Contrary to some reports, traditional retail isn’t dead. But there’s a lot more painful retrenchment to come before chains such as Macy’s (M), Target (TGT), Gap (GPS) and Walmart (WMT) are likely to thrive again.
It’s no secret that Amazon (AMZN) and other online retailers are gobbling up dollars consumers used to spend at physical stores. Some activists want chains such as Macy’s to offload real estate and sharply downsize their physical footprint. “I look at it differently,” Tom Andrews of consultancy SY Partners explains in the video above. “You turn it into a destination. You make it an experience.”
Most retail CEOs understand that in an era of online-shopping and rapid home delivery, they can’t just stack merchandise on shelves and expect consumers to show up. The trick is turning a store visit into a fun, meaningful experience that trumps anything shoppers get online. And while it’s taking a long time for many chains to get there, a few stores signal where the future of retail is heading.
Andrews cites brands such as REI, where outdoor enthusiasts can get expert advice from adventuring experts on staff and interact with other customers who share their interests. Starbucks now has several stores at Disney (DIS) resorts that feature cartoons, props related to surrounding exhibits and other items that connote an amusement park more than a coffee shop. And the startup Story, in Manhattan, is a store that changes its entire theme every month or two, surprising customers and giving them a brand-new environment to explore.
Apple (AAPL), which operates the most profitable storefronts ever, has just expanded on its own experiential retail concept. It will revamp its stores and add features such as giant video screens, new hangout areas and concerts and presentations from time to time. A few select stores will feature a "plaza," a parklike outdoor area with trees, fountains and round-the-clock wifi.
“What you’re looking at,” says Andrews, “is a future that’s part retail as we know it, part entertainment… and partly educational. It’s going to be this great mashup.”
Part of the answer is the incredible power of Amazon and its Prime two-day shipping service, which has made shopping at home the most convenient way to buy nearly everything except perishables and some unique items. But it also takes time for large retailers to revamp the playbook of the last 50 years and learn a whole different form of selling. The bungled turnaround effort at J.C. Penney (JCP) under CEO Ron Johnson, meanwhile, stands as a cautionary tale warning retailers not to antagonize their core customers or change too fast.
Another part of the problem, Andrews says, is aggressive shareholders who want maximum returns today, which usually comes at the expense of future investment and innovation – the very things that keep or bounce you out of a rut. The winning retailers will be those able to keep shareholders just happy enough while becoming less like stores and more like amusement parks or movie theaters. The losers are the ones that, five years from now, will look just like they do today. If they’re even around.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.