The digital tsunami that has driven the world into the arms of certain ecommerce giants is simultaneously taking its toll on commercial real estate. Analysts suggest the U.S. is at least 20% "overstored." Of those that remain, brick and mortar shops are getting small or going home.
The impact of these store closures is real. Fung Global Retail & Tech recently produced a report specifically on the impact of closings at JCPenney, Macy’s, Sears and Kmart. This report concluded that $2.5 billion will flow to other retailers as a result, concentrated around clothing, footwear and accessories. The closing of legacy anchor stores signals a definitive end to an era.
Retail is certain to undergo a major transformation as brands take their heritage online to compete for a slice of the e-commerce pie. Amazon is often singled out as the big winner of this sea change. But brands can differentiate themselves from the online mammoth by offering unique products and services that contrast sharply with Amazon’s no-frills convenience-commerce model, as well as finding new ways to deliver a brand experience that truly delights.
Recently, we looked at what the shuttering of big box stores has meant for shoppers. The other side of that equation is what the trend implies for companies that have traditionally depended on retailers as their primary distribution channel. New research indicates that the ongoing story about closings at large retail locations has shifted in the balance of power for brands.
In terms goods sold in those stores, the tighter available space is likely to first increase the leverage of the retailer over the vendor. In response, brands are more likely than ever to pursue a direct to consumer (DTC) first revenue model, rather than the traditional wholesale model. For example, Nike is planning to expand their DTC investment by 250 percent over the next few years. They project that their DTC revenues will top $16 billion by 2020.
Smaller brands will have a unique opportunity also, especially newcomers unhindered by the baggage of the old model. Apple Store creator Ron Johnson recently talked with Kara Swisher on Recode radio about how his new company, Enjoy, grew out of brands that couldn’t get their products to compete in traditional big box stores. Instead, he said, they came to Johnson and they created a model where people bring the product to your house, and help you set it up and use it. This kind of innovative approach can work well with high-end merchandise and any kind of product where training, education or support is necessary. This model actually turns the home into a temporary retail space.
If the home can serve as a retail space, the store is transforming as well. Retail will completely reinvent itself as stores get smaller and smarter. Increasingly, the line between online and in-store will be blurred as consumers navigate seamlessly between the two. The store becomes the brand's home, a place where customers can connect and engage and learn about new lines and products, as well as a place where they can get extra support if they want it. As the retail relationship becomes more relational, brands will also recognize their customers and create a unique experience for them.
Doug Stevens, founder of Retail Prophet, described how this new arrangement is likely to evolve: “I foresee a not-so-distant future where the retailer/vendor relationship will begin to look a lot more like a media buy than the wholesale product purchase agreement of today. Part media outlet, part sales agent — a new breed of experiential retailers will use their physical stores to perfect the consumer experience across categories of products. They will define the ideal experiential journey, employ expert ‘product ambassadors’ and technology to deliver something truly unique, remarkable and memorable.”
Retailers will continue to have a physical presence but a slimmed down one. The demands of the mobile shopper coupled with shifting markets will shape a new face for retailers as they figure out how to create compelling customer experiences in smaller spaces. These spaces will be more focused in purpose, and yet also more fluid.
More transactional and logistical roles will be automated while customer-facing personnel will be deployed to the front lines with a new mission to engage and connect directly with consumers. Brands will also have to build partnerships with other brands in order to deliver an experience that centers around the customer. The product will serve as a touchstone rather than the end of the journey. Brands that figure out how to deliver this rich meaning, along with true value and personalized attention, will be the big winners in the future world of retail, both now and well into the future.