If you’re a retail industry executive, these are the kinds of charts that keep you up at night.
U.S. consumers, particularly younger ones, are spending much less time in malls and in physical stores. Store foot traffic has been dropping for years, which is subsequently putting pressure on merchandise productivity and comparable store sales – which have generally been pretty dreary in the physical retail sector.
For retailers, though, the bad news doesn’t stop there. The decline in store traffic accompanies a slow but steady long-term shift in consumer tastes away from retail staples like apparel and towards other consumables like food, digital media (ex. music, games/apps) and personal electronics:
There’s also the increasing consumer preference to shop and buy online, on whatever device they prefer.
In the tech industry, we tend to pay a lot of attention to this last point. And rightfully so – it’s a really exciting time in ecommerce, where there’s something of an software arms race going on to build the best tools that enable better experiences for customers, brands and retailers alike. But the thing to remember is that all of that is taking place in the context of the environment described above:
people aren’t going to stores as often (and they’re probably not coming back)
- people want to buy more online, and growth rates for ecommerce are growing by double digits
- consumer spending is gradually shifting away from some categories (like apparel) and towards new ones (particularly digital media and gadgets)
We’ve seen some telling responses to this market. You have the rise of new athleisure-focused brands (ex. Under Armour or Lululemon) that capitalize on emerging categories; the expansion of legacy brands into new markets (like Nike’s aspirations to become a tech company); and major retailers adjusting their store model to accommodate new consumer buying preferences. And, of course, everyone is competing to sell more online. Price competition might be higher there, but online is where the growth is – not in stores.
I’ve written before about the future of physical retail, and how the in-store retail experience hasn’t really evolved much in the last twenty years. That is slowly changing. As stores increasingly become just one of several selling channels, and one with comparatively high overhead costs, maintaining expensive retail real estate becomes much less attractive. Sears Holdings CEO Eddie Lampert said as much when he explained the decision to close more than 200 Sears and Kmart stores (many of them still profitable).
This, in the end, is what “omnichannel” is really about: selling to your customer whenever, however they want. For traditional physical retailers, this often means pivoting to becoming an ecommerce player in order to meet customers where they are – and sometimes closing stores. For “e-tailer” pure plays, sometimes it means opening physical locations, as we’ve seen Warby Parker, Nasty Gal and even Amazon begin to do. It isn’t one or the other – it’s both. The right mix of online and brick-and-mortar for a particular customer segment and product category is a totally open question, but the boundaries have blurred, and ultimately will disappear, between them. Commerce is commerce, wherever it happens.
It’s axiomatic for retailers that the first duty must be to offer your customer something they wish to buy. It didn’t matter how well the Amazon Fire was marketed or how easily it could be sold – consumers just didn’t want it. Likewise, consumers still want clothing – just not the same types as before, and not at the same price points. Every retailer is trying to get ahead of those changing customer preferences, and some demonstrably better than others. Choosing the right product to sell, and in which category, is fundamentally a different question than how it’s sold. Omnichannel is the new table stakes for commerce, but is better considered a necessary condition for success – not a sufficient one. Customers buy merchandise, after all – not “omnichannel.” None of them have heard of that, and no one cares.
That said, the most successful future brands in the next few years are going to be those that enable the most effective product discovery – whether it’s in stores, catalogs, email, social, TV or preferably a combination thereof – and make purchasing easiest. That means omnichannel. We see some retailers and brands moving aggressively in that direction already, and I’m going to bet on their success, rather than those hoping that they can “train” consumers to come back to malls. Time will tell.