TORONTO — Retailers who view online shopping and free home delivery for consumers as the sales model of the future are in for a rude awakening, according to Jerry Storch, chief executive officer of Hudson’s Bay Co.
“There is a presumption that the future belongs to Internet-only companies. There is also a presumption that somehow it is economically more efficient to operate a Web site and ship things to people’s home than run stores. But let’s put a reality check on that,” Storch told attendees at STORE 2015, the annual two-day conference here hosted by the Retail Council of Canada.
“At the end of the day, it’s amazing just how physical the Internet is in terms of distribution,” Storch said. “Direct-to-home costs are three times higher than that of traditional shopping. In fact, quarter after quarter a Web giant like Amazon makes no money on the sale of physical goods, particularly when you take into account the multimillion dollar freight costs.
“Frankly, shipping tons of little packages [in this direct-to-home delivery model] just isn’t efficient. It also is the least green model ever conceived of by man,” he added. “It might be cool and hip, but it doesn’t last if you don’t make money.”
A rigorous analysis shows that brick-and-mortar stores continue to make a profit even in the age of the Internet, he continued.
“Many have said that the Internet is killing the store-based retailer. I don’t believe this is true,” said Storch, who was appointed ceo of Hudson’s Bay in January. He is now overseeing the revitalization of HBC’s Queen Street flagship, the launch of Saks Fifth Avenue in Canada in 2016, as well as the opening of three Saks Off Fifth stores in Ottawa, Toronto and Niagara Falls next year.
“Stores are a brilliant piece of infrastructure that make money and can also be used for the Internet,” Storch told retailers from all across Canada. “Today, the overwhelming majority of sales still occur in physical stores. It’s fun for people. It’s entertaining. It’s a chance to get out of the house. Also, more impulse shopping is done in stores despite all the efforts made today to add extra value online.”
The traditional department store also offers a more efficient delivery vehicle to get products quickly into the hands of consumers.
“Stores unload their crates, put goods on the shelf and let the customers walk the product home. So consumers pay for the last leg in this sales process,” he said.
Yet Storch’s vision for retail’s future is one of inclusiveness, not exclusion.
“I am not trying to be dismissive of the Internet, not at all. It is one of the most transformational influences of our lifetime,” he said. “Customers do shop online — there’s no disputing that fact. But while the Internet is growing rapidly, much of that growth on retail Web sites is inextricably linked to brick-and-mortar stores.
“The Internet has changed everything, but it is not everything, so logistics tell us a very different story,” he added.
As these logistics reveal, the future will belong to brands that can build the best consumer-facing network and incorporate stores, the Internet, mobile, social media and local components to fulfill consumer needs. “Consumers aren’t Internet selectors or store selectors. They are brand selectors. So the real winners will be those brands who can offer the best product and services across all channels,” Storch said.
Moreover, according to Storch, the future of retail comes down to three nexus points: Where the customer is when they order their products, where that product is and where the customer will receive it.
“There are literally 100 ways to do this,” he said. “Eighty-two percent of these options involves the store because they do make money and are good distribution centers. Seventy percent of these options also have the customer in the store.
“The retailers who figure this problem out will be the real winners,” he said.
“Stores are not obsolete. They are the essential hub to the all-channel universe, so the opportunity for physical retailers is vast. But there will be a convergence in the future,” Storch said. “In the end, the law of economics will always win.”