By Joseph Bona
Survey the retail landscape in Europe or the United States and you might conclude that unprecedented shifts are under way that promise to change the basic dynamics of the business from now until the end of time.
In the United States, for example, the term “showrooming” has become one of the biggest retail buzzwords. The basic idea is that smartphone-addicted shoppers are waltzing into big-box stores, scrutinizing various flat-screen TVs and other merchandise in person, and then buying these items on their phones for the cheapest possible prices.
In the wake of the Wall Street meltdown and the collapse of the housing market, meanwhile, American consumers are watching their suburban regional malls lose tenant after tenant.
Some of these 20- or 30-year-old malls — primarily in secondary and tertiary markets — clearly are doomed and will have to be converted into outlets or nonretail uses. U.S. strip center landlords, too, are wringing their hands as big-box chains such as Walmart, Target and Best Buy shrink their store footprints, in part as a response to both the rise of online shopping and the implosion of consumer demand.
Something similar is happening in Europe and elsewhere with the slowdown of hypermarket expansion. Such factors as pricing pressures, the drive to maximize shareholder value, spiraling labor costs, economic uncertainty and the high barriers to entry have all conspired against the hypermarkets. Headlines about Carrefour’s Singapore pullout; Auchan’s struggles in Spain, Portugal and Italy; and Tesco’s slashed expansion plans in Britain have prompted some observers to ask, “Is this the beginning of the end of the hypermarket?”
With the high cost of gasoline and the growing concerns about climate change, fewer consumers are keen on driving miles from town to shop at cavernous hypermarkets. They would much rather stay at home and shop local alternatives.
While such changes might seem seismic in their scope and scale, they should be kept in proper perspective. Retail has always been in flux and has always been a cyclical business. Change — along with the sense of newness and excitement that accompanies it — is, in fact, part of what keeps retail vibrant. And yet sometimes we forget about the positive side of change.
Technology is a good example of this. For far too long, online shopping and mobile commerce have been seen as threats to the vibrancy of brick-and-mortar retail. But what about the myriad ways in which the rapid evolution of technology has allowed retailers to reach new audiences and improve customer service? This is not to mention the dramatic improvements in back-office logistics, fulfillment and more.
Earlier this month Bloomingdale’s 59th Street store in New York debuted something called FaceCake — a virtual fitting room that allows shoppers to “try on” clothes without taking off what they’re actually wearing. The device uses Microsoft’s Kinect sensor and camera along with a high-resolution, flatscreen display. As shoppers stand in front of the screen they can make various hand gestures to see what different outfits would look like on their bodies.
They can move around, change the angles and experiment with a wide variety of colors and styles. It is an engaging, fun experience that also happens to be a convenient time-saver. In other words, we are starting to see technology that makes a difference at the store level and is neither a threat nor a mere marketing tool. This technology, along with everything else, will evolve and improve over time, creating new possibilities for brick-andmortar stores.
The movement toward smaller-format stores is often cast as a negative (see business headlines trumpeting “The Death of Big-Box Retail”). But destruction and creativity are always intertwined in retail. By spending less on massive store rollouts and investing more time, money and energy in smaller-format, well-located stores, retailers can dramatically improve both the quality of the in-store experience and their level of customer service. Done right, this should translate into greater productivity. A 200,000-square-foot hypermarket has less appeal today than, say, a smaller format specialty food store along the lines of Trader Joe’s — the Aldi-owned U.S. chain known for its engaging signage, quirky products and gregarious clerks. Rather than wandering aimlessly through endless hypermarket aisles, the Trader Joe’s shopper can partake of the “thrill of the hunt” and come home with something new and novel.
But there is no reason why the large emporiums of today cannot reinvent themselves along these smaller-format lines, and this is precisely what we are now seeing in the United States from Target, Walmart and Best Buy. Back in April, Tesco announced plans to sink more than $1.6 billion into store improvements in a bid to revive its declining market share. The strategy has shown some early signs of success. Over the long term, however, hypermarket chains such as Tesco might consider shrinking their retail space to food and perishables. This would allow them to sublease more space to branded players in other categories — a great way to drive traffic and differentiate from the competition. One could even imagine a small-format Best Buy moving into a Tesco or a Carrefour.
Retail purists in the United States sometimes fret about the fate of older brands such as J.C. Penney, Kmart or Sears. It is true that these decades-old nameplates do face challenges.
If Starbucks is about gourmet coffee and Apple is about cutting-edge computing devices, then the Penneys of the world have much more complicated brand identities. A retailer like Penney is essentially a house of brands. How can it set itself apart from its competition? As a Forbes magazine columnist recently put it, Penney chief Ron Johnson, the former Apple executive, has a vision for Penney’s stores that includes “wider aisles encircling a central location called The Square, a place where moms practice yoga and children receive haircuts. The individual modules that ring The Square will be grouped by brands or by theme, accompanied by spiffy technology — iPads, of course … and impressive Oracle gadgets.”
Don’t be fooled — the iPads here are not the point. What Johnson is really trying to do is find meaningful connection points with Penney’s consumers. Ditto for Target, which is bringing in mini-shops that will sell exclusive merchandise as part of sublease agreements. As noted by Reuters, “The Shops at Target” concept features boutiques such as Boston’s Polka Dog Bakery, Miami’s The Webster and San Francisco’s The Candy Store.
By contrast, a retailer such as Kmart appears to be doing precious little to update and improve its stores, which increasingly seem tired and irrelevant. This helps illustrate the truth that change, far from being a threat, is actually a necessary part of running a successful retail business. In the case of Kmart, lack of change — which is another way of saying the absence of newness — is the cause of a relevance crisis.
Ultimately, those retailers that understand technology and know how to use it in service to the fundamentals of retail (having the right product at the right price in the right location with an engaging in-store experience and topnotch customer service) will win.
The iPad will eventually give way to something else, but these fundamentals go back millennia to the very beginnings of retail itself. Imagine walking up to the Roman Coliseum in, say, 80 AD. The place would have been teeming with shoppers (indeed, you could think of the Coliseum as a prototypical mall or supermarket) with market stands out front selling anything and everything. When a retailer like Target brings in a novel and new mini-shop, is it any different than adding, say, a new saffron vendor out in front of the Coliseum?
Set and setting will inevitably change, but the retail fundamentals are as stable and constant as the law of supply and demand.