Popular stores around the world have closed hundreds of stores in the past few years. In the US, stores like Macy’s, American Apparel and Gap are competing against Amazon. In 2019, there were 59% more store closings compared to 2018 (Reyhle, 2020). This ‘retail apocalypse’ is happening everywhere. In Europe, fast fashion brands like H&M and Inditex (owners of Zara and Bershka) are closing doors to focus on their online offerings (Ho, 2020).
The retail apocalypse has started in 2010 and is continuing onward. The main driver of this phenomenon is the shift to e-commerce, facilitated by the digital age we live in. Online shopping became possible when the internet opened to the public in 1991. Amazon was one of the first e-commerce platforms in the US to disrupt the traditional retail industry. Today Amazon and other online-only e-commerce players are forcing traditional retailers to shift their operations to an online platform. Not only do retailers save rent and labour costs by doing so, they also have to keep up with rising consumer expectations. Consumers want a convenient shopping experience, fast delivery and product availability; things they cannot get from physical stores. E-commerce reduces consumers’ search and retail costs, as they can easily learn and compare prices (Pwc, 2020).
The recent COVID-19 pandemic has stimulated consumers to shift to online stores even further. It has forced consumers to change their beliefs and behavior about many daily activities. For example, a study by McKinsey & Company shows that 15% of consumers in the US tried online grocery shopping for the first time during the pandemic (Charm et al., 2020). They did so in order to limit social contact. The majority was delighted by the experience and says to continue online grocery shopping, even after the pandemic. When consumers are positively surprised about a new experience, they are willing to repeat the behavior. The pandemic has therefore forced consumers to adapt to online shopping.
Convenience, price comparisons, product availability, the global pandemic. All these factors undoubtedly seem to have changed the role of physical, brick and mortar stores. It raises the question of whether physical stores are even necessary today. However, brick and mortar stores do have an advantage over e-commerce: allowing customers to physically see, touch and evaluate products. Research (Reyhle, 2020) shows that customers who go to retail stores become more engaged with the retailer’s brand. If they cannot find the right size, colour or type of product they evaluated in the store, they order it through the online channel. This illustrates the need for both physical and online stores.
It is important for physical retailers to recognize that today’s consumers are omni-channel, meaning that they use physical and online stores interdependently in their purchasing process (Reyhle, 2020). Physical retailers should therefore rethink their strategy in order to provide the most convenient experience to the omni-channel consumers, physically and online. They could, for example, think of their physical stores as showrooms of their digital channels. Only then can they survive in the current state of the digital age we live in.
What do you think: will consumers’ behavior change so that brick and mortar stores become unnecessary in the near future? If so, will they disappear completely?
References:
Charm, T., Dhar, R., Haas, S., Liu, J., Novemsky, N., Teichner, W. (2020) Understanding and shaping consumer behavior in the next normal. [online] Available at: <https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/understanding-and-shaping-consumer-behavior-in-the-next-normal> [Accessed 6 October 2020].
Ho, R. (2020) H&M And Zara Are Closing Retail Stores To Boost E-Commerce. [online] HYPEBAE. Available at: <https://hypebae.com/2019/8/hm-zara-closing-retail-stores-online-shopping-ecommerce> [Accessed 7 October 2020].
Pwc.de. (2020) [online] Available at: <https://www.pwc.de/de/human-resources/studie-surviving-the-retail-apocalypse.pdf> [Accessed 7 October 2020].
Reyhle, N. (2020) Brick And Mortar “Showrooms”? How Stores Can Survive In The Digital Age – Retail Minded. [online] Retail Minded. Available at: <https://retailminded.com/brick-and-mortar-showrooms-how-stores-can-survive-in-the-digital-age/#.X34pNJMzZQJ> [Accessed 6 October 2020].
Hi Milica,
Thank you for your interesting blog post. I think this topic is very relevant and even urgent to a lot of companies considering the situation we currently live in. It actually is already happening, and like you mentioned, it is time for physical retailers to rethink their strategy before it is too late. An example of a physical-only retailer is this vintage store I follow on Instagram, who does not have an online shop, but does extract value from posting their clothing items on Instagram and encouraging people to come by and shop them in their physical store. This seems to work well for them: the items posted on their stories always sell out immediately! This makes me wonder whether they would be able to continue to survive without an official e-commerce platform for an extended period.
Considering your question, I think there is still value in physical stores. However, as you mentioned, I think these are already serving as more of a showroom than the main go-to stop for retail. One major downside of e-commerce that is becoming more prevalent is the destruction of products that are being returned for free by customers. The returned products are being destroyed as there is no additional value in repackaging them, etc. Clearly, this is environmentally unfriendly and unproductive, but online stores sometimes seem to have no other choice than to offer their free returns. This has resulted in the rise of movements vouching for a more conscious online shopping experience, where the customer will be responsible for the costs of returning products as well. Maybe this will have a positive impact on physical stores?
Best,
Julie Oud
Hi Milica! Thanks for sharing this article. This question has been a hot topic for a few years now.
As you stated in your blogpost there were more offline store closings in 2019 compared to 2018. So from that point of view, you could suggest that online shops will win against the offline shops. However, Coolblue which is an online shop from origin opened online stores in 2019. I think that companies in this digital era should operate out of a digital business model, which Coolblue execute perfectly.
Another example is an omnichannel approach, which you mentioned in your post. Kruidvat, for example, has an omnichannel strategy. A smart thing that they do is that they give their customers the option to deliver their online bought product to the offline store. Customers can take their product whenever it suits them in the offline store and they are assured that the product is not sold out. Consequently, Kruidvat hopes that these customers buy some products in the offline store in the meantime they pick up their package.
Next to that, companies which sell their products predominantly offline and want to switch to a more online focus should be aware of the fact that online shops are a completely different expertise. Things like SEO and SEA and rich content optimisation are daily activities of online shops whereas offline stores never did business in.
Hence, in the end, I wouldn’t say that brick and mortar stores will disappear completely but offline and online stores become complementairy in order to serve their customers at best.
Dear Milica,
To answer to your question, I think yes. I think customer behavior will increasingly change and brick and mortar stores will slowly disappear. Smart cities will be with only few shops and large depots will be found in the country side. Even the advantages of the brick and mortar stores will be replaced by online alternatives. This makes me think of one of my personal experience. Ace&Tate is an optician that offers in their website a 3D try out of their product. It is very well made and you get to try, order and get your glasses delivered without going at the shop once! This is very efficient specially in times like these with the virus. I do believe physical retailer should start thinking about a different strategy!
Dear Milica,
Thanks for this post, very interesting read and so relevant in these pandemic times.
Online shopping brings so many advantages for the consumer over brick and mortar stores, especially their convenience with sellers so often providing free returns. Yet, there are also many products which are too large and expensive to ship to provide such an option, making buyers hesitant to buy them online. For the retailers themselves; online shopping also provides them with so much more data to take decisions and expand/improve their business. However, retailers are now also starting to collect data from brick and mortar store through cameras reading off peoples positioning and actions as well as physical characteristics. Contactless shops are also turning up where customers only go inside, pick the items and go out, with everything being automated so no need for any contact points.
Considering the existing disadvantages with e-commerce I think the complete disappearance of brick and mortar shops is possible too far in the future to be worried about today. However, I believe many firms relying on such channels will disappear. Consider the option where the buyer thinks its too big a risk to purchase a large item online; they can always go look in a store then buy it from the cheapest online vendor. However, it will still be profitable for someone in the industry to still provide showrooms for customers to browse and experience the items pre-sale.
Thank you for the article, it does indeed provide an interesting discussion. I do think that brick and mortar stores will always maintain some sort of irreplaceable function in retail although this does decline due to the online possibilities. The convienence of a physical that has immediate delivery and allows the consumer to physically feel and test the product just is not possible online. In the meantime however online shopping is not yet totally done with it’s development with developments in VR and AR possibly being able to offer some of the advantages of physical stores online. E-commerce will never be able to fully replace physical stores but it will still be interesting to see how big the role of brick and mortar stores will be in the balance of omnichannel retail.