History may not predict the future of retail and critical success factors
By Chris H. Petersen
To paraphrase Mark Twain, the prediction of retail’s demise is premature. While many pundits are talking about a “retail apocalypse”, others are pointing to a resurgence of “retail” in the form of stores. Yes, retailers like Sears continue to struggle and close stores in the US. Even Walmart will close a number of Sam’s Club locations this year. However, T.J. Maxx is bucking the trend and projects that they will open more than 1,000 new stores. So, who’s right, and who’s wrong? What is the best way to predict future retail success?
Why this is important: Rising consumer expectations are creating unprecedented demands disrupting traditional retail. CEOs not only must deliver quarterly profit, but also cope with a new reality – “the future ain’t what it used to be”.
Is there really a retail apocalypse? If so, when and where?
The hashtag #notmyretailapocalypse caught my eye as I was reading the headlines and blogs this week. Many articles tracking retail store counts are challenging whether there is in fact a “retail apocalypse”. While thousands of stores will close in the US this year, there are also thousands of scheduled store openings. One analysis is that the opening and closing of stores is a normal cycle and part of bricks and mortar retailing. A quick review of history reveals there were many stores closings when Walmart and others rolled out new hypermarket stores across the US.
However, the question of store closings today is a much larger issue. As major stores close, is that a sign of pending doom for bricks and mortar? Do store closings signal surrender to the likes of ecommerce giants like Amazon? Many retail analysts now think that physical retail will struggle to compete with the efficiency and convenience of online shopping. Historically, store counts were a retail metric where there was only a physical “place” to shop called a store. Does the migration of consumer traffic and sales to online “stores” constitute a pending retail apocalypse, or merely a shift in consumer demand and preference for more choices of retail anytime and everywhere?
Not “my” apocalypse … A sign of success or a particular point of view?
L Brands Inc. owns prominent retail stores like Victoria’s Secret, Pink and Bath & Body Works. Unlike the Gap and Banana Republic, which have closed hundreds of stores, L Brands has actually increased stores over the past two years to more than 3,000 locations in North America. If store count is a measure of retail success, L Brand stores do not appear to be suffering from any current retail apocalypse scenario.
The Wall Street Journal has recently published a story about Leslie Wexner, the 80-year-old CEO of L Brands. Wexner shared some of his retail perspectives in the WSJ article:
- “People crave social interaction and will seek it at places like malls. ‘There are times when that gets interrupted, but people want to be with other people,’ he says. ‘I’ve got 5,000 years of history on my side,’ pointing to the ancient shopping bazaars in Rome and Istanbul.”
- “Mr. Wexner says women want to come to Victoria’s Secret stores to experience the environment and feel the products, because lingerie and beauty items, such as fragrances and lotions, are more personal to them than clothing.”
- “The internet won’t kill stores, the Columbus-based billionaire says. “Moreover, the fascination with smartphones will fade. We’re in the process of bouncing back from that,’ he says in an interview. ‘I don’t think this is a new norm.’
Clearly, from Les Wexler’s perspective the operative words regarding a retail apocalypse are “not my”. While he may agree that certain brands and retailer stores are in trouble, he does not perceive that to be “his” problem for L Brands stores, especially Victoria’s Secret.
Whether it will be an “apocalypse” depends on perspective and metrics
For some highly personal categories, Wexner is probably right that customer experience will drive traffic to stores like Victoria’s Secret. However, declining foot traffic continues to be a challenge at major malls where many of L Brand stores are located. Will today’s customers be tempted to forego the hassle of a car trip to a mall and opt to purchase Victoria’s Secret products (or competitors) via Amazon’s marketplace?
With all due respect for Wexler’s success, his comment that “fascination with smartphones will fade” seems to be out of sync with all the current data on mobility. Smartphones have become a prominent portal for both customer search and purchase. “Showrooming” is just as prevalent in Victoria’s Secret stores, perhaps more so.
The future ain’t what it use to be … history will no longer predict success
Here in lies the crux of the “retail apocalypse” issue. Are the measures of traditional brick and mortar stores still valid? If sales per square foot decline in Victoria’s Secret stores, but sales grow online, is that a retail “apocalypse”, or merely a shift in sales reflecting today’s consumer behavior of where they prefer to shop and purchase?
Most of the discussion around a pending retail apocalypse hinges on the discussion of store count, same store sales and sales per square foot. At best, these are traditional metrics of traditional bricks and mortar retail. However, we are no longer in an age of “traditional retail”. Consumers are no longer bound by time or place. Today, customers choose when, where and how they purchase, including where they will take delivery. The 5,000 years of retail history are extensively based upon a model where stores were the only place to shop. During those 5,000 years, consumers have only had smartphones and Amazon for a couple of decades.
Apocalypse will be failure to adapt to “overwhelming transformation”
Is there a retail apocalypse happening right now? Absolutely if you only own stores and measure performance from historical retail store metrics. Retail is currently undergoing a transformation of a scope not seen at any point in history. From the perspective of retailers used to “controlling their own destiny”, it might seem like an apocalypse with the customer now making the rules as they control their shopping experience.
In one sense, apocalypse has been misapplied to describe the overwhelming nature of the transformation required to meet customer demands. Failure to adapt and transform only becomes an “apocalypse” if you don’t adapt and measure up … and customers vote on that every day with their physical and digital wallets.
- Wall Street Journal: Victoria’s Secret Boss Bets on a Radical Idea: Smartphones Will Fade, Khadeeja Safdar; Febuary 5, 2018
- Photos: www.pixabay.com