Given the growth of e-commerce, many retail real estate investors are fearful that typical sticks and bricks retailers are not necessary or viable options anymore and therefore neither is the real estate they occupy. However, there have been many retailers, old and new, that have been tackling this issue and optimizing the modern day tech savvy shopper for profit. These omni-channel retailers are the ones to look at, and the following are a few examples of the strategies they are employing.
There is no question about it, e-commerce is affecting how people shop and it is impacting overall retail sales in an exponential way. If they have not dealt with this issue, traditional retailers should be shaking in their overstocked boots because e-commerce sales are growing 5 times faster than core retail sales year over year, as seen in Figure 1. The modern day shopper is multi-dimensional, they buy in store, they buy online, and they buy on their phones or tablets. Consumers will shop in the most convenient and cost efficient way possible, and that is happening more increasingly online. This confluence has contributed to the shrinking of store sizes and also the unfortunate demise of certain retailers.
Figure 1: Historical Growth in E-commerce and Core Retail Sales
Source: Census Bureau
ASOS – Offline to Online
Never heard of ASOS.com? You will. Let’s put it this way, when Michelle Obama wears one of your dresses, there is some level of guaranteed success. Just ask Jason Wu. ASOS.com is an online only apparel retailer that has gained a great deal of momentum in the United States recently after huge success in Europe and Australia. It has been growing at nearly double the rate of Amazon over the past 5 years (Figure 2). This business model takes apparel e-commerce to the far end, in that it is e-commerce only, absolutely no brick and mortar stores and none planned to be built.
So how does an online retailer gain such success aside from selling products that consumers are interested in (which are, let’s face it, measured on a barometer that generally includes lobster shaped iPhone cases at one end)? The answer is rather simple: a well-formatted and easy to use website paired with consumer targeted social media marketing. Shopping in malls and brick and mortar stores provide a finite experience. There is only so much inventory that a store holds at one time and there is no guarantee that when you walk through the doors that the item you want and/or need will be there. But on the internet, your options are limitless. ASOS understands the advantages of this limitless inventory and well positions the brand to its twenty-something clientele by using social media like Facebook and celebrity fans.
Figure 2: Annual Revenue Growth for E-commerce Only Retailers
Source: ASOS, Amazon, Etsy Investor Relations
Etsy – Online to Offline
Etsy is an online marketplace that provides a platform for independent artists and designers to sell their products globally. Launching in 2005, the website has since reimagined e-commerce by creating a virtual handmade marketplace and is considered one of the most viable forums for one-of-a-kind crafts. Sales in 2012 totaled $895.1 million, up by a staggering 70% from the year pervious. This success has blossomed from a strictly e-commerce business, but now the company is testing a model entitled Etsy Wholesale. This new business platform connects Etsy vendors with retailers that wish to feature handmade and local crafts in their stores.
Major retailers such as Nordstrom and West Elm are featuring Etsy vendors in their stores and promoting the local and one of a kind nature of these products. This is a smart tactic in handling the success of e-commerce only sites. In order to increase revenue in stores, the right amount and types of consumer desired products need to be stocked on the shelves. This unique variety is what keeps a customer returning to the store as opposed to purchasing commoditized items online. This symbiotic relationship helps Etsy grow to a multi-platform retailer and allows stores like Nordstrom to provide their customers with items that can’t be purchased from competitors.
Macy’s – Putting it All Together
There is no one correct way to strategize around our ever evolving technology dependent world. But it can be said that those companies that have recognized its strong impacts and have invested into analyzing those impacts are and will be the winners. Macy’s is one of these winners that has performed extremely well because of investing resources into optimizing omni-channel strategies. The company recently reported a 3.7% year over year growth in comparable store sales, which was greater than expected. This is because they have really focused on integrating online and in store sales in a way that best meets their customer’s needs. Sales on their e-commerce sites grew 41% and added 2.2 percentage points to their overall same-store sales for the year. The company intends to spend an additional $925 million in 2013 improving omni-channel sales capabilities as well as opening a few new stores. Macy’s gets it – consumers don’t just want to buy things online, they want to buy in a way that is simple and efficient, whether it’s delivered to their doorstep or picked up in-store the next day.
What it boils down to is that customers are very loyal and they will continue to shop at a store if they have a positive experience there, whether it’s online or in person. Eighty nine percent of shoppers will abandon you to purchase from a competitor following a bad experience. Consumers can be hard to please, this is not new information. American shoppers will typically tell 24 people about negative experiences with customer service, but they only tell about 15 people about those that are positive. Building brand loyalty is key to the success of a retailer, a 5% increase in customer retention can increase profits by 125%. Why would a customer return to your store if they felt as though their business was not appreciated? Technology is advancing with consumer needs so much so that the internet is doing the shopping for them. Sites like hukkster.com>, which alerts users of when items which they hukked (think pin to a board, similar to the idea of Pinterest) have gone on sale. It is becoming increasingly simpler for people to shop online, and retailers that are not incorporating e-commerce strategies into their operations are falling behind.
Omni-channel retailing can be a success story for the retailers themselves, but not necessarily the real estate they occupy. The shrinking of store sizes is inevitable, people just don’t shop like they used to. Investors with retail assets should focus on the retailers that are looking to incorporate and balance both brick and mortar and e-commerce strategies, they are the real winners.
2011 Customer Experience Improvement study, Harris Interactive
2012 Global Customer Service Barometer, American Express