What is the future of brick-and-mortar retail when e-commerce is so easy? How did Walmart fight back against Amazon Prime Day, advertised as summertime Black Friday?
Imagine a consumer going into Best Buy and spending an hour with a sales associate explaining all the pros and cons of a big-screen television. After the consumer is pleased with the information gathered and has narrowed the search down to one television, he pulls out his smart phone, uses the Amazon app to scan the bar code, and finds the product for a lower price delivered to his doorstep the next day. And, by the way, that consumer may not have had to pay the sales tax associated with the product. (Amazon currently collects sales tax in 25 states.)
Best Buy is downsizing locations across the country. Circuit City filed for bankruptcy in 2009. The demise of Blockbuster in 2010 happened only a few years after the rise of Netflix. Radio Shack announced the sale of 2,400 stores early this year. Consider a Radio Shack advertisement from the ‘90s that shows a computer, radio, camera, VHS Camcorder, CD player, hand-held cassette tape recorder and answering machine. If you were to purchase every item in the advertisement, the combined cost in the early ’90’s would be in excess of $3,000. Today, a person can find all these accessories in a single smart phone.
Over the past decade, the winners have been retailers who determined how to add value and convenience to the shopping experience. The growing trend of e-commerce shuttering brick-and-mortar locations awoke the real estate industry. A lively conversation was sparked regarding the future effects e-commerce and technology will have on consumer shopping trends and, therefore, real estate. Panic seized the brokerage community … until they did a little research.
While e-commerce was the fastest growing trend, it still only accounted for approximately 6 percent of overall retail sales. Online sales are a critical component to incorporate; however, they will not be the demise of brick-and-mortar locations. The conversation has since shifted to omni-channeling.
Omni-channeling is the seamless integration between brick-and-mortar locations and e-commerce. Retailers are finding ways to combine the convenience of e-commerce with the shopping experience found in brick-and-mortar locations. Walmart battled Amazon Prime Day with “Rollback” Cyberday, which coincided with Prime Day. Arguably this is the first time Walmart has ever beaten Amazon in customer satisfaction.
While traditional retail brands build an online presence, online stores are focused on brick-and-mortar locations. Amazon is reportedly testing a drive-through grocery concept in Silicon Valley. Zappos, the online shoe store, opened its first location December 2014. In March 2015, Google opened its first store in London.
Consumers are spending their money where they can have a pleasant and well-informed shopping experience. Traditional retailers are getting creative finding ways to use technology in two very dominant ways.
First, consumers are now savvy shoppers who expect value discovered through research or experience from brand loyalty. Retailers are providing them the online shopping tools necessary to inform the shopper prior to the store visit, creating a higher conversion rate when shopping in the physical location.
Second, they are using big data to collect key analytics on their customers, driving informed decisions for marketing and real estate strategies. Rewards programs track not only your purchasing patterns but also your household, which will drive future real estate decisions. Once a consumer is in the store, technology exists that allows a store to track movement by cell phones. The ability to watch how customers maneuver through the store and how much time is spent in each section or at a particular display provides management real-time data for immediate decisions for staff and product displays. This technology can also send a customer a coupon to their cell phone while viewing a particular product.
Most retailers have opted out of this marketing option because it scares consumers. The intentional invasion of privacy is a turn-off. The data being collected through the technology, however, is driving more intelligent real estate decisions for not only retail store locations but also fulfillment centers. Fulfillment centers need to be in close proximity to their core customers’ homes. This will allow for same-day and next-day delivery to compete with the standard Amazon has set for the marketplace.
In 2013, Macy’s began an omni-channeling initiative by converting a portion of the retail store square footage into fulfillment centers. Approximately 500 stores serve a dual purpose. From 2012 to 2013, online sales increased by approximately 30 percent. In January 2014, Macy’s built a $170-million direct-to-consumer fulfillment center in Tulsa County, Okla., employing 1,500, with 1,000 additional seasonal positions. One year later, the retailer expanded its Sacramento County fulfillment center from 92,000 to 385,000 sq. ft. (8,547 to 35,767 sq. m.). Closing big-box retailers Kmart, Sears and JCPenney have not adopted Macy’s omni-channeling strategy. Embracing an online presence is now a critical component for survival.
How are the changing trends in e-commerce vs. brick-and-mortar effecting municipalities? There is a misunderstanding among average consumers regarding online sales tax. In June 2015, the Remote Transactions Parity Act was introduced in the U.S. House of Representatives. This legislation, supported by the International Council of Shopping Centers (ICSC), Amazon and others, provides greater protections for businesses than previous efairness bills. Similar to its predecessor the Marketplace Fairness Act, it will create clarity and close the sales tax collection loophole.
Currently, when a consumer makes a purchase online and does not pay sales tax, he or she is required to file a claim and pay the sales tax for online purchases to the state on either yearly income tax forms or entirely different tax forms. However, the confusion, inconvenience and difficulty of this process often leaves those taxes uncollected. Cities and states are suffering from millions in uncollected taxes. The areas most affected by this loss are rural areas. Due to the lack of options for brick-and-mortar shopping in these areas, online purchases are substantial — and municipal budgets are not.
In addition, when a new retailer is analyzing whether or not to locate in a market, the bottom line is profitability. One way to predict potential store sales would be to compare the existing retailers’ store sales to national averages. If sales are low, it raises the risk for the potential new retailer. When a purchase is made online, it is not driving up the local store sales, confusing the marketplace on the sales potential for an area.
Every purchase a consumer makes drives the future trends of the marketplace. Brick-and-mortar locations will remain. E-commerce will remain. Companies that do not integrate the two will not.
Lacy Beasley is Vice President of Business Development, Retail Strategies (www.retailstrategies.com).