Retail Insights

Stores Are the New Black

Stores at The Grove Los Angeles

Terry Lundgren, CEO of Macy’s, borrowed this quote during his opening remarks at the University of Arizona Global Retailing Conference in Tucson back in April, attributing it to NYU-Stern Marketing Professor Scott Galloway, who also happens to be one of the world’s experts in digital marketing.

Calling stores “the new black” is a nod to that old-fashioned expression referring to something that’s come into style. Simply said, it means they are not only not going to be replaced by e-commerce, they will thrive as the “in vogue” standard-bearer for retailing. In fact, even more dramatic than Galloway’s assertion that stores are now in vogue is his prediction that pure-play e-commerce is actually going away.

Bolder still, at a DLD event in Europe earlier this year, Galloway said, “E-commerce companies are either going to open stores or go out of business.” On the other hand, he also said, “(brick-and-mortar) retailers need to be excellent at digital or they will go out of business.” He went on to say, “I also believe that Amazon cannot survive as a pure-play retailer. Stores are the new black in the world of e-commerce. We’ve discovered these incredibly flexible robust warehouses called stores … retailers are not befuddled prey waiting around to be disrupted. They are in fact growing their e-commerce businesses.”

Wow. Amazon won’t survive as a pure-play? I think I’ve heard that somewhere before!

So, stores are here to stay, and of course I’ve been saying that for years. Forget about the panic among traditional retailers in the early 2000s over the fear of e-commerce decimating brick-and-mortar business. Fifteen years later e-commerce represents a paltry 7 percent of all retail sales, with the remaining 93 percent channeling through stores. However, the smart traditional retailers are changing, and changing in some pretty dramatic ways, if they want to be successful.

12533951The big change is that it’s not about online and off-line any more, it’s digical, (a mash-up of digital and physical), to use Galloway’s term, and yet another word for omnichannel, or allowing customers to shop how, when and where they want. And digital, while rapidly growing, is simply synergistic with physical stores.

Galloway also said that Amazon’s Achilles’ heel is its shipping costs, which are exploding 40 percent per year. “Over the last nine months those costs have gone up actually by more than 40 percent, which is not sustainable, not even for Amazon. It took in shipping fees of $3 billion, but spent $7 billion on transportation costs. Two-thirds of Christmas packages were brought to you free, up from one-third in 12 months. This is a race to the bottom. They’ve forced other retailers into free shipping. Click and collect: Order online, pick up in-store. Pretty boring but it’s a big trend, because it turns out that stores are great flexible warehouses.”

The New Rules Of Retail

“Shopping hasn’t changed. Consumers love shopping in stores, and retailers continue to focus on winning the war on traffic and conversion.” — Margo Georgiadis, president of the Americas for Google.

In fact, as reported many times here, the CEO of Walmart was quoted in The Wall Street Journal a year ago, making a declaration that Jeff Bezos should be very concerned about it at the very least, and shaking in his boots, as it potentially becomes his worst nightmare. The Walmart chief said, “…We don’t have 4,500 stores (referring to their total number in the U.S.), we have 4,500 distribution centers that also (double) as retail stores.”

Bezos should be shaking in those boots and opening physical stores sooner rather than later, because Walmart will crush Amazon once it puts its mind to doing so.

So, a decade after multiple dot-com bubbles have come and gone, the simple truth is that people love to shop in stores, and they’re not going to stop doing so. Furthermore, they can now shop online and pick up their purchases in the store (a.k.a., distribution center).

From “The War Is in the Store” to “The War Is Before the Store”

Regardless of Galloway’s credentials, the fact that Lundgren chose to endorse the statement is of particular significance, given the fact that Macy’s is considered by many experts to be the poster child of “all-line innovation” and omnichannel retailing. Last year, the retailer was the seventh-largest online retailer in the country, after Amazon, Apple, Walmart and others. Yet many people, even those in our industry, consider Macy’s a traditional department store. Macy’s was also named Mobile Retailer of the Year by Mobile Commerce Daily.

Lundgren’s endorsement not only signals his understanding of the store as a more important touchpoint than ever before—as the ultimate experience for customers—but also his recognition that while the “war” for the consumer’s purchase used to be waged primarily in the store, today the war begins on many different fronts just to get them to come to the store, to build traffic. And what used to be called “marketing 101” is now on the steroids of the Internet, smartphones, apps, social networks, big data and whatever new technology that popped up five minutes ago.

So for those of you who are cutting back on store budgets in order to invest in technology because you think that’s what will prepare your business for the next five years, let me tell you it’s not an either/or thing. It’s imperative to do both.

That’s a bummer, right? Spend millions on IT infrastructure and front-end systems and back-end systems, and on top of that, build out spectacular physical stores with analog and digital experiences that will knock customers’ socks off and make them loyal to your brand so that they’ll think of it first?

No fair, you say? Ha! I’m only getting started here.

Macy’s, for example, committed to enormous investments across both the online and offline platforms. It started when the recession hit with a major reorganization, transitioning its buying offices to 60 districts, moving all the merchandising people to New York, to be close to suppliers, and moving its Innovation Lab group to San Francisco, because that was the best place to compete for the Silicon Valley talent. Brilliant, no?

RELATED:   Stop Thinking Omnichannel, Start Talking Harmonic Retail

Macy’s invested in no fewer than 11 innovations last year, including Apple Pay, Mobile, Same Day Delivery, iBeacon, Image Search, RFID and more. There will be even more investment this year. They’re building fewer brick-and-mortar stores, and putting 150 percent of the savings into technology. They’ve found that by touching the customer through mobile, desktop and in-store, they can forge a more powerful relationship. The consumer who starts on her phone, then comes to the store, then tries on product, then goes back and looks on the desktop—spends 8 times more than the customer who experiences the brand through only one touchpoint.

Also speaking at the conference in Tuscon, Margo Georgiadis, president of the Americas for Google, and a former retail consultant at McKinsey, said, “Shopping hasn’t changed. Consumers love shopping in stores, and retailers continue to focus on winning the war on traffic and conversion.”

But the battleground is bloody. During the last two months of 2010, according to Google, retail traffic was 39 million in the U.S. Five years later, it was 18 million, almost half. Yet total retail sales grew from $641 billion to $737 billion in that period. So while consumers are making fewer trips to stores, once they get there, they spend more. Conversion rates are higher. Maybe in the past, a shopper would go on one reconnaissance mission for every actual buying trip. Today, lots of that recon work, or research, can be done online, resulting in a consumer who’s more ready to buy when she walks into the store.

People do 3 billion searches every day on Google. A full 20 percent of them, or 600 million, are shopping related. People are essentially walking around with every store, mall and brand in the world sitting comfortably in their pockets 24/7. Most of the buying will still happen in stores, but the shopping, browsing, evaluating and comparing steps are all moving online.

According to Healey Cypher, former head of innovation at eBay, 78 percent of consumers now practice webrooming, preshopping online before visiting the store. EBay’s research found that of consumers who went online pre-store and checked mobile or used some kind of interactive digital in-store, 86 percent of them converted, or bought something. And the lift to spend was a whopping 40 percent.

And the technology tools that retailers are using in-store to engage, delight and surprise consumers, and make the shopping experience neurologically addictive and one that they will seek out again and again, include digital mirrors and robotics to bring product to dressing rooms; interactive screens to see and order product; digital payment to cut down on waiting … and the list goes on and on.

Georgiadis said that to win the war for traffic before they come to the store there are three steps: 1) Own your “tribe” (know your customer) and build the entire value proposition around that customer’s dreams, 2) Commit to all-line—become seamless with respect to channels and touchpoints, and 3) Surprise and delight the customer. Deliver magic moments.

Surprise, Surprise: Millennials and Gen Y Prefer Stores

Clay Cowan, CMO at luxury off-price e-tailer Gilt Groupe, said that contrary to what most people think, online is not the preferred fashion channel for millennials or Gen Y. Their favorite way to shop is in mono-brand stores, where the experience, authenticity and storytelling of a brand come to life. But retailers must beware of this uber-sophisticated group of shoppers: “Gen Y is extremely price conscious. Having weathered a recession, they know how to game the system. They research a ton before they buy, and they’re very savvy.”

Cowan added that retailing has always been a social activity that people do with friends. Now, rather than literally going to stores with friends, the trend is that millennials’ pinning, liking, following, blogging or sharing their finds digitally is opening up all kinds of opportunities for retailers to engage with their consumers, and enabling consumers to engage with others in their networks, before, during and after the store. This is just another punctuation of the fact that the war is before the store.

And of course, adding to the importance of all the aforementioned points is the statistic projected by Forrester Research that by 2020 between 30 and 40 percent of total retail spending will be done by millennials.

A Final Note

At the end of the day, all that has been written about a “new black” is a static new standard or rule. It is all fluid and dynamic. Therefore, strategy and process always need to change because technology and the consumer are always changing.

As Terry Lundgren said: I’ve heard for many years that everyone’s going to kill the department stores, but
I feel better than ever…We’re not slowing down, we’re not stopping, the custom the same thing.”

And the war I’ve been using as a metaphor is also not just one war today. Indeed, the war is on two fronts: the war is before the store, and in the store. Do you think this is making our lives more complex, costly and anxiety ridden? You betcha!! But live with it. There is no option except to embrace all options.

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