The Rise of Brick-And-Mortar Store: Prove the Doomsayers Wrong

Accept defeat or defy the Retail Apocalypse?

 Most headlines concerning the brick & mortar retail channel are painting a depressing picture and many of the numbers back up those headlines. For example, recently Sears filed for Chapter 11 bankruptcy protection. The retail giant is expected to shut down at least 142 unprofitable stores by the end of 2018. Debenhams is also closing 50 stores, and major department stores such as J. C. Penney, Macy’s, and Kmart have announced hundreds of store closures. Is it a case of reconfiguring the store network due to the shift to online shopping, and to end the losses from unprofitable stores or is this a matter of underinvesting in the infrastructure required to deliver great products and services? Without speculating on the specific cause of demise of these brands, some retailers seem to forget to listen to their shoppers’ wants and needs, and instead to focus more on increasing their operational efficiencies.  Despite competitive pressure from the pure online players, stores still have an important role to play in a multi-channel strategy (see below). Furthermore, physical retail doesn’t seem outdated when we look at Amazon acquiring Whole Foods and opening (so far) six Amazon Go brick-and-mortar stores, or online-only brands such as Birchbox and Warby Parker who also made the jump to offline. So, are the doomsayers, actually right? They don’t have to be.  The brick-and-mortar stores aren’t going to disappear if they are able to adapt.

 

Why physical stores matter more than ever

Physical stores matter more than ever for both retailers and consumers, being at the intersection of:

  • In-person brand experience: Stores are the only place where consumers can experience the brand in-person, a great opportunity to build a sense of loyalty.
  • Digital brand experience: Stores need to match that in-person experience with the digital brand experience to deliver an interactive customer engagement that fully leverages both in-person and digital dimensions.
  • Supply chain functions: Stores function as inventory distribution points to give the supply chain more flexibility, to fulfill e-commerce orders in a more optimized way, and to use inventories more cost-effectively.

Stores have the opportunity to cultivate customer centricity through direct and meaningful engagements with their shoppers in a way that communicating through a website with an online retailer simply cannot.   Some retailers have ’rediscovered’ the importance of being relevant to each and every customer,  tailoring stores, assortment, and marketing to individual locations and communities. Progressive businesses adapt their decisions to the neighborhood, using hyper-local data to understand and anticipate the unique characteristics of the traffic by time and place and predict the pattern of demand against those variables, so they can plan ahead to ensure availability of the products their target shoppers desire.

 

Win the real estate game: Take the guesswork out of growth

 No matter what category you’re in, return on investment (ROI) is key to a healthy retail business, and any store expansion has to generate positive cash flow from capital expenditure. It’s critical for retail managers to quantify the metrics of their business and to understand the financial health today as well as the potential of any opportunity; be it opening, closing or reconfiguring a store. The potential is largely driven by the ‘relevance’ of the proposition to the target shopper, as alluded to above.  To decipher what that means, you have to tap into deep insights derived from local data. Every city, every neighborhood, every location is unique, thus not every real estate landscape can hold the same value for all retailers. Understanding the characteristics of each location, businesses can quit relying on intuition and power their decisions with hyper-local insights that help them evolve existing brick-and-mortar stores, acquire new real estate in ideal places, and understand the real and future potential of a location before choosing to close underperforming stores.

 

 Rewrite the rules of location decisions

I see a lot of great intent in the market, and many businesses have started the journey.

Most retailers will take local demographics as input for the strategic decision, where to establish a new presence. However, ‘demographics’ is a highly multi-dimensional measure.  Deciphering the demand impact each dimension has had in the past on the performance of the estate and, based on that, predict the performance of a potential new location will require more than a spreadsheet.  Do they take the trends into consideration, e.g. whether a neighborhood is becoming more gentrified, and understand the relative importance of different variables?

Other factors than the neighborhood demographics affect the potential of a location.  Are lots of shoppers drawn to the area by the presence of other dimensions?  Foot fall can be a good indicator, or you can look at the actual drivers. A school will attract school-run parents, doing their shopping on the way out in the morning, or back in the afternoon (as well as the kids, heading out during the lunch break).  A transit zone, with a large train station or even a bus stop can attract commuters who don’t live locally.  A concert hall for classical music will attract a different crowd from a football stadium.

Demand drivers can come in many shapes and forms and can be hard to quantify with simple means.  Yet, they are so important, when a big investment is at stake!

The bottom line is, there is no need to let the much rumored ‘retail apocalypse’ defy you and end up in the statistics of store closures.  Brick & mortar is here to stay, as long as you make sure that it is centered around the customer, store by store.

 

About Author

Vivian Braun

Vivian leads the worldwide marketing of one of IBM’s new, exciting offerings, IBM MetroPulse, designed for Retail and CPG companies. The offering resides in the Industry Platforms Unit, which was set up to deliver tailored solutions to IBM’s focus industries. She joined IBM Business Analytics in 2009 as the European Retail and Consumer Products industry lead and later focused on customer analytics solutions. Before joining IBM, Vivian gained 20+ years of experience in industry, holding international strategic sales positions with companies including Mars, United Biscuits, Electrolux and Electronic Arts. Her responsibilities included the development of category management programs, international key account coordination and sales training, as well as supporting cross functional initiatives such as data & reporting and order-to-cash. Vivian holds an MBA from London Business School.

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