It seems like every day we read about another major retailer and shopping mall going under and people still trying to figure out if retail is actually dead or not. Well, traditional retail is dead and here is why…
CONSUMERS HAVE CHANGED THEIR BUYING BEHAVIORS WHILE MOST RETAILERS HAVE NOT
Traditional retailers built their entire buying process around one thing: their stores. They built their large stores packed with inventory and then relied on consumers to enter and leave their stores completing all three areas of their buying journey: Discovery, Experience, and Fulfillment in one place. This model worked well for traditional retailers until the advent of the internet, social, and mobile when information could now be accessed and transactions could now take place anywhere and at any time. The problem is that most retailers failed to see this shift in consumer buying behaviors and worse, many tried and continue to try and fail at incorporating digital into their broken business model for one simple reason…
THE BUYING JOURNEY IS NO LONGER ABOUT ONE PLACE
The consumer buying journey today still involves the same three steps it always has only where and how these steps now take place has fundamentally shifted. Here is how they compare…
OLD: Consumers would visit stores and locations to shop and discover new products and services during limited business hours.
NEW: Consumers can now discover infinitely more new products and services online at a fraction of the time, cost, and effort from anywhere at any time.
OLD: Once consumers discovered a new product or service, they could they experience it real-time at the point of discovery (the store) to help determine if they want to buy it.
NEW: Consumers still need to experience many of the products and services they want to buy (called “showrooming”) – the more customized the product or service, the greater the need to experience before you buy.
OLD: Once consumers where able to discover and experience a product at one location, they could then select it, purchase, and leave the location with it.
NEW: Consumers can now make a purchasing decision at any location at any time and have the product or service delivered to them without having to take it home.
As you can see, the consumer buying journey is fundamentally still the same, however the way we now buy and when is rapidly changing. For those products and services that require little or no experience to buy, the logical shift has been to move a store virtual as many businesses have successfully done with new online stores like Amazon.com – which alone constitutes fully 49% of ALL product searches online now. However, for those businesses that still require a customer experience (testing, touching, trying), one thing is still clear…
RETAIL STORES ARE STILL NEEDED
Yes, retail stores are still needed but what has changed is how they are now needed. Retailers who are now properly aligned to today’s consumers provide stores that are now designed for one primary purpose: EXPERIENCE. Since the majority of consumers today are now independently and digitally self-informed during the discovery phase of the buying journey, they increasingly know what they want to experience prior to arriving at stores and will even buy online well after leaving the store experience. Because of this shift, consumers are changing from shoppers to determined buyers making their experience at stores more direct and important. The problem is that traditional retail stores are still designed without today’s consumers in mind. Let’s look at car dealerships as an example.
According to a recent study by McKinsey, Americans will now visit an average of 1.6 car dealers before making a car purchase…a decade ago they visited an average of 5! What changed? Consumer discovery behaviors. And in many ways, this lack of in-store discovery is happening in nearly every industry today. Consumers are increasingly shifting their discovery process to online first and ending with online fulfillment. This means that retail stores no longer need to warehouse large amounts of expensive inventory and artfully display products and services for browsing and initial discovery. As a result, the retail stores that will survive and thrive in today’s economy will be smaller and provide the best experiences possible for their “buying” customers. Which means one thing to the 1000+ shopping centers around the United States moving forward…
THE ANCHOR SHOPPING MALL CONCEPT IS NOW DEAD TOO
Most large shopping malls were designed with large retail “anchors” stores that would more predictably draw the majority of the traffic to a mall – leading to an increase in overall mall sales. But now that these over-sized anchors are not aligned with today’s buying process, malls are left with two options: either find new non-traditional retail tenants for these large spaces or let them sink and take your malls down with them. This is one of the primary reasons why nearly one-fourth of these malls are expected to fail within the next 5 years. But the ones that do survive are already figuring this out and you will recognize them by the new tenants that are moving in…Tesla, Apple, Nordstrom Local, Banobos, etc. These are also the stores that are now blowing away traditional retailers in revenue-per-square foot performance. Men’s retailer Bonobos generates around $3,000 per square foot compared to THE GAP at only $450. Apple stores alone generate a whopping $5,500 per square foot making them the #1 leader in store revenue per square foot! Which leads me to my final point…
NEW RETAIL IS THRIVING
Not only are these new experienced-based stores with limited discovery and little / no inventory killing it in sales per square foot, they better support the 85% of purchasing that still takes place in physical store locations. When the internet came of age, many retailers over the years decided to shift their physical stores to a virtual online presence and most fared no better than the traditional anchor stores of today. Why? Because even though they were correct in trying to move their discovery process online, many did so at the expense of the equally-important customer experience process – leading to many “dot-com” failures. As we have discussed, the three elements of the consumer buying journey still apply – only how they now apply to today’s consumers is the difference. In the end, today’s new retailers that will survive and thrive will provide a strong digital discovery process followed by an excellent customer experience process ending with the now all-to-familiar (Amazon.com like) one-click checkout and rapid delivery. Everybody else will go out of business wondering what happened to them – while requesting an Uber after a few drinks in sorrow…from their smart phones.