Are Traditional Retail Stores in Danger of Extinction?

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This holiday season has seen an increasing number of people using the internet to shop for holiday gifts as opposed to buying them in brick and mortar retail stores. Even the great holiday sales and Black Friday discount madness weren't able to stem the tides of change. These days, customers are more likely to use a retail store as a place where they can get ideas and then comparison shop for the best price by using their smart phones. The problem has gotten so bad that many retailers are struggling to find ways to prevent customers from using their store as a showroom for Amazon purchases.

 

The era of e-commerce is in full swing and frankly, it's about time. After all, Amazon is 20 years old and eBay is only a year younger. It's a change that has been gradual but now brick and mortar retailers need to find new ways to make e-commerce work for them.

 

According to a report at Forbes, there are a few changes that retailers need to make in order to prevent their extinction. Here's a list:

 

Embrace online shopping – Many retailers are paying more attention to their online stores. In fact, many large stores have begun to integrate an online shopping experience into their stores. Macys, a 150 year old retailer, has seen a 40% increase in their online stores. In order to exceed their customers' expectations, they have transformed 300 of their brick and mortar stores into distribution centers. By using their workforce to fill customer orders more quickly, they are able to compensate for the decrease in in-store sales. In addition, Nordstrom has seen a steady 35% gain in their online sales. In stores, they have mobile iPad stations that allow customers to shop the store's website to find items that are out of stock. Since they offer free shipping and free returns, customers are more than willing to use a combination of shopping strategies to get what they want.

 

Change their cost structure – When you buy a product at a retail store, it's been marked up several times. First, the company that makes it charges a certain amount, then the distributor marks it up before selling it to the retailer. From there, the retailer marks the product up again before selling it in store. This is where online sellers have an advantage. Because they don't have the pricey overhead that comes with renting and stocking a store, they can sell the same items at a lower cost. For brick and mortar retailers, being able to match online prices is a losing game.

 

Offer free shipping and free returns – The biggest problem with online shopping is that you can't try things on or touch them before you buy them. I love to shop online, but when something isn't right, paying for shipping both ways just doesn't make sense. Some online retailers even charge “restocking” fees, meaning that returning a $30 shirt that doesn't fit leaves you with a credit of about $7 after paying for shipping and other fees. However, companies like Zappos, that offer a generous return policy and free shipping both ways, have found that instead of costing them more money, the free shipping actually increases the dollar amount that customers spend. For traditional retailers, offering free shipping is a great way to retain customers and increase customer sales. In fact, a hybrid company that offers a place to touch and try on items, even if customers then had to order the correct size from an in-store kiosk could be the future of retail.

 

Subscription clubs – There has been a rise in the number of retailers that are offering a subscription based business. For example, shoe clubs that require you to buy a pair of shoes each month at a low price or accessory companies that offer monthly shipments are easy for people to “set and forget”. These clubs make money over time by guaranteeing that their customers will continue to purchase from their company. When subscription sales are done right, they build customer loyalty. Also, companies like Amazon have even found ways for people to make standing orders of things like groceries and diapers that arrive each month automatically. The customers can set up an automatic shipment and have the charges applied each month. In addition, Amazon also offers a Prime subscription that gives, along with other perks, free 2 day shipping on Amazon products. Even though it costs $79 a year, customers who subscribe shop at Amazon before looking elsewhere. For many people, the convenience of this arrangement makes it less likely that they will ever buy those product elsewhere.

 

For traditional retailers to survive, they are going to have to find new and creative ways to meet the changing needs of their customers and compete with their online competitors. It will be interesting to see how the landscape of the American mall will changes in the next few years.

 

What do you think retailers can do to prevent becoming just a showroom for Amazon? Please share your thoughts in the comments.

 

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  • Melissa Kennedy
    Melissa Kennedy •
    Wow, thanks for the really excellent comments. @Michael, I think that you have a great idea. By giving customers a reason to shop at the store, rather than online would make a difference. @ Chuck, it sounds logical that offering a lower price in-store would motivate customers to shop in person, but I don't think that it's a realistic business model. The reason that Amazon can sell things for less is that they have less overhead. If retailers get into a price war, it will be like WalMart all over again. In order to compete, employees won't be able to earn a decent living and competitors will feel the need to lower their prices. Before long, the only thing being sold will be goods from China - sold by salespeople who receive public assistance because they don't earn enough money to get by.
  • elane h
    elane h •
    I don't shop online unless I can pick it up at the store. The cost of mailing is just too high and I'm not paying that price.
  • Michael B
    Michael B •
    Why do credit cards offer points for using their cards? From the companies perspective, the answer is easy. However, the impact it has made at the register is significant. The consumer makes the decision "what do I get back for spending this money?". If I were a retailer who had both brick and mortar and e-commerce, I would offer something unavailable on-line. Lets call it points. You enroll in a program, you are provided with a card that is used during a purchase and you receive points. Points are accumulated (annually) and you receive an additional discount once purchasing levels are reached. Many retailers already offer something like this but, perhaps it should be more common place.Why do people still spend $20 to see a movie in the theater? You could stream it or rent it for less and watch it in your pajamas whenever you feel like it.. There's something about seeing it when it first comes out and the theater experience that adds an element that is worth the money.  So retailers need to be in tune with the experience that brick and mortar can provide. It's not enough to just merchandise product in a pleasing manner. I think if the atmosphere in the store was more like an experience customers would come, be willing to pay more and probably tell others. I remember going to Las Vegas and the themes inside of the hotels was amazing. Instead of four walls what if a store's walls looked like a street in New York, Chicago, Los Angeles, Miami, where ever. Expensive, sure but  an experience definitely.In my experience the customer who prides themselves on getting something for the lowest price is not the common shopper. They are always going to be out there. I think most people just want a fairprice. Everyone understands stores have overhead and also need to turn a profit. So while In my opinion brick and mortar trying to compete with e-commerce on a price basis will ultimately fail. Incorporate it as a convenience to your customer. However, there has to be some advantage to buying in the store. Since the product is the same that difference has to be in the area of service. Finally, the internet provides a medium for anyone to comment on the products and services retailers offer. A poor product is outside the control of the retailer. Retailers are however, directly responsible for their level of service. I find most poor reviews aimed at retailers revolve around this issue. I believe most people only take the time to post a comment only after the failure of the retailer to solve a service issue. If your price is more and your service is poor, why would anyone continue to shop there? E-commerce or no.
  • ken m
    ken m •
    I think I need to get a job at UPS, or Fed-Ex. Anyway, I, as a retail brick and mortar employee feel that retailers will and are changing to embrace this paradigm shift in the way consumers shop. Grab a hold of technology Corporate Offices, and use it to your advantage, you must bring the two together. Some people will never use self-checkouts, and some will always need paint mixed. Champion the service areas that customers can not get on line, and the rest will follow. choose not to and you will be out of the game....
  • Darwin K
    Darwin K •
    The migration back to the cities by younger customers is a significant change for retailers to adjust to but don't forget who is staying behind in the suburbs and going to the malls that younger customers are abandoning.  The older retired and semi retired folks like myself want to settle down in the suburbs and enjoy the picket fences, DIY projects and big box retailers who can offer immediate gratification for the older customers who want to handle and feel their purchases before putting them on the plastic.
  • calvin w
    calvin w •
    Make sure that the sale price in the store is the same as the online price. Offer exclusives that can only  be purchased in the store.
  • Chuck L
    Chuck L •
    Interesting article and let me start by saying I have been a retail manager for many years. From what I have seen first hand I would say the only way the brick and mortar stores can beat places like Amazon is by having a lower price point.Local stores are being used as a place to try things on and look at colors just so the customer can go home and order it online at a lower price. The only way to counter that is by under cutting the online prices. This can be done but will require a lower profit margin. My suggestion would be to make up the difference by lowering the ridiculous amounts of bonus money the upper executives receive. Believe me the waste of money that is spent in the upper ends of these big companies is like comparing them to the government. I rest my case.

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