Mark Twain, on reading his own obituary (yes, they had fake news way back in 1897) remarked that “The reports of my death are greatly exaggerated.” The same could be said of shops on the High Street.
At Dymond Shopfitting we specialise in creating bespoke metal shop fittings and well-designed retail displays for shopfitters, retail designers and store owners – so we have a substantial vested interest in the future prospects for retailers with a physical presence. In this post we discuss some of the reasons why e-commerce will never replace bricks & mortar stores.
The headline numbers paint a misleading picture
For around a decade now people have been predicting that online shopping would kill off traditional retailing in physical stores. It hasn’t happened – although online sales continue to climb steadily. They grew 18 percent last year and by 27 percent over the past two years, according to figures from accountancy firm BDO. That, however, is not the full story.
Online retailers are now moving into bricks and mortar – what does that tell you?
Amazon has been dabbling in physical retail since 2015, opening half-dozen bookstores that double as gadget emporia, a score of campus bookstores that don’t sell books and a convenience store without cashiers. In June 2017 it plunged in big time, buying the Whole Foods grocery chain, with 460 physical stores, in a £10.7bn deal that marks its biggest push into traditional retailing yet.
They’re not the only ones. In the US, at least, traditional retailers are swallowing up online-only merchants. Hudson’s Bay Co. recently bought Gilt Groupe, Nordstrom scooped up Haute Look, while Bed Bath & Beyond purchased furniture flash sales site One Kings Lane. Wal-Mart grabbed born-in-the-web retailers Jet.com, vintage apparel merchant Modcloth and most recently, Bonobos, the menswear e-tailer.
In June this year Forbes ran an article which declared “Brick merchants are buying click merchants because online-only is not a viable retail model”. To support this conclusion they came up with plenty of facts and figures, some of which might surprise you.
Look where the money is
According to the Top 100 Retailers list from STORES magazine, a National Retail Federation publication, all but one of the top ten US retailers are physical chains. In ranking order, they are Wal-Mart Stores, Kroger Co., Costco, The Home Depot, CVS, Walgreens, Amazon.com, Target, Lowe’s and Albertson’s. All but Target generated sales growth in 2017 and it’s worth noting that 55-year-old Wal-Mart, the nation’s biggest retailer, grew 8% last year.
While most of the retailers on this list have embraced e-commerce that’s not where they are making the money. That’s because store visits, as opposed to website visits, convert better – sales per visit are higher. Also, store purchases are generally more profitable than an e-commerce order, as factors like shipping and handling charges, and the costs associated with increased returns, eat into margins.
Retail consultancy Alix Partners tracked the financial performance of 20 publicly traded retailers over 5 years. Online sales amongst those surveyed grew from 10.5% of total sales in 2012 to 15.5% in 2016. However, margins steadily declined, by 150 basis points to 9.0% in the year. The findings reveal that retailers’ stores are subsidizing their online businesses.
The young like to go shopping
Millennials and Generation Z grew up alongside infant companies such as Amazon, Facebook, and Instagram. So it’s no surprise they like to hang around online. But, conversely, both groups of consumers actually prefer in-store to digital shopping. Most global Millennials (70%) prefer brick-and-mortar retail stores, according to CBRE. And in the U.S., over 77% of Gen Z, consumers born after the mid-1990s through the early 2000s, said brick-and-mortar stores are their preferred shopping channel, according to Accenture research.
These groups are the future of retail, having displaced baby boomers as the biggest buying group. There are an estimated 80 million Millennials in the U.S., and each year they spend approximately $600 billion, according to Accenture. Meanwhile, Generation Z is set to reach 2.6 billion by 2020, with $44 billion in buying power, according to a study by IBM and the National Retail Federation.
Time for a rethink
The idea that digital commerce is killing off physical stores is obviously being pedalled by those with a stake in online retail business models. But it is disingenuous, and no more than a half-truth. Look at the evidence more closely and it becomes apparent that pure-play online shopping is the imperiled model. The most successful retailers recognise and embrace a mutli-channel approach in which the physical store remains a key channel.
E-commerce is obviously informing the way we shop and having a significant impact on traditional retail. But to assume this spells the end of the High Street is plainly wrong-headed. What is true, however, is that traditional retailers are definitely having to up their game. We can definitely help by designing and making bespoke metal shop fittings and well-designed retail displays. It needn’t cost the earth either – our expert value engineering specialists can show you ways to achieve bespoke solutions that not only work effectively but which are economical to produce. We’d love to share our specialist retail design and fabricating experience with you so give us a call when you are ready!
http://www.telegraph.co.uk/business/2017/01/08/online-retail-booms-high-street-struggles/
https://stores.org/2017/06/26/top-100-retailers/
http://insights.retailenvironments.org/2016/12/13/majority-millennials-prefer-shopping-stores/