Tom Mullaney
As e-commerce websites become more user-friendly and technology continues to provide consumers with new ways — from tablets to smartphones to laptops — to access the Internet at a moment’s notice from just about anywhere, online shopping is more popular now than ever. While many bricks-and-mortar stores are laboring to maintain sales in the face of a struggling economy, online retailers, which now represent nearly 10 percent of all sales in the country, are posting annual gains in the double digits.
What is the secret to flourishing in the face of this shifting landscape? How can established retail outlets avoid losing sales to online competitors? What, exactly, does the 21st century consumer demand from his or her shopping experience, and how can a store meet and surpass those expectations in order to grow their numbers and change with the times?
When approached correctly, the Internet can be a bricks-and-mortar store’s valued ally, but if online sales are ignored or neglected, the company as a whole can suffer irreparable damage. One need look only as far as Tower Records, Borders and Circuit City to see the potentially fatal impact of relentlessly growing e-commerce. To many retailers, this feels like the “barbarians are at the gates.” And yet many savvy retailers like Home Depot, Apple and Victoria’s Secret are embracing e-commerce in a synergistic way.
Platform Agnostic
The first key to staying relevant in an online world is to reconfigure your brand as a channel agnostic shopping experience. Essentially, what it means for stores to become channel agnostic is to ensure that customers have the exact same experience from the brand no matter how they choose to access it, whether that means shopping online, coming into the store in person, ordering online and then picking up from a bricks-and-mortar location or any combination thereof.
For example, how does the consumer feel when researching a Bluetooth headset online from Best Buy and going to the store to purchase it only to find that it costs more in the store than online? Not so good. Shoppers at Walgreens will soon be able to go to the physical store and be guided by their mobile phone directly to the aisle and shelf in the store to find the item they want. There’s no need to find a sales associate or wander around aimlessly. It’s not as quick as finding the item online, but getting closer.
That customer will then be able to pay for his or her purchases instantaneously with mobile payment applications like Pay By Square, which simplifies the purchase process and also helps the retailer reduce checkout labor costs because of the pre-programmed payment by the customer.
Technology is your friend, not your enemy, and smart retailers will make sure that their pricing, organization structure, systems and store-level staffing are aligned so that customers get the same purchase experience, regardless of how they choose to buy the product. Retailers that fail to provide a consistent shopping experience across all channels risk losing business to more reliably channel agnostic competitors.
If bricks-and-mortar retailers wish to stay relevant in a marketplace that is increasingly defined by consumers’ demands and expectations (“I just want it at the lowest cost, right now and with no hassle.”), there are several other mistakes that they can no longer afford to make. One of the most obvious is lacking a user-friendly website for viewing products and placing orders online. It’s no longer enough to simply have a website. Stores must strive to give customers a cutting-edge web experience that allows them to place orders with as little hassle as possible.
Without a doubt, Amazon.com sets the pace in this regard, with a relentless attitude of trying to reduce the number of clicks between the consumer and the arrival of the order at one’s home or business. Keeping up with Amazon.com and other top online merchants is not easy nor is it inexpensive, but for many retailers failing to do so will lead to ceaseless top line erosion, which is expensive too.
Shipping Strategies
Falling behind the curve in terms of shipping capabilities is another significant hurdle that bricks-and-mortar stores must face, particularly in light of online giants like eBay, which recently launched its eBay Now app in San Francisco that gives shoppers the option of a $5 same-day delivery. Additionally, Amazon.com has mastered next-day shipping. Amazon.com’s CFO recently said the online retailer does not see a way to “do same-day delivery on a broad scale economically,” but don’t be fooled. Same-day shipping is coming for many products and many consumers.
Obviously, some products with high shipping cost-to-value will be relatively immune from same-day shipping threats (think of buying a 50-pound sack of Redi-Mix Concrete from your local Ace hardware store or buying a case of bottled water at Stop & Shop).
Additionally, the physical location of many consumers will make same-day shipping cost prohibitive such as rural America, where a fully developed shipping infrastructure of warehouses and trucks is simply not cost effective the way it would be in, say, Atlanta. But for many retailers, the day of same-day shipping is near, which makes online shopping close to irresistible for consumers.
How do you compete in that environment? There are no easy answers, but there are many levers to consider pulling, such as an increased numbers of proprietary stock-keeping units (SKUs) like Brookstone is doing, to converting existing retail stores to mini-distribution centers that both sell retail and fulfill online orders. Many businesses, particularly independent, mom and pop shops without considerable financial resources, will find themselves unable to compete in a world of Amazon.com-like giants offering near-instantaneous turnaround. However, there is still room for them in the marketplace if they find a way to distinguish themselves and provide customers with a truly unique retail experience.
Profitability Is Paramount
A third key hurdle bricks-and-mortar retailers face is quickly exiting from non-profitable stores. A store has predominantly “fixed” costs when it opens in the morning, including the rent, some labor, insurance costs, inventory and utility costs, which are all not easily varied in the short run. As e-commerce chips away at the top line, the impact on operating profits and cash flow is magnified particularly for higher gross margin businesses. For example, a 1 percent decline in sales can lead to a 3 percent decline in cash flow.
Like the proverbial frog in the kettle of increasingly hot water, this may not feel bad at any given moment, but it is exceedingly dangerous. Just losing money until leases expire in five or 10 years is no longer the standard of care in the retail world. Retailers need to be very aggressive in either fixing or exiting unprofitable stores.
Stopping those losses leads to an overall lower cost structure, and every dollar of savings is crucial when you have to compete against low-cost e-commerce merchants like Walmart, Costco and Amazon.com, to name a few. Keeping prices competitive is going to get harder, not easier, and that means ruthless termination of underperforming bricks-and-mortar locations.
Today’s tech-obsessed customers demand low prices, fast shipping, limitless selection and perennial availability. However, they will still make exceptions for those stores that provide them with other, less tangible, qualities that the e-commerce “big boys” like Amazon.com.
Whether this means hiring the most knowledgeable staff, creating a particular atmosphere (be it stimulating, relaxing or entertaining) within the store itself, contributing to the surrounding community in significant ways or committing to the most customer-friendly trial or return policies, the savvy store owner must find ways to create a channel agnostic, web-friendly shopping experience that is also truly special in order to set itself apart from the e-commerce behemoths that offer boundless selection and convenience. If retailers fail to do so, consumers will surely vote with their keyboards, and many bricks-and-mortar retailers will inevitably fade into relics of the past.
— Tom Mullaney is the founding principal with Huntley, Mullaney, Spargo & Sullivan, a nationally recognized retail and restaurant restructuring firm, based in the company’s New York City office. He can be reached at tmullaney@hmsinc.net or (805) 259-9486.