Retail sales in 2016 were dominated by eCommerce and technology driving purchases. The forecast for 2017 shows more of the same and thinning ice under the feet of some big name businesses.During the 2016 holiday season, Amazon leads all online retailers capturing close to 37% of online sales. Big box retailers have taken notice and began investing in their website and eCommerce platforms. The companies that don’t (remember Borders) often don’t succeed. Customers today are seeking immediate gratification and being able to pick up an item same day or have it shipped with two-day delivery is more appealing than fighting crowds and standing in line.
It's happened before
Customers are not foregoing the local store in favor of a website because it’s trendy, the economy is making a shift towards digital, not a transformation. The same type of shift happened when consumers opted to stop going to the corner market and instead shop the local department store. The larger retailer had a greater selection and better hours. The small mom and pop shops began to fade and department stores popped up bringing more shopping options.
Fast-forward to today and the shift is on again; customers are seeking more options and more accessibility. When was the last time you picked up a catalog, made a phone call to customer service, placed an order and you were actually okay with waiting for your item to arrive in five to seven days? Now a customer can research a product from their couch using their digital device and make a purchase 24/7, in line, at a competitor or even at a red light.
No one is safe
The costs affiliated with a brick-and-mortar store are driving retailers to lean towards running an online store. Leasing commercial space is expensive, in some cases more than $40 per square foot. Whether the space is used for retail or storage, utilities become a factor as well as the human resources needed to meet customer needs.
Chicago-based t-shirt company, Threadless, was once touted as “the most innovative small company in America.” Threadless sold custom t-shirts designed and voted upon by their customers. Originally a 100% online company, the staff was small and revenues soared to more than $30 million between 2005 and 2012. In an effort to expand, Threadless opened a brick and mortar retail location in 2007. However, it became clear the decision was not going to work, and after seven years, the store was closed and almost 25% of its employees were laid off.
Recognizable brands such as Sears, Kmart and Macy’s are closing more doors as they become less profitable. During the next 18 months, more than half of Abercrombie and Fitch’s 745 retail locations will meet similar fates and American Eagle has 185 properties being evaluated.
Macy’s CEO Terry Lundgren acknowledged the shift in the retail experience when recent closures were announced in early 2017.
“We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape,” Lundgren said. “These are never easy decisions.''
Online retail locations level the playing field. The corner shop and the big-box retailer can compete for the same customer using their website and mobile apps. Their customers can shop 24/7/365, overhead is low with no massive retail space and fewer employees and the marketing saying of “location, location, location,” is removed from the equation.