There’s a Starbucks on every corner and more on the way, but coffee guru Howard Schultz, apparently with no irony intended, said the U.S. has way too many stores. And fashion gave a hearty amen.
Experts contacted by WWD agreed that there are too many stores that fail to turn the act of buying into a true experience.
“We’re going to see a very major downturn in the fact that the country is over retailed in lots of categories,” said Schultz, chairman and outgoing chief executive officer of Starbucks, while unveiling the coffee chain’s five-year strategic plan to open 12,000 new stores by 2021.
“We are going to see significant, major brands as we’ve seen already, not open as many stores as they have in the past,” he said. “And you’re beginning to see the beginning of lots of companies announce store closures because they’re fixed assets in terms of their infrastructure and their investment just can’t justify the return.”
Many retailers have laid out plans for significant store closings, including Macy’s, Gap, J. Crew and Sears, and more are expected as the industry copes with the increase in e-commerce, the slowdown in footfall at malls and a general apathy around style in a world filled with digital gadgets.
The numbers also paint stark picture. The U.S. has 7.5 billion square feet of gross leasable area in shopping centers alone, according to a General Growth Properties Inc. report, citing data from the International Council of Shopping Centers last year.
That boils down to 24 square feet of shopping center space per capita in the U.S., compared with 15 square feet in Canada, five square feet in the U.K., four square feet in France and three square feet in Italy.
America is known as the land of big cars and big houses, but even so, that’s a lot of retail space and all the more so given the rise of online and mobile shopping.
Schultz, for one, is undaunted and tapping the power of technology. Starbuck’s five-year plan calls for 10 percent revenue growth, mid-single digit comp expansion and an earnings per share increase of 15 to 20 percent.
As far as the overstored U.S. landscape, Schultz said: “Every company in the last three years has faced this, but very few have been able to kind of navigate through this. And when you consider that over these last three years as this was going on Starbucks identified it very early and began to invest significantly ahead of that curve in all things mobile. And there’s no doubt that we created a leadership position in the flywheel of Starbucks, which was driven by the mobile ecosystem — the loyalty program, and we were well ahead of the curve.
“Every company regardless of their business in terms of what they’re selling, every bricks-and-mortar retailer is going to have establish a leading position in being able to integrate technology and how they’re going to be able to avoid the fact that they can no longer rely on intercepting traffic, they’re going to have to become a destination.”
When Schultz talks, the industry perks up.
“Howard is dead right on,” said Michael Gould, the former chairman and ceo of Bloomingdale’s. “I do think there will be an enormous amount of shakeout among department and specialty stores. Absolutely. We [the U.S.] are overstored. Howard is really smart and strategic. It’s not just about buying a cup of coffee. He has a model that creates excitement. He’s created a place where people socialize, where there is energy, interaction. There’s an experience there. I don’t think it’s just about buying the product. When I go to a restaurant, food is not my number-one thing. It’s whether I feel comfortable. Do I know the people? Is it quiet enough to talk yet? Is there still a sense of energy? Howard is in a business where someone can walk in several times a day. It’s very, very different from being in the apparel business and selling a blouse.”
Gould doesn’t think brick-and-mortar stores are all dinosaurs. “People have been going to the marketplace since the time of the Greeks. We will continue to do that, as long as we see new environments, like Nike in SoHo and Adidas on Fifth Avenue, where they have created environments with activity, energy. People want that. To quote Lyndon Johnson, you have to walk and chew gum at the same time — create exciting energetic stores and develop the online. The customer who shops [both] online and in the stores spends three and a half to four times as much.”
“It’s not about just selling goods anymore,” said Glen Senk, ceo of investment firm Front Row Partners and former ceo of David Yurman and Urban Outfitters Inc. “Brands have to be more than just products; they have to have meaning.”
Stores need to keep evolving.
“I don’t think retailers are changing as much as they need to,” Senk said. “I don’t think there’s enough customer centricity. What technology does is give you tremendous insight into people’s behaviors. Some people use technology to their advantage to gain access to that [insight] and some people don’t.”
Senk also agreed with Schultz that retailers would be shuttering more doors.
“You will see more closures, but you’re also going to see more openings, but different kinds of openings,” he said.
Barry Beck, cofounder and chief operating officer at the Macy Inc.-owned Bluemercury, said: “The smart retailers are going to realize that the physical stores are actually their most powerful asset. There’s an opportunity to have more stores than ever.”
“The Bluemercury customer in New York City, 75 percent are coming from a four-block radius…densification leads to localization,” he said. “We’re experts, we give an experience in store, we solve your beauty problems…you’re not getting that online. Fifty percent of customers who come in are coming in for solutions to a problem….I don’t believe you’re just going to go online and buy your concealer, mascara, without trying it.”
“People want their product now. They want you to be in their neighborhood,” Beck said.
The idea that retailers need to become a destination for growth and stability is exactly right, and the model we have continued to grow at Ulta Beauty,” said Mary Dillon, ceo of Ulta Beauty. “We have created an atmosphere that allows our guests to experience products across all beauty categories in a way that mirrors her makeup bag. And, because services such as hair, skin and brow are an integral part of our in-store experience, it underscores our destination strategy which is all things beauty, all in one place.”
Starbucks president and chief operating officer Kevin Johnson, who will succeed Schultz as ceo next April, said, “The customer experience created in our stores by partners who proudly wear the green apron is what makes Starbucks a destination for 80 to 90 million customers a week. We are today executing against an ambitious, carefully curated, multiyear strategy to further elevate the entire Starbucks brand and customer experience around the world, and further extending Starbucks leadership around all things coffee, retail and mobile. The power of our brand, the strength and momentum in our business, and the world-class management talent we have assembled give me great confidence in our ability to capture the enormous global growth opportunities ahead.”
Starbucks is innovating by adding premium coffee products, expanding its food menu and payment options. The company will also unveil a conversational ordering system, My Starbucks Barista, powered by artificial intelligence for the Starbucks Mobile App, and continues to evolve personalized e-mail rewards and expand consumer packaged goods offerings.