Only Bad Retail Is Dead

Many of us have watched closely as shuttered downtowns and malls have roiled the landscape, both urban and rural. It seems that the onset of pandemic-related shutdowns in March of 2020 spelled the end of US retail as we’ve known it and many predicted the death of brick-and-mortar stores as consumers shifted spending online. According to the US Government, online sales reached an estimated peak penetration of 16.3% of all retail sales in the fourth quarter of 2022.

However, the decline of physical stores was not just about the pandemic. It was, in fact, foreshadowed in 2002. That was the year that once dominant K-Mart filed for bankruptcy. Although at the time they cited price competition with Walmart as the cause, I would argue there was an underlying driver that had little to do with dollar signs.

By 2005, the decline of some malls started when anchor retailers, led by JC Penny, began to shut their doors. JC Penny’s closures were followed by Dillards in 2008 and Macy’s 9 years later.

What we’ve seen since the pandemic is simply an acceleration of  trends that were already underway:  “the rise of e-commerce, shrinking foot traffic, and changing consumer shopping preferences.” That was penned by Deloitte and I couldn’t have worded it better.

And yet, on a recent Monday afternoon in my local mall, the Apple store was bustling. Even in beleaguered downtown Portland, OR, the one place that is never devoid of foot traffic: the Apple Store.

While K-Mart was filing for bankruptcy, Target was busy growing. Target is also a Wal-Mart competitor, but pricing pressure didn’t seem to impact their business. In the first quarter of 2002, as K-Mart was closing, Target hit a peak quarterly revenue of $42.2B and, from 2002-2022, their total revenue rose 196%.

While JC Penney and Macy’s doors were closing, Nordstrom was enjoying prosperity.

And in the sporting goods industry, while The Sports Authority, Modells’ and Sports Chalet were boarding up their stores, Dicks Sporting Goods opened more doors through acquisition and new builds.

We could blame bad management, price competition or other factors, but one thing all of the closed doors have in common: an unappealing and frustrating shopping experience for the consumer.

Think about what K-Mart stores were like just before the end: customer service was nearly non-existent, stores were dirty and shelves were slow to be re-stocked. In contrast, Target doubled down on merchandising and presentation with clean, bright stores that usually enticed you to buy more than you intended.

The same could be said for Dick’s Sporting Goods. While defunct sporting goods retailers “piled it high”, Dick’s pursued a shop-in-shop model with their key vendors, led by Nike. They honed in on their priority consumer groups and created inviting, easy-to-shop spaces highlighting key items that brought consumers back for more.

It’s the experience that has consistently kept Apple stores humming. Yes, the Genius Bar is a draw, but so are Apple’s classes which are typically held in full view of store traffic. This same information is available online, so why would a consumer choose to attend in person? Because the bottom line is that Apple stores are a cool place to hang out.

This might be why, even for digitally native brands, the lure of real-world stores is proving irresistible.There have been several significant recent examples of companies jumping offline and into the retail fray.

One is Babylist, an online baby registry service that brings together all the products a new parent could need or want. After experimenting with pop up spaces, they recently opened an 18,000-square-foot brick-and-mortar showroom in Beverly Hills. “Because we actively engage with our community on a daily basis, we understand their brand preferences and how they evolve,” said Natalie Gordon, founder and CEO. Designed by the Portland-based firm Studio Butch, it’s a space where consumers can touch and feel product as well as explore options, including taking strollers for a test drive on an indoor multi-surface track.

More recently, online sneaker marketplace StockX announced their first “shoppable experience” coming to New York City. Why would a digital brand valued in the billions step out of cyberspace and into the real world? Simply put, because their 34 million users asked for it. Now, instead of just being a drop-off spot, their NYC location will feature a limited assortment of kicks for sale. And, if done correctly, will also give sneakerheads a place to gather and connect.

Perhaps these brands have learned what we have at Elmira Street Associates: digital experiences can be meaningful, but they are no substitute for real life connections. Skeptical? Take a moment and think of someone you began working with during the pandemic only via video conference, but never in person. You may have gained a good sense of them and even developed a bit of a rapport. Now, think about who you have gone on to meet in real life: the quality of the connection goes deeper. Even if you return to virtual-only interactions, you now have a better reference for working with that person more successfully in future.

Simply put, shared experiences make for higher quality, deeper connections. And those connections can lead to greater brand loyalty. 

Retail, when done right, is the same. Knowing that every touch point counts, when a brand creates its own retail experience, it can reveal its true self to its audience. It’s your chance to demonstrate what you care about and how you care for your consumers. In fact, the founder of the bedding brand Parachute put it succinctly in the Wall Street Journal earlier this year, describing physical stores as “a way to build community and build relationships.”

There are indications that consumers are again looking to connect with brands in person. According to USA Today, “Traffic at top-tier malls – those with luxury retailers such as Gucci and newer direct-to-consumer brands (such as Untuckit) and more affluent customers – was up 12% on average in 2022 over pre-pandemic 2019 levels.” They also noted that traffic “was up 10% at non-top-tier malls (those with an empty anchor retailer, declining sales)”.

So, it seems that consumers are willing to hop off the sofa and wade back into the fray, but what will they find when they arrive? If we want consumers to continue to engage, then we need to create value for them in our spaces. A few things to keep in mind:

__Remember, everything that a brand does either adds to or detracts from the relationship. Consumer-centered design is critical when you’re thinking about creating a retail space.

__Knowledgeable associates go a long way. As a consumer, is there someone who can understand my needs and actually help?

__Can a consumer easily experience your products in your spaces? This is especially critical for higher price points and experiential purchases (everything from sports equipment to mattresses). 

__Are the right items in stock and easily available? As minimum purchase thresholds for free online shipping have risen, some consumers would rather get up and get it now.

__And if you’re a digitally native brand, do you know what it takes to keep your stores refreshed, interesting and exciting? Are there people and processes in place to maximize in store communication, merchandising and the consumer journey?

Consumers no longer make a strong differentiation between shopping online and in store. They expect a seamless experience that brings the best of what each channel has to offer. This means that brands need to be great at both digital and physical retail because each has a role to play. The question remains: are you ready?