Death of Retail is Overblown Amidst “Zombie Malls” Claims

Published on January 31, 2019

Over the past twenty years, the trends in communications and computing technology have swung decisively against traditional retailers: the rise of ecommerce in the late 1990s, the meteoric growth of Amazon, Jet and other mass retail platforms, the shift to mobile e-commerce, and the rise of electronic payments, to name a few.

According to the U.S. Department of Commerce, ecommerce sales have moved from .7% of total U.S. retail sales in 2000 to 9.1% today. These trends have generated a small cottage industry of journalists prognosticating on the death of retail, which has been described as in “meltdown”; at a “tipping point” of no return; and “in a coffin.”

Not to mention zombie malls! Our view is different. If brick and mortars play to their strengths by focusing on experiential shopping and adapt new technologies to mimic some of the benefits of online retail, the shopping pendulum will swing back towards a long-term equilibrium where both online and traditional retail stand — so to speak — side by side.

For all the discussion of the death of traditional retail, brick and mortar stores have certain distinct advantages over online shopping. First and foremost is physicality: the internet cannot (yet) replicate the feel of a ripe avocado, the heft of a wool sweater, or the fit of a boot against your ankle. Nor is a computer screen – or even a 3D hologram – as compelling as the sights and sounds of an actual store. The second is immediacy. You can wait for that perfect pair of heels, but not for a snow shovel. To a lesser extent, retail stores also maintain an advantage in cross-sales. When is the last time you went into a Wal-Mart and came out with one item?

The challenge and the opportunity for brick and mortar stores is to build on their native strengths while chipping away at ecommerce’s advantages. Two factors work in traditional retail’s favor: the social and cultural hunger for experience and the rise of augmented reality.

First, the focus on experience. Big picture, consumers are spending more and more on experiences. Over the past few years, McKinsey & Company reported, consumer expenditures for experiences (dining, travel, leisure activities) have grown four times as quickly as expenditures for goods. The largest growth has been in dining outside the home. Around 2006, consumer spending for food outside the home caught up with spending for food in the home for the first time in U.S. history, and is now 53% of all culinary spending.

This presents an opportunity for traditional retailers who by definition have an in-person audience. Companies like LL Bean and Nike are out in front. LL Bean offers both organized trips and free classes in stores for everything from emergency preparedness to snowshoeing to outdoor photography. Nike’s New York SoHo store has a basketball court (half of one, but who is counting?), a miniature AstroTurf field, and a treadmill in front of a giant screen to simulate running outdoors. Retailers can also find ways to blend online and in-person retail. At Nike’s flagship store in midtown New York, customers can order shoes online, arrive at the store, find a locker with their name on it, try on the shoes and pay without ever interacting with a store clerk.

The second trend breaking in the favor of traditional retail are new technology products, especially augmented reality and 3D printing. Today, shopping online offers access to broader selection and product information, greater convenience, and lower prices. Real world stores may not catch up in terms of convenience and will always carry higher fixed costs. But in-person retail can catch up on selection and product information with the use of these technologies.

For example, take the experience of shopping for a pair of men’s boots. If you shop online, you can look at hundreds of different pairs of boots, compare costs and read in-depth reviews from other consumers. You can order your three favorite pairs in minutes and – a few days later – try them on in the convenience of your home. If you go to the shoe store, you get to try on the boots immediately, but comparison information, consumer reviews, and selection are limited.  Now imagine a shoe store with augmented reality and 3D printing.

When you put on the shoes and walk to the mirror, a screen brings up options: watch the production process, hear a short interview with the designer, or read customer reviews. The mirror lets you select different colors for the boots on your feet and updates your image instantly. Or you never have to try on the boots in the first place – the mirror just places them digitally on your feet until you’ve found the right style and color, and then you try them on. The store is out of your size? They can 3D print a new pair in 5 minutes. Or perhaps there are no shoes in stock at all – they are all printed in house. All of a sudden, the in-person retail experience offers many of the benefits of the online experience plus the benefits of immediacy and feel.

This kind of augmented reality is already commercially available. American Apparel created an AR app that allows customers to scan signs in-store and pull up product information, including customer reviews, color options, and pricing. Timberland created an augmented reality mirror to try on their clothing lines. Lowe’s has developed an in-store navigation app to guide people towards the items on their shopping list.

Of course, online retailers aren’t sitting still. Amazon hopes to reduce the lag time between ordering and receiving with their drone delivery service, diminishing the benefit of in-person shopping. The entire online apparel industry has moved towards free returns because of the challenge of feel and fit. Some brands are developing apps to let you “try” on a shoe at home. While online retail is expanding quickly, it’s still under 10% of the market, leaving plenty of room for growth. In the long-run, both sides will have a competitive advantage.

What traditional retailers have and will maintain is an ability to engage consumers. With the right investments in experiences and technologies, they can leverage that into a sustainable business model. Ernest Cline’s epigraph for Ready Player One could also be said for clothing, furniture, kitchenware, and a million other goods: Reality is “still the only place to get a decent meal.”

Jeffrey is a Columnist at Grit Daily and the General Partner at Camber Creek. Jeffrey runs Camber Creek’s New York office where he sources deal flow and coordinates customer acquisition, retention and marketing strategies for Camber Creek’s portfolio companies. In addition to coordinating investments in numerous portfolio companies. Jeffrey brings close to two decades of executive experience in the real estate industry and holds a BA from New York University’s Stern School of Business. Jeffrey currently serves on the boards of a number of Camber Creek portfolio companies.

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