Can Big Retail Survive?
Sears is going out of business. Not immediately, but its announcement that it might not meet the accounting standard of being a “going concern” last month makes some kind of bankruptcy filing highly likely in the near future. Payless Shoe Stores announced last Tuesday a restructuring that would involve closing 400 stores. According to CNBC, nine retail chains filed for bankruptcy in the first three months of 2017, on track for the most bankruptcy filings since the Great Recession. JC Penney’s and Macy’s woes over the past few years are well-documented, with continuing store closures and sales declines. Google Trends reveals the search term retail bankruptcy (no quotes) is at its highest level in five years.
One Amazon Employee > Three Sears Employees
It’s not news that physical retail is in trouble, but examine the numbers in the table above. I’ve compiled this from public sources on a range of broad-assortment retailers using the most recent reporting year available. The table shows sales per square foot and sales per employee, two important retail productivity metrics.
Amazon gets some of the blame for killing retail in general. Here it sits atop the table in green with easily the highest productivity metrics of any retailer. Amazon’s direct delivery model maximizes the productivity of its human and physical assets.
But some retailers are suffering more than others in the Age of Amazon. The table highlights a flight from mid-market outlets. This has been reported elsewhere, but the numbers are striking. I’ve highlighted what I’d describe as mid-market outlets in yellow. Compared to high-end (e.g., Nordstrom) and low-end (e.g., TJX) stores, mid-market retailers such as Sears and Macy’s are far less productive in sales per square foot and weak on sales per employee. One blunt comparison: it takes more than three Sears employees to generate the same sales as one Amazon employee. Similarly, it takes more than eight square feet of a Sears store to generate the same sales as one square foot of an Amazon warehouse.
This is compounded by the fact that many retail chains have precarious finances. A thorough Washington Post analysis notes that Moody’s has placed 19 retail chains on a financially distressed list. Improving product assortment and the in-store customer experience, critical to any recovery, are even more challenging when resources are tight. The same Post article also suggests many older retail locations are simply less attractive.
Bankruptcy can lead to reorganization and revitalization, but the likes of Sears and Macy’s may have trouble here. They can close locations, but this is neither quick nor simple. Further, the smaller they get, the less leverage they have over suppliers. And to the extent big retailers need money, who wants to invest in these businesses or finance their ongoing operations? An orderly wind-down to a much smaller base may be the best we can expect.
What’s a Physical Store to Do?
If you have a physical store, you need to get away from a bland, mid-market, indistinct image. Why do customers come to your store when it’s so much easier to click “buy now?” You need to give them reasons. Here are some ideas for “retail defense” in the Age of Amazon.
Improve the Product Assortment. You’re never going to win on “a broad assortment at reasonable prices.” What is unique about your product assortment? One way to think about this is developing strong private label brands (i.e. specific to you). The broader perspective is that your store conveys a distinct viewpoint about what customers will enjoy. Think of yourself as an editor on a website: what stories do you pick to present to customers? “Curating” a set of products is your job in product assortment.
Improve the Customer Experience. Beyond product, is your store interesting to go to? Fun? Inspiring? Apple stores, of course, carry Apple products, but their physical design makes them cathedrals of retail. It’s just interesting to walk around them. Think about layout design and people. One thing you can’t get online (yet) is the experience of walking around an interesting retail space and interacting with good employees.
Maximize your Return on Geography. Your store resides in the physical world. Customize assortment to your location. Connect with your community. Partner with other retail locations in your area to cross-promote or cross-sell. Technologically, try experimenting with location-based marketing through mobile phones. An interesting example of this over the last summer was the number of small retailers who participated in Pokemon Go related promotions. For chains, this means giving store managers more local discretion.
Get online. You don’t have to have a full e-commerce site, but some kind of website that is a promotional vehicle for a store or brand is a good idea. Think about using quick social media such as Instagram, Snapchat, or Twitter to get out promotions or parts of your story. Emphasize the experience of coming to the store. (“Here’s Sunny the cat in our front window.”)
Overall, retail may be in for a rough ride for the foreseeable future, and mid-market retail may have it the worst. “Shrinking to success” may not work. And those 3.9 million jobs in the table are probably not secure.
Bruce Clark is an Associate Professor of Marketing at the D’Amore-McKim School of Business at Northeastern University. He researches, teaches, and consults on managerial decision-making, especially regarding marketing and branding strategy, customer experience, and measuring marketing performance. This article is a combined and revised version of two articles that originally appeared on LinkedIn.
Note on table sources: Data are from the most recent year available, 2016 or 2017 depending on end of fiscal year. Square footage is measured for Amazon’s real estate as a whole from mwpvl.com, while I’ve followed the usual practice of using only retail square footage for the brick and mortar chains.