With the latest report from A.T. Kearney on Recasting the Retail Store in Today’s Omnichannel World, I am seeing an acceleration of studies that confirm the importance of brick and mortar retail. The stats are clear and confirm more than surprise… 92% of retail sales still come from stores. Another popular form of evidence that retail is alive and well is that the pure-play online retailers are opening bricks and mortar locations or pop-up stores. Why are all of these articles striving to defend retail stores? As I read this report and others like it, why do I feel like they are telling me what the weather is like when I can just look out my window? We shop because stores meet needs that ecommerce cannot. If we could get all our nutrition from a magic pill wouldn’t we still enjoy eating?
In my view the problem with bricks and mortar retail isn’t the Internet, it’s the neglect of the asset.
Traditional retailers only have so much capital, and pressure from Wall Street to show growth is enormous. Stores as a point of distribution are costly. Stores are expensive to design, build, maintain, and staff. They also are expensive to refresh. For the past several years, IT, ecommerce, digital loyalty programs, and now omnichannel activity have won the battle for capital in the boardroom. Investors want to see retailers embracing the mobile/digital shopper and the ecommerce channel. And “digital” spending is propelled by its own arms race, and no retailer wants to be left behind. As retailers spend on these initiatives they become ongoing budget requirements that didn’t exist a decade ago. In many cases they do not generate the revenue to be self-sustaining, so they dilute the capital that used to be spent on stores. In other cases they are exciting innovations that keep a retailer relevant. Meanwhile the stores provide the majority of revenue.
Case in point: Near the end of the last decade I was involved in selling a major rebranding initiative to Sears. The goal was to give them a new reason for being, a new proposition, and a renewed relevancy that would ultimately impact the store experience. Understandably this is a perennial problem at Sears and Branding is only one aspect of the fix. We were convincing and won the business against formidable competition…but the project never started. It was determined by the C-Suite that the investment wasn’t worth it, and that their Shop-your-way loyalty program was the best way out of their troubles. Meanwhile the Sears stores continue to be stuck in the past and a festering burden on their relevance.
This spending on non-bricks and mortar initiatives is not wasteful; in fact it is transforming retail for the better if you are a shopper. But it is not good business to neglect the store experience, as indicated by the evidence presented in these A.T. Kearney style reports. Understanding the way consumers want to shop and being there for them is still central to great retail. The issue is that the spending on these healthy distractions has caused a neglect of the “traditional aspects” of the shopping experience that are delivered by the physical store. And the longer retailers take to invest in remodeling the more expensive it will be.
I like the A.T. Kearney report because it encourages retailers to re-evaluate the role of the physical store. At some point the seamless omnichannel experience will reach a plateau, or at least a consistent budget requirement, so that adequate innovation dollars will move back into bricks and mortar. Retailers would be wise to not wait too long. After all, remember that bricks and mortar are what gave the smart little piggy the power to keep out the big bad wolf.
Bill Chidley is a Partner and Co-Founder at ChangeUp. Creating Innovating Experiences that Drive Growth. http://www.changeupinc.com
