Vandaele Capital
store-closings

The Retail Apocalypse.

While hundreds of stores across the nation are closing, some of America’s most famous retailers are struggling to stay in business. The same goes for many independent mom & pop shops, our country is facing what has been labeled a tsunami of store closings or a retail apocalypse.

Sears, K-Mart, Best Buy and JC Penney are among the big names in American retail that could disappear in the coming years. If or when these chains collapse, thousands of jobs and hundreds of millions of dollars in sales tax revenue will disappear. Major retailers are posed to close 300 stores in the United States this year and that is only the beginning. Up to half of the retail stores in the United States could disappear in the next 10 years, if closings at this pace continues.

Shoppers will likely see an average decrease in overall retail square footage of between one-third and one-half within the next five to 10 years, as a shift to e-commerce brings with it fewer mall visits and a lesser need to keep inventory stocked in-store. If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores?  The “retail apocalypse” I’ve talked about frequently appears to be accelerating.  Major U.S. retailers have announced that they are closing more than 6,000 locations, but economic conditions in our country are still fairly stable.  So if this is happening already, what are things going to look like once the next recession strikes?

Since I started dabbling in the retail turnaround industry back in 2003, I have never seen as many indications that we are headed into another major economic downturn as I do right now.  If retailers are closing this many stores already, what are our malls and shopping centers going to look like a few years from now? The list of stores i mention below comes from information compiled by About.com, but I have only included major retailers that have announced plans to close at least 10 stores.  Most of these closures will take place this year, but in some instances the closures are scheduled to be phased in over a number of years.

As you can see, the number of stores that are being permanently shut down is absolutely staggering…180 Abercrombie & Fitch, 75 Aeropostale,  150 American Eagle Outfitters, 223 Barnes & Noble, 265 Body Shop, 66 Bottom Dollar Food, 25 Build-A-Bear, 32 C. Wonder, 21 Cache, 120 Chico’s, 200 Children’s Place, 17 Christopher & Banks, 70 Coach, 70 Carrows, 300 Deb Shops, 92 Delia’s, 340 Dollar Tree/Family Dollar, 39 Einstein Bros. Bagels, 50 Express,  31 Frederick’s of Hollywood, 50 Fresh & Easy Grocey Stores, 14 Friendly’s, 65 Best Buy Canada, 54 Golf Galaxy, 50 Guess, 26 Gymboree, 40 JCPenney, 127 Jones New York Outlet, 10 Just Baked, 28 Kate Spade Saturday & Jack Spade, 14 Macy’s, 400 Office Depot/Office Max, 63 Pep Boys, 100 Pier One, 20 Pick ’n Save, 1,784 Radio Shack, 13 Ruby Tuesday, 77 Sears, 10 SpartanNash, 55 Staples, 133 Target, Canada, 31 Tiger Direct, 200 Walgreens, 10 West Marine, 338 Wet Seal.

So why is this happening?

Without a doubt, Internet retailing is taking a huge toll on brick and mortar stores, and this is a trend that is not going to end anytime soon, then we have also seen a stunning decline in true discretionary consumer spending. The truth is that middle class U.S. consumers are tapped out.  Most families are just scraping by financially from month to month.  For most Americans, there simply is not a whole lot of extra money left over to go shopping with these days. More than one in four Americans are spending at least half of their family income on rent – leaving little money left to purchase groceries, buy clothing or put gas in the car. That’s staggering 11.25 million households whom consume 50 percent or more of their income on housing and utilities, according to Enterprise Community Partners.

For decades, the U.S. economy was powered by a free spending middle class that had plenty of discretionary income to throw around.  But now that the middle class is being systematically destroyed, that paradigm is changing.  Americans families simply do not have the same resources that they once did, and that spells big trouble for retailers. Keep in mind that the United States still has more retail space per person than any other nation in the world.  But as stores close by the thousands, “space available” signs are going to be popping up everywhere.  This is especially going to be true in poor and lower middle class neighborhoods. Especially after what we just witnessed in Baltimore, many retailers are not going to hesitate to shut down under performing locations in impoverished areas.

While all this doesn’t sound like much good news, Once it does, the business environment in this country is going to change dramatically, and a few years from now America is going to look far different than it does right now. So my the question to business owners is, whether you’re in retail or technology, how will you adapt? What are you do today to position yourself for opportunity rather then insolvency?

I’ve complied a few useful actions you can take today to prepare for such an event. We can learn and apply insights from sectors that have made this move already.

Staying in Touch

Products and services increasingly exist within a cloud of information, continuously and dynamically linked to virtual brochure sites maintained by sellers, journalist reviews, consumer ratings, social commentary, and aggregated usage statistics. This cloud can be accessed any time in any place through multiple channels. While retailers traditionally see online and store marketing as competing businesses, customers ultimately care about convenience and perceived value — not the channel through which they are served.

As the “goods” we transact change, so do our purchasing behaviors. What was once a simple transactional process becomes a complex web of value shifts across several customer touch points. Now, brands must manage multiple revenue streams, where the retail space may not be primarily devoted to income. Following this trend, wireless service providers such as Verizon have transformed their retail environments into places primarily for customer service, not monetary transaction.

Designing these new shopping experiences is not just about immediate sales but about creating opportunities to facilitate impulse purchases, up-sell, and cross-sell. The challenge is in constructing a seamless shopping experience that integrates the in-store, transactional, and post-sale goals. The experiences must converge to promote discovery in-store and the continuation of the sales process at home or on-the-go. This relies on context. Amazon suggesting a tripod with a new camera may not create more value. However, recommending a guide to photographing wildebeest with a camera purchased for a safari trip is more likely to increase perceived value. We have to radically rethink how retail businesses earn revenue when sales margins are declining. The challenge is to design user experiences across offline and online environments that focus on different types of transactional values.

Think Like an Editor

In America and most of Western Europe are overwhelmed with choice, and most products advertised to us do not match our lifestyle expectations. Too much choice results in confusion and indecision, the key stumbling blocks for purchases. Additionally, as products become commoditized, the perceived value must come from the user experience. Nordstrom’s online and in-store growth can be attributed to their innovative approach to handling inventory to match shopper searches. The recent launch of their redesigned website includes editorial features for a magazine-like shopping experience. Online shoppers looking at products can see where they are available nearby and reserve them for pickup. By creating a fluid and personalized online and in-store shopping experience, Nordstrom has increased same-stores sales by an average of 8%.

Brands such as National Geographic are beginning to move into experiential offers by opening highly curated entertainment and educational destinations. National Geographic’s offering has expanded from a lifestyle publication to include a TV channel, educational website, museum, and store that nurture lifestyle interests and offer products that match lifestyle goals. These brands recognize that the competitive advantage lays in differentiating based on audience desires and not the range of products and services.

Learn From the Fashion Industry

Fashion stores have radically changed in the past decade. Previously, customers purchased clothes once every season, limited by narrowly managed fashion trends. Now, customers return regularly, anticipating new discoveries as part of the experience. Spanish retailer Zara’s secret to success is through encouraging frequent shopping and continuing to inspire by regular reorganization of store layout and rapid turnover of merchandise.

Conversely, e-commerce still lacks browsing and discovery experiences that satisfy curiosity. The current standard for online shopping revolves around instant satisfaction initiated by a specific search. Etsy is one exception, with rich interfaces and interesting browsing options (color, time spiral, local) that stimulate exploration. Increasingly, online magazines on platforms like the iPad will be directly linked with e-commerce convenience. The fashion mentality must be applied to online stores, improving on discovery.

Embrace Hospitality in Your Brand

Brands have the opportunity to become destination spots. Retail spaces can relax customers, offer refreshments, and provide entertainment while creating the conditions to engage in a conversation that builds brand loyalty. Nestlé’s gourmet coffee brand, Nespresso, successfully crafts various types of encounters with their customers. Although the machines are available in several stores, the capsules are only available from the company via mail, phone, Internet, or in Nespresso Boutiques. The boutiques are designed to develop and maintain a continuous relationship, even offering a club for coffee connoisseurs. The boutiques offer complementary coffee, distinguishing the purchase of new capsules from other repetitive shopping rituals.

This new lifestyle showroom for demonstrations and hands-on workshops could be applied to the Apple App Store and its labyrinth of apps. While few people have the time, patience, or desire to spend money to select an app that may or may not provide the expected value, an entertaining demo setting can provide a bridge for product sampling.

Own Your Community Network

Brands can extend relationships with customers by providing a community or gathering around shared events. Pop-up stores are the testing grounds for this format. Starbucks was the original force behind the idea that customers should linger and mingle when they made WiFi a coffee shop standard. On the other end of the spectrum, small pop-up brands are riding the trend. For example, the traveling Rapha Cycle Club pop-up is a combination gallery, cycling shop, and WiFi café. The club organizes events around cycling races, is a meeting hub for biking enthusiasts, and also generates revenue from foot traffic. It is an early example of differentiation in an otherwise saturated market for coffee shops and cycling stores. Internet shopping changes the way those transactions are made.

Design the Experience

As sales margins decrease, business models must change. Retailers must embrace the fact that monetary transactions are moving elsewhere, and often at a different time. As a result, retailers are becoming places that manage customer relationships and form and maintain brand awareness. Designing for customer relationships opens exciting opportunities for up-sell, cross-sell, rediscovery, and consumer advocacy. These relationships can be built using insights from lifestyle editors, fashion, hospitality, and community to create continuous experiences across retail channels. In a saturated retail environment, one cannot compete on convenience, price, or relationship alone. To remain relevant, retailers must design experiences that merge the physical and online store.

Turning the store into a fulfillment center

Amazon is rapidly expanding fulfillment centers, and locating them near major metropolitan areas in an effort to locate key high demand products close enough to efficiently serve same-day or next-day delivery. Retailers have more limited warehouse infrastructure for their online businesses, but may have a big advantage in many store locations nationally and even worldwide. In the 1980s and 1990s, many retailers pushed to have all their stock on the sales floor. But now we may see stores remodeled to add direct order fulfillment and stocking in the back-office, limiting the assortments stocked on the floor. This will require system investments and operational changes, but these are critical for competing long-term with the likes of Amazon and other resourceful retailers.

Take the in-store experience to a different level

Many retailers believe that if they stock the shelves, keep the lights on and staff just enough sales people to ring up customers and prevent shoplifters from walking off with merchandise, they have done their jobs. So it’s no wonder that consumers turn to their smartphones to find answers to their questions. Retailers must focus on the experiences in their stores and digitally enable their associates to be at least as knowledgeable as the customer is about the products they sell. Shopping for fun is not dead – customers still enjoy exceptional brick-and-mortar events. When customers come into the store, reward them with a great experience – both in terms of brand and service. Equip salespeople with tablets or mobile technology that enable them to better serve customers. If the shopper wants to order an out-of-stock item from another store, locate complementary accessories or pay for their items while finishing up in the dressing room, develop strategies to deliver on their expectations.

Integrate channels relentlessly, to the point that channel disappears

Retailers must look at their systems landscape, operational approach and performance metrics, and relentlessly erode the notion of channel. This does not mean that measuring the performance of the website or a specific store is not meaningful. But now we need to focus on the broader benefits and understand the full customer engagement across all touch points in order to optimize the experience. A broader approach requires systems that can serve all interactions and nimbly adapt to new ones. This is the role of the commerce platform. This is the role of a customer engagement platform. This is the role of assortment planning and back office tools, all of which must adapt to this new context.

 

Related Posts