A closed store sign

The Myth of Retail Apocalypse, or Why Offline Stores Are Here to Stay

The retail apocalypse as a phenomenon was first spoken about in early 2017 when 8,600 stores were closed together with a bunch of large shopping malls. The number is even greater than 2008’s when 6,200 points of sale shut down. By that year, it was a total record.

However, Moody’s rating agency claims that the wave of closures in 2017 is a natural phenomenon and a proof of qualitative growth. It means that brick-and-mortar stores should — and will — change, but won’t vanish for good.

In this article, we’ll debunk the myth about the current state of physical retail and try to clear out the role of brick-and-mortar in the retail’s near future.

Why physіcal stores are here for good

The mass closure of offline stores is usually associated with the rapid growth of e-commerce, particularly with the rise of the “online giants” like Alibaba and Amazon. The latter covered 53% of USA e-market in 2016.

Nevertheless, e-commerce’s market share in the global retail is only 9-10%. This means the decrease in retail spaces happens not only due to the growth of e-commerce but because of other factors like:

  • Rental cost rise
  • Consumers prefer buying more practical products
  • Customers’ expectations grow
  • Buyers are looking for a digital experience in stores

That’s why we can’t assert that e-commerce takes over physical retail. Even more, traditional retail outlets keep growing and developing. Here are six facts that prove it.

1. The number of physical stores is growing, not falling

According to the Debunking the Retail Apocalypse report by the IHL Grouр research firm, the number of physical stores in the US has increased in 2017, especially in these three key segments:

  1. Mass merchandisers like WalMart (+1,905 stores)
  2. Supermarkets (+1,700 stores)
  3. Grocery stores (+674 stores)

Here some more facts from this study:

  • In general, the number of physical sales floors has increased by 1,326 stores in 2017
  • 42% of retailers have increased the number of their stores, while only 15% have decreased their amount
  • The biggest share of the closed stores belongs to the apparel segment. However, for each closed store (out of 3,137 in total) there is 1.3 newly opened store.

2. Nine of ten major US retailers do not specialize in e-commerce, with Amazon being the tenth

According to the Top 100 Retailers list by STORES magazine, nine of ten leading retailers in the US are traditional brick-and-mortar stores: Wal-Mart Stores, Kroger Co., Costco, Home Depot, CVS, Walgreens, Target, Lowe’s and Albertson’s. The only online-focused retailer in the top is the e-commerce industry leader, Amazon.

Except for Target, all retailers from the list have seen growth in 2017, whereas 55-year-old Wal-Mart, the country’s largest retailer, grew by 8% last year.

3. Millennials and Generation Z prefer physical stores

Millennials (born between 1980 and 2000) are still the most numerous group of consumers. According to a study by Accenture, there are about 80 million of millennials in the US who spend about $600 billion annually.

As the CBRE data show, despite the digitalization of the generation and the widespread usage of smartphones for communication and shopping, 70% of millennials still prefer physical stores.

Generation Z is the next financially solvent generation of consumers. By 2020 it will have reached the amount of 2.6 billion with buying capacity of $44 billion. According to the CrowdTwist study, 57% representatives of Generation Z prefer to buy in physical retail stores.

4. E-commerce players go offline

Online retailers are making bets on physical retail to attract buyers who are not used to buying in online stores. Even Amazon, understanding the importance of physical retail for successful sales, opened their Bookstore. Later, in summer 2017, the company bought Whole Foods Market, a grocery stores chain.

Here are some more examples of online retailers opening brick-and-mortar stores.

In 2016, Google opened its first retail store. The showroom opened in New York displays all Google’s tech products — from Pixel smartphones to Google Home smart speaker.

Google Home smart speakers at Google offline pop-up store in NY

Google Home, voice-controlled smart speaker. Google pop-up store, New York, 2016

Sephora, an online cosmetics and beauty products retailer, opened its concept stores in summer 2017. The idea behind these stores is taking care of Sephora’s customers and showing brand’s expertise. The customers can sign up for a make-up, get advice, or choose some cosmetic procedures.

Sephora cosmetics and beauty store with digital signage and interactive screens

Concept stores are equipped with the Sephora + Pantone Color IQ touch screens that help customers to find and choose cosmetics perfect for their skin tone

Bonobos, an online menswear retailer, opened so-called “guide shops”, concept stores where customers can get advice from a personal stylist, try on the items they liked, and then order them from the online store.

A customer and a personal stylist at the Bonobos menswear store

Bonobos website offers its customers a feature to make an appointment with a personal stylist

Blue Nile, an online jewelry retailer, opened a store in a shopping mall outside New York. The brand made this decision to go offline they got 50% more sales just presenting their products at wedding expos.

Blue Nile jewelry store with interactive kiosks on tablets

Blue Nile opened physical stores that offer their visitors to try on brand’s jewelry

5. Offline retail absorbs online marketplaces

Traditional retail merger online stores:

In 2016, Hudson’s Bay Co., the owner of Saks Fifth Avenue and other department stores, bought the Gilt Groupe online clothing store

In 2011, the network of Nordstrom department stores acquired Haute Look, an online store specializing in flash sales of designer goods

In 2016, the Bed Bath & Beyond retail chain bought One Kings Lane, a household goods web store known for its flash sales

Yet, the leadership in this hunt for major online stores belongs to Wal-Mart. The retailer has already acquired Jet.com, Modcloth, a clothing brand, and Bonobos, an online menswear store.

Offline stores are yet to change

Physical retail won’t disappear, but it will evolve. In addition to sales which is the key function of any store, retail spaces will offer some new interesting shopping experience to their customers.

Therefore, retailers are already integrating their sales channels into omnichannel strategies, using digital technologies and experimenting with sales floor concepts.

Traditional shopping malls are also changing, turning from sales locations into interactive platforms. For instance, each of the 26 long-term tenants of the Platform shopping mall must offer a unique client experience for their location to rent a space there.

Retailers follow consumers, and consumers prefer to choose brick-and-mortar stores.

Summary

  • The so-called “physical retail apocalypse” is an exaggeration. This year alone made a start for 1326 new physical stores.
  • Physical retail is developing and growing constantly. Here are 5 proofs:
    1. Physical retail is still growing: 42% of retailers have increased the number of their stores while only 15% have decreased their amount.
    2. Nine of ten major US retailers do not specialize in e-commerce.
    3. The most numerous and solvent generations — millennials and Generation Z — prefer physical retail.
    4. E-commerce players go offline.
    5. Large offline retailers absorb online stores.
  • Physical retail won’t extinct, but it will change. Retailers are already becoming omnichannel, implementing digital technologies and making experiments with the retail spaces.
  • The “physical retail apocalypse” is, in fact, a qualitative change of brick-and-mortar sales points rather than their death.