{"id":3811,"date":"2021-07-26T14:12:37","date_gmt":"2021-07-26T18:12:37","guid":{"rendered":"https:\/\/www.jagsheth.com\/?p=3811"},"modified":"2021-08-02T14:29:48","modified_gmt":"2021-08-02T18:29:48","slug":"future-of-brick-and-mortar-retailing-how-will-it-survive-and-thrive","status":"publish","type":"post","link":"https:\/\/www.jagsheth.com\/marketing-strategy\/future-of-brick-and-mortar-retailing-how-will-it-survive-and-thrive\/","title":{"rendered":"Future of Brick and Mortar Retailing: How Will it Survive and Thrive?"},"content":{"rendered":"
Brick and mortar (B&M) retailing is an endangered species as more consumers prefer to shop online. While retailers may die, B&M retailing is here to stay. It has gone through several transformations from the location to the convenience to the in-store experience advantage. In the post Covid world, B&M retailing will not only survive but also thrive by reposi- tioning from selling merchandise to offering value-added ser- vices and from a low-tech to high-tech experience in the store.<\/p>\n
From the Journal of Strategic Marketing<\/a><\/em><\/p>\n Jagdish N. Sheth (2021) Future of brick and mortar retailing: how will it survive\u00a0and thrive?, Journal of Strategic Marketing, 29:7, 598-607, DOI: 10.1080\/0965254X.2021.1891128<\/p>\n Brick and mortar retailing is going through an enormous transition being disrupted by the e-commerce market exchanges including Amazon, Alibaba, and Flipkart in different parts of the world. What\u2019s the future? Will brick and mortar (B&M) retailing survive? If it survives, what will be the new avatar or reincarnation that will take place? My own view is that brick and mortar retailing will survive and even thrive as it has survived over time with many transformations and disruptions (Sheth, 2020).<\/p>\n We\u2019ll take a historical view and suggest that the brick and mortar stores will survive in the future by transforming itself from low tech to high tech, and from selling merchandise to selling value-added services for which the consumer is willing and able to pay. In other words, it is the unbundling of free services into paying services, just like what the airlines have done: you pay for excess baggage and even for a seating assignment.<\/p>\n The global retail sector achieved a revenue of 23 USD trillion in 2017, which is bigger than the U.S. economy and should continue to grow to 28 USD trillion by 2020 with an average annual growth rate of 3.8% since 2008 (Wood, 2016). That growth rate is significant because the majority of retailing revenues are in advanced economies, and 3.8% is a significant number compared to the GDP growth of 1.5% or maybe 2% in most advanced economies. The retail sector represents 31% of the world\u2019s GDP and employs millions of people. Furthermore, these numbers do not account for cash-based informal retailing, such as street vendors and small rural shops in many parts of the world, and especially in emerging markets.<\/p>\n E-commerce itself has grown significantly at 23% per annum between 2012 and 2019. It will reach 15% of the total retail sector by 2020. In 2020, the retail sector grew by 2.4% in the last quarter which includes the Christmas season; the e-commerce growth was at an astonishing rate of 47%. It is growing faster than 3.8% average growth and, therefore, will catch up eventually from the physical brick and mortar shopping to digital or online shopping. E-commerce will grow faster due to the pandemic lockdown and store closings. It is likely to continue after the pandemic subsides. Consumers enjoy the convenience of online ordering and home delivery of virtually everything, and surprisingly for daily necessities, such as paper products and fresh produce.<\/p>\n The brick and mortar retail sector is in trouble. World-class retailers such as Toys \u2018R\u2019 Us, RadioShack, and Sears are all under Chapter 11 protection (bankruptcy). Also, many iconic brands including H&M, Ralph Lauren, and Michael Kors are also selectively closing stores and reducing their physical presence. More than 9,300 stores were closed in 2019 in the U.S. alone, a 63% increase from 2018 when more than 5,700 stores were closed (Peterson, 2019).<\/p>\n A large number of store closures in 2019 were primarily large retail chain stores. The numbers were staggering: Payless Shoes, 2,500 stores (they decided to quit the game and go for Chapter 11 protection); Gymboree, 805 Stores; Dress Barn, 650 stores. And these are just some examples. In 2020, Covid pandemic has also forced many independent retailers to close down as well. The reality is very grim.<\/p>\n The old theories are the Wheel of Retailing (Hollander, 1960), which means, as you start in a no- frills environment, like the no-frills airlines, you do very well because you offer a great value to the customers and low price is a good mechanism. Now you outgrow and you go into a more expensive location such as the 5th Avenue in New York. This makes your cost of doing business (overheads) high. Somebody else starts a new business in the space you vacated with another retail concept or merchandise and competes with you. A second explanation of why good retailers go bad is the product life cycle concept and the inevitability of birth, growth, and death. But there are retailers who are in business for more than hundred years.<\/p>\n We also have a large number of formulas for retail gravitation: consumers shop primarily within five to seven miles or 10 kilometers (Bucklin, 1966; Grether, 1983; Reilly, 1931). That theory is also out of the window now because people shop from all over the world or from all over the world on e-commerce platforms.<\/p>\n In reality, most retailers go bad when they are either unable, or more importantly unwilling to adapt with the changing ecosystem in which they exist or thrive, such as technology, nontraditional competition, and consumer lifestyles (Sheth, 2007).<\/p>\n Today, consumers go to Amazon and buy ordinary daily necessities, such as toothpaste and paper towels because of the convenience of home delivery rather than get out of their home and drive a short distance to go to a neighborhood grocery store. Convenience matters to consumers. They are driven more and more by time poverty and not just by income. Therefore, stores that deliver to you online at home are surviving especially during the Covid shutdowns. Consumers are buying daily necessities at Amazon, Walmart, and Target. These include shampoo, toilet paper, and napkins in addition to buying high ticket items.<\/p>\n Today, you can buy everything on Amazon. Its inventory is massive compared to what a retail store can keep up especially because it is also a market exchange. My view is that this will be further accelerated with smartphones, 5 G networks, artificial intelligence, virtual reality, and blockchain technology as they all become mainstream. As the artificial becomes real, retailers will have to reposition themselves for survival and growth.<\/p>\n Let us review the evolution of brick and mortar (B&M) retailing first, and then suggest repositioning of the brick and mortar retail stores. Retailing has a fascinating historyFigure 1.<\/p>\n Historically, the three laws of retailing have been location, location, location, which is how retailing began. In the agricultural economy, these were bazaars or trading posts on the silk route, for example, and in the U.S., there were trading posts from the east coast to the west coast. Bazaars became shopping centers. Location was very key. When competition was able to equalize the location advantage it gave way to convenience: how do you make it easy for the consumer to do shopping by accepting credit cards in addition to bringing cash or writing for example.<\/p>\n Once convenience was equalized, retailing pivoted toward customer experience and eventually, as suggested in this paper, retailing\u2019s future will be with value-added services. At each inflection point, retailing has transformed itself to survive and even thrive. Retailing is not dead: retailers may be dead, but retailing is here to stay.<\/p>\n Retailing needs to reposition from selling merchandise to offering value-added services. It also needs to reposition from low tech to high tech to enhance customer experience with respect to merchandising and atmosphericsFigure 2.<\/p>\n The vertical dimension is low-tech to high-tech. How to make the retail experience with digital technology more exciting by having video game arcade (electronic games machines) that consumers can go and play. Second, the focus of retailing always has been selling the merchandise either by the sales clerks or by self-service. Where you locate the merchandise, point of sale and experience is pretty low tech. It is high touch today but it also needs to be high tech. And the focus must shift from merchandise selling to offering more value-added services.<\/p>\n Value-added services are those for which the customers are willing to pay. There are a number of examples of value-added services and some of them are more profitable than the merchandise. I was surprised many years ago (almost 30 years ago) when I learned from the Chairman of Sears that out of the 24 USD billion merchandise retail group, the most profitable businesses were none of the merchandise (Kenmore appliances, Craftsman tools, etc.).<\/p>\n The two most profitable businesses were credit card financing and extended warranty service. 34% of the total profit came from credit card charges and 30% came from the extended warranty services on the products that Sears sold. Sears had more than 50 million credit card holders, more than Visa or Mastercard at that time. Here are eight recommendations of value-added services. Each retailer has to decide which of these value added services they have the capacity and the capability to implementFigure 3.<\/p>\n These eight strategies have one common thing. It is the old razor and the blade principle (or a camera and the film principle or today a printer and the jet ink principle). You give away the razor, but your margins in blades are high and the customer becomes a customer for life. Kodak invented the camera and the film principle. Gillette invented the razor and the blade principle. Hewlett Packard does the same with its printer and its ink business. The best analog brick and mortar companies can learn is from the airline industry today. Today all of the additional ancillary services in the airline industry like meals and luggage are generating billions of dollars of extra revenue for the airline. Ryanair in Europe has stated that they would like passengers to fly free because passengers can buy merchandise. Margins in the merchan- dise are greater than in flying. It\u2019s like a flying shopping center. You don\u2019t make money on flying itself, but you make money on the merchandise in the plane when people are basically captive customers for one to two-hours or longer flights.<\/p>\n The second repositioning dimension is how to go from low-tech to high-tech. Consumers are very much becoming more and more virtual shoppers. They often like virtual experi- ences more than real-life experiences. In the store, virtual reality is very possible today. It is also affordable today to get into the digital technology at the store level one can create an emotive bonding more so than with sales people we did at one time in a retail store.<\/p>\n There are two key parts to retailing at a store level: sales clerks and merchandise. Merchandising layout and display location, along with the sales clerks are the three foundations of great retailing. How can one make the tripod of retailing (merchandise, atmospherics, and sales people) smart?Figure 4<\/p>\n When the artificial (virtual) becomes real, people will find more enjoyment, more comfort, and more security in the virtual world than in the real world. Consumers will migrate to the virtual world not only just for convenience, but also for the experience. Brick and mortar retailers can not only survive but also thrive by fusion of physical and digital, not only for search of product information but also for omni-channel purchases as well as social media engagement.<\/p>\n Retailing is here to stay. Retailers may be gone but retailing will not die. It will be revitalized and repositioned for the future as it has always done since the Industrial Revolution when modern retailing came into existence. Evolution of retailing from location-centric to convenience-centric, to experience-centric will transform into value-added services enabled by the digital technology. Successful repositioning will decide who will be the winners and who will be the losers in the brick and mortar retailing. In 2020, Walmart and Target did well despite the Covid-19 pandemic because of the integration of their physical stores with their online ordering and delivery. Unfortunately, JCPenney was unable to invest and integrate its physical stores with its digital e-commerce platform.<\/p>\n Bucklin, L. P. (1966). A theory of distribution channel structure.<\/em> University of California, Institute of Business and Economic Research in Berkeley.<\/p>\n Grether, E. T. (1983). Regional-spatial analysis in marketing. Journal of Marketing, 47<\/em>(4), pp. 36\u201343. https:\/\/doi.org\/10.1177\/002224298304700405<\/a><\/p>\n Hollander, S. C. (1960). \u201cThe wheel of retailing\u201d. Journal of Marketing, Vol, 25<\/em>(1), pp. 37\u201342. https:\/\/ doi.org\/10.1177\/002224296002500106<\/a><\/p>\n Peterson, H. (2019, December 23). More than 9,300 stores are closing in 2019 as the retail apocalypse drags on. Business Insider. https:\/\/www.businessinsider.com\/stores-closing-in-2019-list-2019-3<\/a><\/p>\n Reilly, W. (1931). The law of retail gravitation.<\/em> The University of Texas.<\/p>\n Sheth, J. N. (2007). The self destructive habits of good companies . . . and how to break them.<\/em> Pearson\u00a0Education.<\/p>\n Sheth, J. N. (2020). The future of retailing: When the artificial becomes real. Asian Management\u00a0Insights, 7(1), 11\u201314.<\/p>\n Wood, L. (2016, June 30). Global retail industry worth USD 28 trillion by 2019 – Analysis, technologies &\u00a0forecasts report2016\u20132019- Research and markets.<\/em> www.businesswire.com<\/a>.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Abstract Brick and mortar (B&M) retailing is an endangered species as more consumers prefer to shop online. While retailers may die, B&M retailing is here to stay. It has gone…<\/p>\n","protected":false},"author":3,"featured_media":3812,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[9],"tags":[],"yoast_head":"\n
\n<\/span>Why do good retailers go bad?<\/span><\/h3>\n
<\/span>Evolution of retailing<\/span><\/h3>\n
<\/span>Repositioning of the brick and mortar retailing<\/span><\/h3>\n
\n
<\/span>From low tech to high tech<\/span><\/h3>\n
\n
\nVirtual shopping will become more universal and there will be virtual shoppers clubs. Many brick and mortar super stores are located quite far away from the center of the town. They provide price value in factory outlet malls. They are not as convenient but if they offer the same thing to the online shoppers club they will do very well. The brick and mortar retailers can easily create virtual shoppers commu- nities from their databases; just as Home Shopping Network does on cable plat- forms and it is 24\/7 all 365 days.The Home Shopping Network actually proved that concept when broadcast television shifted to cable television, and they offered merchandise after merchan- dise exclusively on the cable channel and people bought it by watching the program and ordering by telephone (and now online also). In short, virtual shop- ping communities is one more way to add high-tech to the brick and mortar retailing experience. This can be offered in the store, in kiosks, or in the virtual world on Smartphones.<\/li>\n<\/span>Concluding remarks<\/span><\/h3>\n
<\/span>References<\/span><\/h3>\n