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Physical Retail Isn't Dead. Boring Retail Is.

Posted by Steve Dennis on Jul 17, 2018
Steve Dennis

Despite the click bait headlines, the death of physical retail is greatly exaggerated. Far from it, in fact. But without a doubt boring, undifferentiated, irrelevant and unremarkable stores are most definitely dead, dying or moving perilously close to the edge of the precipice.

While retail is going through vast disruption causing many stores to close — and quite a few malls to undergo radical transformation or bulldozing — the reality is that shopping in physical stores in most markets continues to grow, albeit at a far slower pace than online. An inconvenient truth to those pushing the "retail apocalypse" narrative, physical store openings actually grew by more than 50% year over year. Much of this is driven by the hyper-growth of dollar stores and the off-price channel, but there is also significant growth on the part of decidedly more upscale specialty stores (think Lululemon, Apple and Sephora) and the move of digitally-native brands like Warby Parker, Bonobos, Untuckit and many others into brick and mortar.

Physical store openings grow by more than 50% year over year.

People also seem to forget that, according to most estimates, about 90% of all retail sales last year were still transacted in a brick-and-mortar location. And despite the anticipated continued rapid growth of online shopping, more than 80% of all retail sales will likely still be done in actual physical stores in the year 2025. Different? Absolutely. Dead? Hardly.

I have written and spoken about the bifurcation of retail and the collapse of the middle for years. While I was confident in my analysis, I had concluded much of this through intuition and connecting the dots from limited data points. Now, a brilliant new study by Deloitte entitled “The Great Retail Bifurcation” brings far greater data and rigor to help explain this growing phenomenon. Their analysis clearly shows that demographic factors — particularly the hammering that low-income people take while the rich get richer — help explain the rather divergent outcomes we see playing out in retail today.

In particular, wage stagnation and the rising cost of “essentials” is driving lower income Americans to seek out lower cost, value-driven options. Rising fortunes for top earners, most notably ever greater disposable income, creates spending power for more expensive retail at the other end of the continuum. Deloitte’s data clearly shows the resulting strong bifurcation effect: Revenue, earnings and store growth at both ends of the spectrum and stagnation (or absolute decline) in the vast undifferentiated and boring middle.

The stores that are swimming in a sea of sameness are getting crushed.

Notably, if we isolate what’s going on with retailers focused on delivering convenience, operational efficiency and remarkably value-priced merchandise, along with those retailers who differentiate themselves on unique product and more remarkable experiential shopping (including great customer service, vibrant stores and digital channels that are well harmonized with their stores), you would conclude not only that physical retail isn’t dead, you could well argue it is quite healthy.

Conversely, the stores that are swimming in a sea of sameness — mediocre service, over-distributed and uninspiring merchandise, one-size-fits-all marketing, look-alike sales promotions and relentlessly dull store environments — are getting crushed. A close look at their performance as a group reveals lackluster or dismal financial performance and shrinking store fleets. For these retailers, by and large, physical retail is indeed dead or dying. But so are their overall brands.

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It’s been clear for some time that the future of retail will not be evenly distributed. Those who have looked closely know that the retail apocalypse narrative is nonsense. Yet, depending on where brands sit on the spectrum, the impact of digital disruption and the age of Amazon is affecting them quite differently. For some, at least for now, it’s much ado about nothing. For others, it should be sheer, full-on panic.

These forces, along with the underlying macroeconomic factors that Deloitte illuminates in their report, bring far greater clarity to what many have been missing, leaving the savvy retail executive to conclude a few key things:

  1. Physical retail is not dead, but it’s very different.
  2. The future of retail will not be evenly distributed.
  3. The market is likely to continue bifurcating and, increasingly, it’s death in the middle.
  4. It’s a really bad time to be boring.
  5. Struggling retailers need to decisively pick a lane. 
  6. If you think you are going to out-Amazon Amazon you are probably wrong. The problem with the race to the bottom is you might win.
  7. Most likely you are going to have to have to choose remarkable, which means finding ways to amplify key points of differentiation, including potential entirely new sources of revenue.
  8. You have to get started and you had better hurry.
  9. Remember: The best time to plant a tree was 20 years ago. The second best time is now. 

Future of Retail 2018; Steve Dennis Guest PostSteve Dennis is a strategic advisor, speaker and writer on retail innovation and the future of shopping. As President of SageBerry Consulting he works with retail, luxury and social impact brands to create compelling growth strategies. Prior to founding SageBerry, he was the chief strategy officer and head of multichannel marketing for the Neiman Marcus Group.

As a speaker, Steve has delivered keynotes on five continents, sharing his perspective on what it takes to be truly remarkable in the age of digital disruption. He is also a contributor for Forbes magazine and has been named a top global retail industry influencer by multiple groups. Steve received a BA in Economics from Tufts University and an MBA from the Harvard Business School.

Topics: Business of Retail

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