The future of retail and brick-and-mortar stores
Yesterday and tomorrow.
The other evening I was talking with a good friend who was a pioneer in the showroom business.
He recently retired from the day-to-day operations of running a DPH showroom, but his interest in our great industry remains strong. He made the comment that in his opinion the next five to 10 years will see very dramatic changes in retailing and brick-and-mortar stores as we know them today. He even suggested many current DPH showrooms will either not survive or will have gone through drastic changes.
Needless to say this stirred me up. It prompted me to spend several weeks doing a lot of research on this subject. Now you’re thinking, I’m a wholesaler who happens to operate a side business called a showroom. Well folks, that showroom is much more of a retail business than a wholesale business, even if you are one of the few holdouts that still “protects” the plumber and doesn’t sell directly to the homeowner. In my opinion, if you operate a showroom and haven’t gone to school on how to be a great retailer and merchandiser you will be in real trouble.
Please allow me to share some of what I’ve learned in doing an in-depth study of where retail has been, is today and will be in 2020 and beyond. Quite frankly, my head is spinning and I’m having a hard time assimilating all the information I’ve been able to dig up. In some respects I’m glad I sold my business, and in other ways I wish I still did own it because the next several years are going to be exciting and challenging and I like both emotions.
Times are changing faster than at any time in our past. If you believe showrooms are a viable part of your business plan today and into the future, you are going to have to make some dramatic changes. Operating a showroom in 2020 will be nothing like today. The train is rapidly approaching the station and I don’t want you to miss it.
Retailing has a long history, dating back to medieval traders and merchants. For thousands of years retailers operated locally with merchandise often limited to a single product category. All that changed in the post-industrial period. As incomes rose and middle markets emerged, so did the consumer’s appetite for consumer products. With that, we saw the roots of modern retailing change as channels of distribution began to evolve. Since then, modern retailing has rocketed into one of the largest industries in the world.
During the first half of the 1900s retailing was dominated by mail-order merchants that offered a broad assortment of just about everything available in the market. Market leaders included Sears Roebuck & Co., Montgomery Ward and JCPenney — all of whom published immense catalogues that became staples in every American household.
Large cities were centers for retail shopping as enormous emporiums full of beautiful clothing, accessories and home goods from around the world became shopping destinations for affluent Americans. Names such as Macy’s, Wannemaker’s, Lazarus and Dayton’s were among the famous ones of that era. These retailers provided one-stop shopping and fair pricing for a wide variety of foods and household goods.
The period of 1950 to 1975 saw even more changes. As consumer demand accelerated retailers responded, they followed consumers to new suburbs being developed along major new interstate highways and built large shopping centers conveniently located near where consumers lived. These shopping centers became the new destination for retailing, housing department stores, national chains and other small specialty stores all in one convenient location. By the end of this era there were more than 2,000 shopping centers and more than 20 department-store chains in the United States.
One of the items I came across in my research was an article in the New Yorker entitled “Are Malls Over?” Pretty much the answer was, “yes,” at least in the way we know them today. Think about it, main anchors of many of these malls were/are Sears, Penney’s, KMart and Best Buy. All these stores are fighting for survival, but that’s another subject altogether.
The next big changes in retailing occurred in 1975-2000 with the emergence of the “big boxes.” It started with Toys “R” Us, and these “category killers” aggressively grew in the 1970s and 1980s. They included many product segments including sporting goods, electronics, office supplies, home furnishings, books, pet supplies and yes, home improvement.
Together with traditional discounters and specialty stores the “category killers” began to take significant share away from department stores. Walmart emerged as the clear market leader in this period and forced many traditional discounters out of business as its supply-chain efficiencies and sophisticated use of IT provided it with an undisputed price leadership position. Among the top 100 discounters that operated in 1976, only 24 remained in business in 1992.
Toward the end of this period we began to see the early stages of what would become the next “revolution” of retailing. Enabled by the launch of the World Wide Web in 1991, online retailing or e-commerce as it was labeled began to show up in the marketplace. The explosion of personal computers and widespread availability of the Internet marked a big change in innovation not just in retailing, but also in every aspect of consumers’ lives.
Internet realities and the future
With a huge advantage in terms of selection, convenience and pricing, plus the ability to instantaneously provide expert information and product comparisons, the Internet quickly has become a very serious shopping alternative to traditional brick-and-mortar retailers. As you are well aware, that includes your showrooms. Growing at five times the rate of traditional retailing, e-commerce is close to a $200 billion market today with analysts expecting it will be more than $500 billion by 2020.
Amazon.com launched in 1995 and quickly has become a broad marketplace for many categories of merchandise by offering unmatched selection, customized offers, high product availability, fast delivery, simple checkout and excellent pricing. Amazon is on track to reach $50 billion in sales this year and could grow to $100 billion in the next couple years. It has achieved these numbers in half the time it took Walmart to do so.
Amazon and other online retailers are forcing traditional retailers to rethink their value propositions and embrace multichannel retailing as the only way to survive. Quite frankly, traditional retailers don’t have much time to get it right. In my opinion this includes you.
A white paper co-authored by IBM and New York University takes a look at what they believe retail will look like in 2020. Here are a few highlights of that report.
· Retailing will change dramatically between now and 2020.
· Millennials will be in charge. Baby boomers will be in their 60s and 70s and still will be feeling the effects of the “Great Recession.” They will be more concerned with health care, caring for aging family members and unemployed children (please, let’s hope they’re wrong on that one) and rebuilding their savings and retirement accounts. They won’t be spending as much on discretionary retail purchases.
· Millennials (some 80 million-strong) will be the main retail customers in 2020. They value quality over quantity, have a real passion for social causes and have grown up using the Internet for everything. Retailers (you included) who can appeal to this group and offer them the products and experiences they value will be the most successful.
· The higher-end and lower-end consumers will grow and the middle market will shrink (i.e. luxury products and value-priced products will fare the best).
· Too much space and too few sales will cause shopping centers as we know them to shrink and change.
· E-commerce will challenge the business model of brick-and-mortar retailers. By 2020, online sales are forecast to be $500 billion or 20% of non-food retail sales. Much of this will be fueled by the accelerating use of mobile platforms for shopping online. Big-box stores will feel the major effect of this change.
· Mobile platforms, smart sensors and social media will enable new ways of shopping. More shopping on mobile devices will enable online offers to be realized and personalized thus taking smart shopping to a new level. Tomorrow’s smarter consumers will require all retailers to address the new ways they will shop and how they will expect to be served.
· Look out for giants such as Amazon, Google, Gilt Groupe, Rue LaLa, Alice.com, Groupon and Facebook to continue to reshape the retail landscape. They will take advantage of their speed, flexibility, knowledge of technology and business models to offer freshness, selection, convenience and value in new ways.
In a future article I will try to be more specific and will describe a showroom business model as it might look in the year 2020.
Retailing is a dynamic industry and as history has shown, it is one that has gone through dramatic transformations. There is no question retailing is being reinvented once again.
Do you have a compelling strategy that will differentiate you and meet the needs of your customers in 2020? If not, shouldn’t you get started working on it ASAP?