One of the biggest parlor games in retail right now is guessing where Amazon will establish its second headquarters. The other is which retailers will succumb to Amazon’s dominance, fold up their tent and file for bankruptcy protection. As someone on the front lines of retail, I prefer to play a much different game — one that’s focused on everything that’s going right.
What’s that, you say? There’s something going right? For retailers not named Amazon? Yes! In fact, there’s more going right, right now, than there has been in years.
Now there’s no denying that retail is being dramatically transformed, and that the transformation is painful and sometimes lethal for those who, for a variety of reasons, can’t or don’t adapt. That is nothing new. Entire industries and ways of life have been disrupted in regular intervals for hundreds of years, since before the Industrial Revolution. Disrupters and forward-thinking companies that embrace new models thrive, while those that don’t — don’t.
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There are lots of bright spots and even more reasons to be optimistic about this multitrillion-dollar industry. Need some proof points? Here are several:
Retailers are realizing and acting on the fact that brick-and-mortar and online retail are distinctions without a difference. Shoppers just shop and they want the same connected experience whether that’s in stores, online or on their phone.
I led a panel discussion recently where Wijnand Jongen, cofounder and chairman of e-commerce Europe, put a fine point on this. In his new book, “The End of Online Shopping,” he argues that neither brick-and-mortar nor online can independently keep up with changes in consumer behavior and that the impact of digitization into every aspect of our lives will lead to the end of online shopping as we know it today. Further at the recent Shop.org conference, Steve Dennis of SageBerry Consulting noted, “Speakers mostly ignored online shopping as a stand-alone concept. Instead many emphasized the importance of brick-and mortar-stores in delivering a remarkable customer experience. Moreover, the majority of technology providers in the expo offered solutions that were very much anchored in online/off-line integration, not e-commerce optimization.”
There’s evidence of this everywhere. That e-mail you provided when you bought the blue sweater at the mall? That’s a key way to connect online and off-line shopping activity to deliver a better experience.
Retailers, shocked out of complacency, are finally making the investments required to meet the expectations of modern consumers. Gartner forecasts worldwide retail IT spending growth of 3.2 percent this year to $208 billion, outpacing 2.4 percent overall spending growth. Further, it is forecasting CAGR of 3.8 percent until 2021.
As IHL noted in a recent report, progressive retailers have decoupled IT spending growth from their previous year’s revenue, “In some cases growing spending seven times faster than the weakest competitors in their segment to better compete.” Retailers, IHL notes, “do not need to outspend Amazon and Wal-Mart but need to outspend their weakest competitors.”
The “retail apocalypse” makes good headlines but doesn’t reflect reality. Total U.S. retail sales grew 4.1 percent in the second quarter. Is digital commerce growing faster? Of course, but brick-and-mortar business accounts for more than 90 percent of total retail.
It’s nearly impossible to grow at the same rate of something that is exponentially smaller. IHL noted in an August report that store closures are dominated by a handful of retailers rather than the overall market; just 16 retailers represent 48 percent of reported closings.
Stores have never been more exciting. Retailers and brands have gotten the message and are investing in transforming the shopping experience in many ways such as right sizing and closing underperforming stores and experimenting with smaller footprints or in some cases, no merchandise at all.
Some retailers including Ralph Lauren and Rebecca Minkoff are piloting cool technologies like magic mirrors to enhance the experience. Other retailers are focusing on community like Nespresso with its immersive coffee experience.
Compelling partnerships such as Birkenstock and Barney’s on a “pop-up box” concept in New York, Germany’s Englehorn and its Tesla showroom, Neiman Marcus and Rent the Runway and even Kohl’s and Amazon show that the industry has in large part abandoned the “stack ’em high and let ’em fly” strategy and is embracing experiences and hospitality as they reimagine their formats and the best way to serve not shoppers but consumers.
Brands still matter! It’s tempting to think that consumers, especially younger ones, have no brand loyalty and will simply buy whichever brand is cheapest and delivered fastest — and that is surely the case for some. But we see strong evidence that the emotional connection a consumer has with a brand persists. REI, Ashley Stewart, Tom’s, Starbucks, Warby Parker, Patagonia — these brands represent something that their customers can relate to and it’s not low prices and free shipping.
When measured against retailers, individual brands accounted for far more traffic and orders from social media channels, a primary vehicle for brands to engage with their customers.
To be sure, these are challenging times in retail, with new winners, losers and disruptors emerging constantly. But it’s also the most exciting time with the pace of innovation, depth of customer engagement and personalization happening faster than ever.
Jeff Barnett is chief executive officer of Salesforce Commerce Cloud.
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