Retail's Darwinian Past, Present, and Future
BY Diana Ransom
When the history books are written, this moment will be a transformative one in retail. Here's what you can learn from the fall.
Ever look at a really old picture of your town? I'll bet you hardly recognized it. The people are dressed differently. The cars, well, they don't make them like they used to. And the mom-and-pop shops that formerly lined the streets have all but disappeared.
Thanks in part to technological advances and hardscrabble economic times, a similar sea change is now unfolding at shopping malls across the country. Anchor tenants including Sears Holdings Corporation, the parent of Sears, Roebuck and Co., and JC Penney are struggling to stay afloat under the weight of high overhead and reduced sales--marking both an opportunity and warning sign for smaller retailers.
"It's Darwinian," says Rachel Shechtman, a retail consultant and owner of Story, a small concept shop in New York City. "Consumers are voting with their dollars, and these stores are going to die unless they change."
Though this kind of "progress" isn't new, it’s worth taking a moment to consider the lessons that smaller shops can learn from the precipitous decline of the first big-box shops. After all, big retailers' loss could be your gain, yet the trend may also be dual edged. Even smaller, more nimble retailers could see the same fate if they don’t adapt to today’s consumers.
"The competition has gained momentum, and consumer behavior has shifted," says Marshal Cohen, a retail analyst at the Port Washington, New York, market researcher NPD Group. "When you look at all of those dynamics, it's not just big department stores but small shops, too, that need to worry. If the retailer doesn't change with them, they'll get further and further away."
So, just how did many U.S. department stores unwind? Here are four lessons that small shops can learn from their ailing counterparts:
1. Don't miss the e-commerce boat. Ironically, the nation’s first one-stop shops are, in part, getting trounced by the ultimate one-stop shop: the Internet. E-commerce sales in recent years have continued to soar. In the third quarter of 2013, online U.S. sales jumped 17.5 percent to $67 billion, from $57 billion over the same period a year earlier, according to the latest figures from the U.S. Census Bureau, which tracks retail sales. By contrast, offline sales rose by less than 4 percent in the quarter from a year ago.
Customers are increasingly turning to the Web, whether to shop for groceries or to take college courses. Additionally, the practice of showrooming--that is, the act of looking at a product in a store and then buying it online--should make having a robust Web presence imperative.
2. If customers are cost sensitive, keep prices in check. A strong argument can be made that both the financial and housing crises dug into department stores' bottom lines, yet many of today's struggling retailers have also failed to maintain their relevance. As middle-class customers increasingly pinch their pennies, these stores often come across as overpriced--particularly when compared with less-expensive rivals.
In department stores' defense, many of them are in fact looking to pare expenses--and presumably offer less-expensive items down the road--by selling off their low-performing stores. The real estate holdings of these companies can command a hefty sum. "We are transitioning from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in store, in home, or through digital devices," noted Sears Holdings in a January earnings update.
Further, the department-store model of being all things to all people isn't ideal for trimming marketing expenses, as you may end up addressing customers who have no intention of shopping at your store. Delivering giant, untargeted marketing messages can surely work for some retailers, but they are often cost-prohibitive and more difficult to track.
3. Use technology to build a community. To better target customers, some retailers have begun testing different strategies for injecting technology into the offline retail experience. Apple's iBeacon, for instance, allows retailers to send in-store text messages to customers who have iPhones when they approach stationary wireless transmitters known as beacons.
You could argue the too-little-too-late point here, but even Sears and Kmart, which are both owned by Sears Holdings, recently adopted a notable hybrid online/offline shopping rewards program called Shop Your Way. The site, which was formally launched in mid-2012, serves as both a loyalty program and a mobile customer service resource.
Different points of access are beyond just being helpful and spurring added sales. Customers have come to rely upon them. "Technology has created these new consumer expectations, and a lack of it is one of the core reasons why [some mass retail] environments are rapidly plummeting," says Shechtman.
4. Give them more than shopping. For those who have time to shop in person, they often don't just want to shop; they want to be entertained, says Shechtman. From adding cooking classes at cheese shops and restaurants to throwing dance parties at boutiques, traditional retail naturally looks passé comparatively.
"NYC has a growler bar for beer in Walgreens, and you can get a manicure in its Upper East Side location," she says. "The physical world of shopping is evolving. The days of competing solely on price, quality, and service are gone."
Even malls have begun to stray into the entertainment sphere. Though they've long served as a home to movie theaters and restaurants, malls these days have introduced pastimes such as mini golf and ice-skating rinks.
"They're providing services, as well as entertainment, as malls make shopping less of a main driver," says Cohen. "They've made it into a tourist attraction."