The Real Retail Apocalypse (It’s Not What You Think)
Much has been written about the demise of retail.
Go ahead, Google it for yourself. You will find a lot of articles with super-scary headlines (The retail apocalypse has officially descended on America, Is American Retail at a Historic Tipping Point?, Brick-and-Mortar Stores Are Shuttering at a Record Pace, Amid Retail Funk, Macy’s Says ‘We’re Not Dead’, etc…). The problem? Antiquated business models? A lack of interest in traditionally strong retail brands? Too much retail real estate per square footage in comparison to population? The shift to ecommerce? The list is, sadly, endless. Still, if you scratch beneath the surface, it’s clear that something else is brewing. A fundamentally new way to shop and for brands to engage consumers that does not rely (solely) on the traditional model of getting into a car and heading down to the local shopping district to buy stuff. In fact, one could argue that this new way of shopping also does not (solely) rely on clicking the “buy” button on a website. Consumer’s buying behaviour has shifted and morphed, and it may no longer align to the retail models that currently exist. The reasons below, should feel more like opportunities than reasons that detail the end of retail.
So, what, exactly is going on when it comes to retail today?
- The Airbnb of shopping malls. It seems like more and more brands are experimenting with pop-up shops and store-in-store models. We also see trends around the food truck craze, tiny house movement and the Airbnb model as adding to this shift. Newer brands can experiment with physical retail space like never before. The need for a brand to be near the classically huge department stores to benefit from foot traffic is no longer the only model for retail success. In fact, the trend here is that real estate can (and has) become short-term, more fluid and more non-physical. Locations to sell can come and go. Fluid real estate will be a huge battleground for the entrenched retail brands and the entire real estate development side of the business. Will there be an Airbnb for retail? Will more brands look for pop-up shops and the ability to surprise and delight with short-terms leases over the traditional anchor model? Consumers seem to like this idea of roving and mobile physical retail experiences that are not always anchored to a shopping mall.
- The Oreo of retail. More and more brands are selling direct to customer. They are not ditching their retail partners as centres of sales and distribution, but they are paying close attention to how many major mass retailers are struggling and — in return — putting the squeeze on their vendors for everything (pricing, margins, supply chain assistance, guarantees, etc…). With this, brands are building alternative sales channels and, wisely, looking at ways to build a direct relationship with the customer and, in return, circumventing, the traditional retail model. Oreo started this with their Colorfilled initiative, and are now looking at how all of their other Mondelez brands might benefit. So, brands that customers could only find at a retail location have now become retailers in their own right. These are not just new retail channels, but brands are becoming a true competitor to retailers. The supplier becomes the competition.
- Owning the customer. An extension of suppliers becoming retailers is how brands are now owning the customer more and more. Look no further than Dollar Shave Club being acquired by Unilever for one billion dollars. Unilever was buying a database of a very specific target audience. With that, they own the entire relationship with the customer. While subscription-based models are a part of this retail transformation, what’s really happening is that consumers who get locked into these membership programs simply no longer need to go to the store. This is augmented by the brand’s ability to leverage this relationship to cross-sell, up-sell and use very powerful database marketing strategies to increase the amount of dollars that these consumers spend and — more importantly — increase their basket.
- The non-branded challenge. This issue was brilliantly formed in the BuzzFeed article, Your Fidget Spinner Is Reshaping The Retail Industry. There is a new speed of delivery happening from China to North America. Products (not just fidget spinners, but vape gear, hoverboards, etc…) from China are flooding the marketplace based on trends and long before any brand can really stamp their name on it. A lot of this is also driven by direct to consumer online channels and it’s a much bigger problem than product safety standards. It shows how consumers who want something may not care about what brand is delivering the goods.
- The shift to digital over physical. When we think of Netflix or Apple Music, we tend to think about the growth of streaming content. When we think of Netflix or Apple Music in relation to retail and consumer buying behaviour, it’s important to realize that the speed of adoption for these types of services has changed consumer buying habits. Consumers have become highly acclimated to paying (subscription model) for access to stuff over owning stuff. Not everything can make the transformation from physical to digital goods, but many physical retailers are now starting to catch on by introducing digital products/services for their consumers. A large book retailer in Canada recently introduced a meditation app (monthly subscription service) to their consumers. This physical to digital shift does affect the type of merchandising and physical store plans that are required for success.
- Location, location, location no longer matters as much. Recently, a friend in a major city in America said to me that they had ordered something on Amazon, and that their order not only arrived on the same day, but within a few hours. It was, literally, delivered faster than had my friend driven to the physical retail location. That seems to be the exception and not the rule, these days, but it’s a glimpse of what’s to come. The success of Wish also points in this direction. When small, individual products can be shipped cheaply and quickly to the other side of the world, things are starting to change. Quick fulfilment from digital ordering is shrinking the distance between ordering and waiting for a parcel to arrive by mail with going to the store to get something. When anything can arrive anywhere quickly, physical locations lose a lot of dominance.
There’s much more to this.
Consumers are looking for great experiences over simply buying things (this is something we hear a lot), we live in a world where mobile ordering is quickly surpassing PCs for online purchases, and smaller, local businesses now have the tools (thank you, Shopify) to have real skin in the game, without the infrastructure that used to be required for a store to be built and marketed. What may be most interesting is that every aspect of what is hurting the traditional retail infrastructure seems to be an amazing new business opportunity for retail as well.
The question is this: will retailers take advantage of these opportunities or fall victim to them?
What do you think?
Mitch Joel is President of Mirum — a global digital marketing agency operating in close to 20 countries. His first book, Six Pixels of Separation, named after his successful blog and podcast is a business and marketing bestseller. His second book, CTRL ALT Delete, was named one of the best business books of 2013 by Amazon. Learn more at: www.mitchjoel.com.