The current retail landscape is one of constant change—disruption might be a better word. Although change is nothing new to the industry, the nature of this change is. Previous innovations, such as big box stores or the Walmarts and Targets of the world were just new industry concepts that worked out well. The shift that we are seeing now might be the biggest we’ve seen in the retail real estate arena, at least since the shopping center displaced downtown as the retail destination of choice.
Below we discuss one of the major challenges/disruptions that retailers are encountering and how it is affecting them.
Omnichannel Is the New Normal
There is more than one way for customers to get their goods, but you already know that—there’s nothing new about online shopping. What is new, however, is how obvious online shopping’s impact has become. There is no longer a concern that “retail is dead,” but the impact of online shopping can’t be ignored.
The impact of online marketing isn’t a surprise to smart retailers who are on top of the shift from a marketing and merchandising perspective. Unfortunately, the same attention is not being paid on the real estate end of things. The party line has been, “What does the physical store have to do with online sales?”
The easy answer is, a lot! If you’re looking to get a better understanding of why, try out these thought experiments:
You don’t have a physical store, but you do have online sales. What’s going to happen to your online sales when you open a storefront that serves that location?
One of three things could happen to your online sales:
- They will decline because people will shop at your physical store instead of doing so online.
- They will rise because your new store will increase your brand awareness and push people to more online shopping. Or, people simply will prefer to shop online because of the convenience of having a store nearby for returns and issues.
- There’s no change; online and in-store shoppers don’t overlap or factors 1 and 2 cancel each other out. This is not a likely possibility though because many people don’t shop exclusively online or in a store.
Now reverse it—you close your store. How will this affect your online sales in the area that was served by your now-closed store?
Just like if you opened a store in a certain area, closing it would have three possible effects on your online sales:
- Sales will decline because the store’s absence takes away your brand awareness and, in turn, your online business.
- Sales will go up because without a store, people have no choice but to shop online.
- Sales stay static; the people who were shopping at your recently closed stores didn’t shop online anyway or the effects of 1 and 2 cancel each other. Highly unlikely either way.
When you pose these questions to your team, there’s a good chance no one can answer them. This doesn’t mean they haven’t inquired about or explored such concerns. The more likely reason for a lack of answers is that there’s no exact solution. Consumer behaviors vary so different trade areas may react differently.
This problem isn’t an easy one to solve. For a little insight courtesy of a report by A.T. Kearney, two-thirds of customers who made an online purchase go on to use the physical store before or after the transaction. Also, only 35 percent of retail transactions take place without any kind of online interaction taking place.
What does all of this mean? Frankly, physical and online retailing are connected, but few retail real estate people appreciate this fact. Alarmingly, this interconnectedness is only going to get worse (or better, depending on how you look at it).
The main thing to remember is retailers, as well as those in the retail real estate industry, must know exactly what kind of impact their physical presence has on online sales. Anyone who ignores this information will be left behind by those who do take it seriously.