Resurgence in Brick-and-Mortar Retail Stores…Thanks to Lessons Learned from Amazon

When was the last time you went to a shopping mall? For many Americans, it’s been years — and in many communities, they’ve been shuttered for good. But don’t rush to declare the death of retail. Americans have started shopping more — in old-school stores.

From the garden section at Walmart to the jewelry counters at Tiffany & Company, traditional retailers are having some of their best years of growth.

The robust revenues begin with a strong economy and optimistic shoppers. With more cash in their wallets, Americans have been spending more.

The increase is also an outgrowth of transformations in the retail industry, with fewer companies capturing a larger piece of the pie. Retailers who have adapted to match the ease and instant gratification of e-commerce are thriving, while those that haven’t changed are bankrupt or headed the same way.

Successful retailers are hybrid of a fast-food drive-through and a hotel concierge.

Target shoppers, for example, can order sunscreen or a Tokidoki Unicorno T-shirt on their phone, driving intothe parking lot and have their purchases brought straight to their car.

Some Nordstrom stores give customers the option to make returns by dropping items in a box and walking out without an human interaction.

Even Walmart has created 25,000 “personal shopper” positions to select and package groceries for curbside pickup.

Over the past summer, all three retailers reported stronger-than-expected sales growth for the quarter. Traffic to Target’s stores and online sites increased at the fastest rate since the company started keeping records ten years ago.

Skeptics have predicted that online shopping, dominated by Amazon, would eventually take over the entire retail sector, domming brick and mortar for all time. And some of this prophesy has come to pass, with record levels of store closings last year — from Madison Avenue boutiques to shopping malls to big-box stores. In New York and elsewhere, many shops, big and small, continue to struggle.
Yet the pace of closings has slowed, with the most unprofitable stores weeded out. At this time in 2017, nearly 5,700 stores had gone under across the US, according to Coresight Research, a retail analysis and advisory firm. This year, by contrast, about 4,480 have closed.

Some large traditional retailers like J. C. Penney and Sears continue to sputter, despite closing underperforming stores and jazzing up the ones that remain. But the stronger players are making lemonade of the industry’s failures. Target said it was gaining new toy customers in the wake of the Toys “R” Us liquidation this spring.

The rebound is feeding the broader economy. Hiring has increased, with an average of 50,000 retail jobs being added every month since February, according to the National Retail Federation.

Last year, a wave of retail layoffs fueled fears about the long-term health of a wide swath of the job market. Nearly one in 10 American workers is in retail.

“There has been a shakeout, and 2017 was seen as the bottom,” said Melina Cordero, head of retail research for the Americas at the real estate firm CBRE.

Far from downsizing, many retailers are expanding their physical presence or pumping billions of dollars into overhauling existing stores.

Dollar General plans to open 900 new stores this year, as it deepens its reach into rural America with inexpensive food and clothing. The company is building a huge following in areas where there are fewer places to shop, particularly in the South and in parts of the Midwest.

At the other end of the spectrum, Tiffany announced it was launching a three-year renovation of its flagship store on Fifth Avenue — the setting for the classic film “Breakfast at Tiffany’s” and a magnet for tourists.

The renovated flagship will likely feature expanded retail space as well as hospitality offerings, driven by the success of its in-store “Blue Box” Cafe, which on some days can have a wait list of more than 1,000 people and features a $32 “Breakfast at Tiffany.” Tiffany’s owes nearly all of its success to its stores, which account for over 90 percent of total revenues.

“We have big expectations for this project,” Tiffany’s chief executive, Alessandro Bogliolo, said in a conference call last week. The renovation will likely reduce the company’s near-term profits — but this only further underscore the importance of the move.

One of the most ambitious and expensive makeovers is happening at Target. The retailer took the American suburbs by storm over a decade ago, developing hundreds of big-box stores renown for affordable, hip clothing and furnishings.

But a lot of shoppers got tired of Target’s sprawling and hard-to-navigate stores, and its cool edge had waned. Target has lately set its sights on a new demographic of young urbanites — with plans to launch 30 smaller stores in cities and around college campuses this year.

The new stores aim to be all things to all customers — what the industry calls an “omni-channel” experience.

Shoppers can order online and pick up at the store. Or they can order online and have their purchases delivered home — just like Amazon (in some cases on the same day). Or they can visit the store; employees’ starting salaries were raised in an effort to bolster retention and morale.

“Our stores are at the center of our strategy, and they are at the center of our success right now,” Target’s chief executive, Brian Cornell, explained after the retailer reported its largest quarterly sales growth in 13 years.

Retailers have been rethinking their in-store and online strategies for years. But only recently has Amazon’s staggering success motivated the incumbents to try to reinvent themselves.

Ms. Kahn of the Wharton School of Business noted retailers could have made these changes ten years ago if they had been more responsive to what shoppers want.

“Most people want to spend less time shopping, not more,” said Ms. Kahn, whose book “The Shopping Revolution” describes the disruption in the retail industry.

She noted Amazon’s founder, Jeff Bezos, understood this when he launched the idea of one-click shopping. But many retailers went in the opposite direction, building cavernous stores that take hours to wade through (or wait in line) and commissions that encourage employees to push certain products.

The investments in the new stores and digital options are occurring at an fortuitous moment, when the strong booming and retailers have the necessary cash. But of course any economic weakness could undermine their progress before it takes gets off the ground. Amazon still casts an omnipresent shadow, putting pressure on profits and forcing retailers to keep changing.

“These are big shifts,” said Craig Johnson, president of Customer Growth Partners, a research and consulting firm. “It is like turning around the Queen Mary. You can turn the rudder, but it takes time to see obvious results.”

« | »