In 1983, “New York Times” journalist and eminence grise of retail reportage, the late Isadore Barmash, reported on the then newly revealed Sears Roebuck “Store of the Future:”
“Admittedly playing catch-up, Sears last week introduced its sleek,226,000 square-foot prototype store in the King of Prussia Plaza at King of Prussia, PA. Edward A. Brennan, chairman of the Sears merchandise group, spoke at this event.
” ‘Today ….,’ he said, ‘Sears really is the only true department store, not in the sense of higher prices but in the context of offering a broad array of goods. Building on strengths and logical departmental adjacencies, the Store of the Future is truly a collection of powerful distinctive lines, grouped in a manner that makes a dominant statement within the framework of the total store. No one has to tell you you’ve come to the right place. The look of merchandising authority is complete and unmistakable.’
“The new store was impressive, several steps up from other Sears outlets with its glowing pastel backgrounds, convenient groupings of broadly related goods, cleverly mounted off-the-floor racks, generous use of walls for fashion displays and speedier point-of-sale registers. After three years of development, the two-level store embodied features that had been tested at other sites and will be reflected in the remodeling of about 700 of the chain’s 822 stores in the next few years.”
Sears Roebuck was, in 1983, the largest retailer in the world. Their volume was $25 billion that year. Needless to say, paint, carpet and reorganized merchandise space and adjacency may have defined the future for a retailer then, but certainly not now, some 32 years later.
In 1983, the vast majority of retail sales, that is to say, interaction between a customer and a retailer resulting in a transaction, took place in a brick-and-mortar store. Then, a small portion of retail transactions that occurred outside of a physical store took place between a customer and a printed catalog, a catalog showroom, or a mail and phone advertisement in a newspaper or magazine. Though brick-and-mortar stores continue to represent the lion’s share of retail transactions today, what will the future portend from our 2015 vantage point?
Needless to say, “The Store of the Future” Sears model of the past is no longer a viable, inclusive characterization of the retail industry. Let’s look at a few ways the retail industry might look, holistically, over the next decade or two.
1. The Dinosaur Department Store Becomes a Vertical Mall
Terry Lundgren, CEO of Macy’s, is fond of discounting the description of the Department Store as a dinosaur by saying that “he’s been hearing that throughout his entire career.” Sorry, Terry, Macy’s may still be in business in the future, but not likely in its current form. For now, Macy’s is a purveyor primarily of apparel, accessories and soft home merchandise, organized in a quasi-curated array of branded and private label assortments.
These ever changing and increasingly challenging assortments have to be created by talented and experienced merchants, who, like the stores they serve, are fast becoming dinosaurs. The few remaining merchant princes and princesses who have supported this outdated genre are being replaced by financial dealmakers. The Department Store, having given up control of its credit portfolio, is now under increasing pressure to relinquish ownership of its real estate.
It will likely cede its merchandising to mono brands that, following the traditional European and Asian Department Store model, will lease their spaces, hire their own associates, own and manage their own inventories. The Department Store of the Future is then likely to look increasingly like a vertical mall, operating as a physical and Internet-based host for its merchandise tenants. The store itself will have to abandon much of its own physical identity within its space to make way for these tenants, and to enable its interior to be far more flexible and fluid than it is today.
2. Luxury Remix
Just before the onset of the most recent “Great Recession” Burt Tansky, then CEO of Neiman Marcus, was famously reported to say, “My customer is rich and never loses her desire or ability to shop.” Many of us who heard that remark cringed knowing full well that not only does the retail business cycle up and down for financial reasons, it also does for psychological reasons. The department store genre, which has boomed in the past, is presently something of a zero sum game. Without strategic heavy lifting, it could easily in the future become a negative sum game, particularly in the overstored luxury sector. My guess: Neiman Marcus and Nordstrom prevail, Saks Fifth Avenue and Barney’s do not.
3. The Outlet Store Phenomenon
The Outlet Stores that most of the Department Stores are currently rushing to build will, in the future, become ubiquitous clearance centers for their mono brand tenants. Necessarily, many of today’s traditional Department Stores doors will have to close. I don’t think it’s too far-fetched to consider that other than the 235 regional “A” malls, most of the shopping centers that will survive will all become Outlet Centers in one form or another.
4. The Discounters and the Big Box Players
In the future (as well as today), calling the two likely survivors of this big box genre, Walmart and Target, discounters is a misnomer. They are, in fact, multi-classification, general merchandise retailers. Kmart will close (as will Sears) and the two behemoths that remain in business will have to find a way to better rationalize and differentiate their omnichannel strategies to survive. This will be especially challenging in the face of ever burgeoning Amazon and Amazon-like competition. It won’t be good enough for them to merely populate their websites with “stuff” as they do now. To survive and thrive they are going to need to fully integrate store and web experiences for their customers. This is much more extensive than letting customers pick up and return Internet transacted purchases in store. Following the lead of the two surviving Home Improvement big boxes, Home Depot and Lowes, Walmart and Target will need a much more sophisticated online interface strategy designed to guide a customer through a well architected search of their websites identifying the precise location of the desired merchandise in a customer’s local store of choice.
This mapping requires installing the kind of “Pick to Light “ technologies in their stores that they now use in their warehouses. A customer who chooses to shop in store will use their own device of choice to receive a personalized, electronic guided path to follow to find precisely what they have selected online. This mapping technology will enable shoppers to complete their entire shopping list in the most expeditious fashion that is physically possible. Another option will be for them to have their entire shopping cart physically preloaded before they arrive.
5. What About the “Men” in the Middle?
It’s a bit of a leap of faith, but let’s assume that JC Penney somehow gets out from under its crushing level of expensive and restrictive debt. And that Kohl’s somehow finds a way out of the “high/low” trap it has painted itself into. Both will need to rationalize their store fleet. In JCP’s case, that means closing lots of stores – and learning to become incredibly good at servicing customers’ local market apparel and accessory preferences. Their principal nemeses Walmart and Target will annihilate them if they don’t succeed at this. My guess: Kohl’s makes it, JCP does not.
6. The Mall
Within the “A” malls, and throughout most high profile urban locations where physical shopping remains viable, the mono brands will continue to dominate. But they will have to fully integrate their brick-and-mortar assortments and presentation to more completely mirror what they offer online and vice versa. The over-the-top luxury houses that are “too fashionable” to allow their customers to see their full assortments, prices or, heaven forbid, to actually buy merchandise online will have been forced to enter the 21st century.
Complete access, availability and transparency will win out because, just as today’s customer expects it, tomorrow’s customer will demand it. Super Regional Centers and Urban Super Centers will continue to boom. But “B” and some “C” malls will become outlets and the “D’s” will all but disappear to be repurposed into something other than retail. To be viable, retail malls of the future will have to be increasingly modern in appearance, offer acceptable access and be more heavily invested in high security practices than they are today, in the face of likely continued terrorist/deranged citizen threats.
7. Amazon and the Amazon-like Herd of Elephants in the Room
It is clear that Amazon has become a force of nature in the retail industry. Futhermore, Jeff Bezos and his Pacific Northwest band of disruptors are eminently capable of continuing to grow throughout all categories of merchandise with, or without, the benefit of locally levied sales taxes. In case you haven’t noticed, they appear to be powerfully profitable when they choose to modulate their reinvestment of cash. They can, do and will sell enormous quantities of merchandise throughout the entire spectrum of price and fashion. They have easily become a leading market share holder of apparel, accessories, and, likely in the future, luxury products as well. Their highly sophisticated systems-based operating format enables them to effortlessly and cost effectively price and fulfill everything they sell.
Will Amazon open their own brick-and-mortar stores? Why should they? Does it make sense for a $100 billion plus retailer to open hundreds if not thousands of physical stores? I don’t think so.
However, does Amazon have an abiding Achilles heel? Yes! Many, many of their customers cannot/will not have an unattended package left at their doorstep. Is this an insurmountable hurtle? I don’t think so. Granted, the “locker” concept Amazon has offered in 7-11s and other convenience stores (sort of like the old Sears Catalog Desks of yesteryear) hasn’t worked out too well. Yet. My prediction is that, within the next decade, Amazon will install millions of appropriately sized “lock boxes” in close proximity to customers’ current USPS mail boxes. This would not only enable UPS, USPS, and FedEx to deliver merchandise when customers are not home, but will also let them deliver merchandise, off peak, when customers are sleeping and traffic is practically nonexistent.
Expect Amazon and its clones, which seem to multiply in vast numbers every season, to place enormous emphasis on new web technologies. Effective search and one-click buy capability will be enhanced with 3-D like, higher resolution, merchandise presentation, combined with far more intelligent, if not “artificially intelligent,” chat capabilities. I wouldn’t be surprised if Amazon creates a highly personalized digital assistant that forms a lifelong attachment to each of their Prime customers. This personal shopper and personal assistant combined will keep track of everything you buy and browse for, whom you bought things for, and what purchases you are likely to consider in the future.
Yes, a “HAL” of your very own may become part of your future. “Hi Bob, you bought your wife Mary scarves and gloves last Christmas. Let’s take a look at some yellow 18 ct. gold jewelry for her this year.”
The good news about the future is that there will be no shortage of customers, and that their desire to possess things far in excess of their needs will not abate. The bad news about the future is simply that those retailers who can’t think boldly enough and invest heavily enough in the systems, strategies and practices that their customers will expect won’t be around in the future.