortar.
It is a mix of factors. At the same time of the overbuild retailers came under pressure from the growth of ecommerce. Traditional retail businesses never really got it no matter how many times they hired a consultancy or a digital guru to help sort it out.
What everyone missed is though the technology is ever new … human behavior is not. Online shopping may have grown our expectations but our wants and needs are centuries old and well charted by Maslow.
Smart retail brands are differentiated, distinctive, and the disruptive. Sounds easy right? Not at all. The survivors do continual soul searching about what they should stand for, what their customers need, and where the growth and margins are. This means both stores and online offers need to be compelling and experiential. The consumer needs a reason to visit, whether digitally or though a physical door.
Remember all those scary closings of two years ago? Well, Best Buy was under tons of pressure. How times change. On Thursday, shares of the company surged 20%. Part of this is due to people loving tech but Dr. Achim Berg has a grander explanation.
Berg is a partner at McKinsey & Company and co-leader of McKinsey’s Apparel, Fashion & Luxury Group. He believes retail winners preserve their brand identity in the midst of changing consumer preferences, are redefining the role of the store, and are “creating a compelling omnichannel offer for consumers and a seamless online/offline customer decision-making journey.” Sound in theory, tough in execution.
The biggest issue in retailing is that stores are basically going after the same customer and cannot keep up with growing consumer sophistication. Shoppers research, compare prices and features and consult with trusted sources to make purchase decisions. Retailers that do not innovate or give consumers what they are looking for at a perceived lower price will fail to make the sale.
Retail is a tough, tough game and there are more casualties to come. The lessons are there but are not being applied. Consider the retail brands forecasted to grow in the U.S. in the next year. Dollar General, Dollar Tree, TJ Maxx, Walmart and Burlington Coat Factory suggest that more and more consumers equate value with low price.
Another reason this is all happening and perhaps the most fascinating is the shift of shopper preferences away from apparel and accessories and towards technology, health care, and experiences. Lets break that down.
People value technology and the debatable “human” connectivity it brings. So we buy more smart devices and we are using them to shop. Health care is truly interesting. Even when there is a growing divide in health equity those of us with cash are investing in our physical and mental well-being. Pilates, yoga, dental care, personal coaching and counseling all fall into this bucket and we are buying more of it.
Lastly, there are experiences. Travel is more valued now as is betterment through volunteering and continuing education than buying more things. Thompson believes that a renaissance in the restaurant industry is also a factor. People are choosing to break bread with friends in greater numbers and with greater frequency. Consider this, “Since 2005, sales at “food services and drinking places” have grown twice as fast as all other retail spending. In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores.”
In short, people are increasingly picking intangibles over a third pair of $300 blue jeans. This is cool stuff and theoretically better for society but not so good for brands and retailers. That does not mean there is less opportunity. The winners will attribute success to understanding people, not “customers” or “consumers”. Howard Schultz of Starbucks summed it best when he said, “The challenge of the retail business is the human condition.”
Just imagine a discussion with Jeff Bezos over at Amazon. This super shipping company is investing in drones and is now embracing physical spaces. They have experimented with pop-up stores and on May 25th opened a modest bookstore in New York. The 4,000 foot space is on the third floor of a shopping mall in Columbus Circle, where a Borders closed its doors in 2011. This is mere blocks away from where a giant Barnes & Noble sold books for sixteen years before it closed. A second Manhattan location is planned. Currently, there are six stores open with another seven to come.
On a side, but related note, Google now has physical stores. So we can conclude that while old-time retailers are struggling, modern businesses are placing multiple bets across the retail landscape. It is really tough to keep track of the comings and goings.
Sales channels are shifting, margins have shrunk, store design and formats cannot keep up with changing tastes. Stores will continue to close and online transactions will spike and fall. Our very notion of consumption is being altered so one can hardly fault a few businesses for throwing in the towel. Retail is not, nor has it ever been, for the feint of heart.
In the meantime, I work with retail clients whose biggest issue on a day-to-day basis is the fight between old-school merchandisers and Millennial digital know-it-alls. When one talks, the other rolls their eyes. The result is revenue shrinks and shrinks to the point where the retailer is no longer relevant. Meanwhile the answers and solutions are there in our wants and needs.
Maslow said, “One can choose to go back towards safety or forward towards growth. Growth must be chosen again and again, fear must be overcome again and again.” Of course, he was talking about self-actualization but the lesson for retailers is clear. Go boldly with a clear strategy based on human behaviour. Do not retreat to the old ways or as Maslow would chide, “If the only tool you have is a hammer, you tend to see every problem as a nail.”