Is this the beginning of the end of retail as we know it? Is shopping online killing brick and mortar retail? Is it the end of the department store as we know it? These are questions that the current economic landscape for retail has brought up in the new cycle. In this part of the series the current state of the retail sector, in general terms, will be discussed. Part one of this series gave a brief summary regarding the history of retail, how technology has changed retail, and what trends were adapted by retailers to maximize results. As mentioned, part two will discuss the current landscape, what retailers are doing to address the changes and take advantage of opportunities, and the trends. Part three will involve the future of retail, what the cutting-edge technology of today is leading the sector toward, and discuss leaders of the industry.

What is making up the current retail landscape? We still have mom and pop shops, department stores, big-box retail, and shopping malls are still up and standing. The most recent trend involves mobile shopping, which stems from online sales. Many of the department stores and big box retailers are focused on the omnichannel strategy to help attract a “digical” customer. By “digical”, retailers refer to a customer who uses digital platforms (online orders via computer, smartphones, tablets, and kiosks) and shops at a physical location. These retailers have brick and mortar locations but are utilizing an online platform to drive traffic to their locations while maintaining the lower overhead associated with online storefronts. There are a multitude of ways to drive traffic to a location just with the online presence.

How Does Online Retail (ECommerce) Compare to Overall Retail?

For the year 2019, based on the numbers given from the U.S. Department of Commerce, E-Commerce accounted for $602 billion in sales, whereas total retail (not including restaurants, bars, fuel dealers, auto dealers, and gas stations) was at $3.763 trillion. For 2019, E-Commerce represented 16% of all retail sales, with E-Commerce growing 14.9% from the previous year and total retail grew 3.8%. In 2018, online orders accounted for $524 billion in sales out of the total retail sales being $3.626 trillion, during which E-Commerce accounted for 14.4% of total retail.

What about the store closings and bankruptcies in the last two years? Fair question, let us look further into 2017 where the online sales were at $461 billion and total retail sales were at $3.484 trillion dollars with online accounting for 13.2% of total retail. From 2017 to 2018, we see a growth of $63 billion with online sales, with total retail increasing $142 billion. This means that online retail accounted for about 44.4% of all retail growth for that span. From 2018 to 2019, we observe a growth of $78 billion with E-Commerce, with total retail increasing $137 billion. In this instance, E-Commerce growth accounted for 56.9% of the total retail growth. This growth, overall, will make it appear that online commerce is replacing brick and mortar. The numbers do not lie, behaviors and trends are merely shifting with a generation that grew up in a digital age.

Let us go back further to 2010 when E-Commerce was $170 billion and total retail was $2.499 trillion. Online retail represents 6.4% of total retail during this period. With online retail growing at a rate of 13.5% to 18% year after year from 2010 to 2019 (with 2011 being a great year) when compared to the whole overall industry growing from 3% to 5% year after year (2011 was a great year overall), it is no wonder the media and consumers would believe that the retail apocalypse is coming, because it is growing at a faster rate, but what is causing that growth other than making research easy and convenience?

The answer relies on the generational comfort of technology and its use. Millennials, (now entering the age range of about 24 to 40) are getting to the age where they are beginning to have more disposable income. This is the generation that grew up in the digital age and led the way to begin a comfort level with E-Commerce. If you believe Millennials are tech-savvy, one should look at Gen Z and its ability to understand technology and various social media platforms as well. As more and more individuals are growing up with the ability and comfort in working with online platforms, this increases the growth and niche of online shopping.

With the development of smartphones and accessibility to high-speed internet growing, this also increases accessibility. With older generations needing to keep in touch with younger generations through cell phones and technology, they are also becoming more accustomed to using smartphones and doing more online. Simply put, the technology is changing the shopping trends, along with its capabilities, accessibility, and the comfort of all generations in using it.

What Can Retailers Do to Stay Relevant?

The term “digical” I actually took from a meeting I was at for a retailer. This was the discussion of how to meet the needs of the digital customer and the physical customer. What can a company do to drive more traffic into the location while keeping all of the sales?

Using an online platform to conduct business is key and most retailers are finally there for their shopping needs. What most locations have been doing for a few years has been having customers place online orders within the store to keep money within the company, even if the product was not in the store. JCPenney’s, Bon-Ton, Sears, and Macy’s (along with many other retailers) have been doing this for years. An employee or associate searches the inventory in the system and finds that another store has it and places an order for it to be shipped to your home for your convenience. This was a good first step to get customers in the store to still drive those sales for the benefit of the retailer without losing the customer to someone else. The expertise of the employee helped the customer make a more informed decision other than relying purely on online reviews.

The next step involved fulfilling orders from online platforms and shipping them out, using each store as a miniature fulfillment center to help manage inventory levels and continue to drive sales and reduce shipping time. This is something that retailers have also been doing for years but which has been increasing within the last five years drastically due to the increasing growth of online sales. Some stores, such as Wal-Mart, provide another level of service by providing grocery pick-up for customers at their convenience right to the door of their car.

Another step involves buy online pickup in store (BOPS). Retailers used to do this over the phone years ago and simply switched the concept to doing the same for online orders. This brings the customer into the location, which also increases the probability of a customer purchasing more due to the concept of an impulse buy and the idea of “While I am here, I will look at...”. This has led to recapturing some of the sales that are being shifted to online sales. Many retailers (Wal-Mart, Macy’s, Best Buy to name a few) have taken this a step further by implementing buy online ship to store (BOSS) which protected consumers from worrying about their packages being stolen or damaged at home and having to deal with the return process. This permits the customer to look at their package within the store and give the store an opportunity to provide some additional in-store sales based on the item that the customer purchased.

Some retailers make their locations more like a destination by providing a place to hang out. As an example, many Barnes and Noble locations will have a Starbucks within their locations which provides a good reason for customers to stay at the Barnes and Noble to read while eating some food and drinking some coffee. The longer a retailer keeps a customer within its building, the more likely a customer will spend more. The diversification of locations is something Kohl’s has begun implementing by partnering with Aldi’s to have the grocery chain lease space to form a partnership. For Kohl’s and Aldi’s, this provides two different sets of customers to have an opportunity to make impulse purchases while they are doing errands and boost overall foot traffic within their locations.

Speaking of being a destination, retailers are trying to create more events and experiences within their locations. At times, this can be product demonstrations during product launches or to help drive sales. Events are a major talking point from district visits in a variety of retailers, especially department stores. Major events led to talking points for employees to interact with customers and help drive sales. By doing events, the creation of an experience makes a customer more likely to stay and does drive more foot traffic in, especially given the convenience of social media. Ulta Beauty does a great job at communicating sales and other events to their customers (including one-time customers). Macy’s has also begun starting to create experiences by using a program called “Market at Macy’s”. For this concept, outside vendors come in to create a shop within a shop to drive different customers to the locations and it has proven to be a good driver at keeping customers within its location and expanding its clients within growth locations.
Speaking of a shop within a shop concepts, both Nordstrom and Macy’s have been working at keeping customers within their walls and attracting different customers. Nordstrom has off-price merchandise with Nordstrom Rack and Macy’s does the same with Macy’s Backstage. To save money from being tied to inventory while maximizing space, Nordstrom and Macy’s have been both expanding their market share of off-price retail that is currently dominated by T.J. Maxx and Ross Stores. Instead of having wasted space, Nordstrom and Macy’s (with Macy’s being more aggressive in this realm), utilize unused store space to provide an area devoted to off-price merchandise. By providing off-price merchandise, it drives foot traffic within a location and keeps customers within its walls, often increasing sales within that location compared to the previous year by about 7%. Although that is a small drop in the bucket for overall profits, it can help drive comp sales and protect the brand for investors as it continues to roll out more off-price locations within its stores. For Nordstrom, Nordstrom Rack has recently grown to have more locations than their full-line locations, noting another trend to keep track of in retail. Could it be that off-price retail is the next trend in addition to the continued carving of total retail sales that E-Commerce will take?

The current work for retailers means they have to adapt to the shopping trends, such as the shift to more online shopping, doing more to retain or bring those online customers in, and doing more to attract different customers and keeping current customers within retailers’ locations. Improving on what is currently working is great, but what about the upcoming trends and what else is coming down the line? What new experiences are to be had within retail? Stay tuned for part three, the future of retail and where we will likely be heading

>> Read Part 3: Retail Apocalypse: Fact Or Fiction?