The Future of Brick and Mortar Retail, What to Expect
The pandemic feels like the great reckoning of brick and mortar retail but is it? Even during a time when online sales are surging brick and mortar retail is resilient. In the third quarter of 2020 85.7% of retail sales took place in stores in the United States. Why are consumers still shopping in stores during a pandemic? The long lines outside of stores before government mandated lockdowns in North America last year defy logic. If anything shouldn’t this be the time when people abandon stores for good?
While eCommerce is convenient it has its inconveniences. How patient is the average consumer? How patient are you? Most people don’t like to wait for, well, anything. Whether that’s for a promotion at work, a sales associate to greet us or for a love interest to respond to a text message. With that in mind you can see why sometimes it’s just more convenient to walk into the store across the street and get what you want instead of waiting for a package to be delivered. Our impatience isn’t going away and after the pandemic is gone and even along the way the brick and mortar retailers that help us with our patience affliction are poised to do well.
In the first half of 2020 it was Target’s same day services that experienced the highest growth. These services include same day Drive Up (curbside pickup), which had the highest growth rate up 700%.
While we like shopping online instant gratification is often a greater lure. You probably felt this way during the holiday season when packages took longer to arrive than normal even when you started shopping early. But even outside of the holiday season if you spend a week searching for a product you want to buy, say a new jacket it’s kind of a letdown when you realize you have to wait to receive it. No one likes waiting especially when you have purchased something you are excited about.
Another reason stores aren’t going away is because there isn’t a good enough replacement for them. Imagine a world where you stayed at home and barely left your house and boxes arrived every few days carrying your online orders. If you read that statement in 2019 you might have envisioned a future where consumers enjoyed that kind of existence. That scenario has already happened. It took place in 2020 and it continues on in 2021 during the pandemic. It turns out that human beings are social creatures and they don’t like being stuck at home.
If you are venturing out on the weekend a trip to the mall or the grocery store isn’t a bad way to spend your time. Many of us will actually appreciate these mundane activities even more once they are safe to partake in without restrictions. They say if you want to teach someone to appreciate something take it away. Mission accomplished.
So if stores are here to stay what should we expect? Because millions of consumers tried new retailers during the pandemic for the first time the retail industry is going to be more competitive. That customer who was loyal to your business for so many years may not be so loyal anymore. That’s the real challenge. Consumers are going to shop in stores but once the pandemic is over are they going to shop in yours?
What the pandemic really did is it showed consumers there are more options. Think about a 35 year old male that before the pandemic used to walk to his favourite local grocery store for his weekly shopping trip. During the pandemic he started shopping at Walmart for the first time because it offers eCommerce and his local grocer didn’t at first. After using Walmart over a relatively long period of time during the pandemic he may not return to his local grocery store in the future.
For that small retailer it’s no longer about the threat from online shopping it’s about the threat from Walmart and many other large retailers that are even larger now. Even Amazon is thinking more about Walmart that’s why Amazon opened a new brick and mortar grocery chain in the middle of a pandemic called Amazon Fresh. That 35 year old male consumer may very well continue to shop in Walmart’s brick and mortar stores after getting used to Walmart’s low prices. When thinking about the future of brick and mortar retail the conversation should shift from discussion about its imminent demise to brick and mortar retailers that are performing well.
One thing we can learn from thriving retailers is that convenience is important. Walmart began investing in grocery pickup nearly a decade ago in 2013. While many were predicting the fall of brick and mortar retail Walmart dug its heels in and focused not just on eCommerce but on investing in its stores as well. Those investments have paid off. Walmart’s third quarter sales in it’s 2021 fiscal year where up 5.2%. eCommerce sales which were buoyed by Walmart’s omni-channel offerings were up 79% while same store sales were up 6.4%. If Walmart had given into the hype that brick and mortar is dying or stores are just showrooms it would not have been as successful during the pandemic.
Walmart is not the only retailer focusing on convenience so is Starbucks. Starbucks has modified its store strategy. Starbucks stores have always affectionately been known as the “third place” between a customer’s home and work. But Starbucks can’t ignore that many customers are opting to take their orders on the go. Starbucks is planning to close 400 stores in North America by the end of 2021 and open 300 with a focus on pickup and takeaway. 80% of Starbucks transactions are already “on the go” and in the first quarter of 2020 17% of Starbucks transactions in the United States were mobile transactions. "Our vision is that each large city in the US will ultimately have a mix of traditional Starbucks cafés and Starbucks Pickup locations," Starbucks said in a statement. People don’t mind shopping in person they just may not want to spend as much time shopping as they did in the past.
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What about experiential retail? Do you need to focus on events and entertainment to get customers in your doors? What’s interesting about the strong sales growth in 2020 from Walmart, Costco and dollar stores like Dollar General is that their stores aren’t fancy or event driven. Instead these retailers are focused on value. The pandemic has taken a serious toll on the financial fortunes of millions of people. People are literally struggling to make ends meet. If you are struggling you are going to choose retailers where you can save money. This is a trend that at times gets lost in a sea of retail news.
Why do people shop at Amazon? Fast shipping is definitely a great perk but if Amazon didn’t have low prices it would not have gained its place in the retail sector. If you have a retail store post pandemic it’s not going to matter if you have the best in-store technology or the best events if you don’t offer consumers great value. It’s easy to say focusing on value is cliché but Walmart, Target and Costco all have that in common and it’s not a coincidence. Those are the retailers consumers are overwhelmingly choosing to shop at, not mid-priced department stores or smaller retailers that are struggling to be price competitive.