In retail's new omnichannel standard, brick-and-mortars face looming uncertainty
Summary:From store closures to sales slumps, retail's start to 2015 paints a bleak picture of an industry struggling to keep up with the pace of consumer change.
For anyone keeping up with retail news lately, it would be easy to conclude that brick-and-mortar businesses are having a rough start to 2015.
From teen apparel retailer Wet Seal and discount chain Target to legacy department store chains JC Penney and Macy's, headlines of store closures and sales slumps paint a bleak picture of an industry struggling to keep up with the pace of consumer change.
But a closer look reveals a different story -- at least for a lucky few.
Since the dawn of Amazon and the migration to online shopping, brick-and-mortar retailers have been scrambling to hold on to shopper dollars. Amazon created a level of competition that had never been seen before, and once prosperous department stores, big box retailers and niche chains found themselves out priced and under equipped.
Fortunately for the retailers nimble enough to evolve, the scramble was only temporary. Nowadays an online presence is standard, marketing is digital and shoppers are mobile -- and many retailers get it.
Macy's is a prime example of a chain that successfully maneuvered the rocky retail landscape to come out on the other side relatively unscathed. The chain was recently named the 2014 mobile retailer of the year. It has utilized image recognition, beacons, mobile payments, same-day delivery and event-driven mobile commerce. It even employs a chief omnichannel officer, R.B. Harrison.
In other words, Macy's understands omnichannel and is doing it successfully. As for the 14 store closures that it recently announced, it's unlikely that the move was done in an act of desperation.
"If anyone gets the concept of omnichannel, it's Macy's ... they are one of the best in the country," said Chris Petersen, CEO of the retail consulting firm Integrated Marketing Solutions. "Their store closings make much more sense in terms of savings."
But somewhat unfortunately for Macy's, it shared the headlines with its less prosperous department store peer, JC Penney.
JC Penney said last week that it plans to shutter 39 underperforming stores and lay off more than 2,000 workers.
The more than 100-year-old retailer has certainly received its share of snark over the last few years, much of it stemming from what we can now refer to as the Ron Johnson saga.
As the former head of Apple Retail, Johnson's appointment as JC Penney CEO in November 2011 was regarded as a huge win for the company and an opportunity to bring about its evolution.
But Johnson, to put it lightly, misunderstood the core JC Penney shopper. He rid the store of sales promotions, added scores of new technology and redesigned the store layout to give it a more boutique feel. Shoppers didn't like it, and in the fourth quarter of 2012 alone, same-store sales dropped by 32 percent.
In April 2013, Johnson was replaced by his predecessor Mike Ullman, who reinstated the old ways of doing business, brought back sales and for the most part, stripped the chain of the tech over hall instituted by Johnson. Things have since leveled out a bit for the retailer, but the recent store closures are a reminder that JC Penney is failing to find a place with modern day shoppers -- especially Millennials -- who prefer the tricks and treats of a technology-driven shopping experience.
"The thing with JC Penney is that they need to find a reason to exist," continued Petersen. "They need to figure out what they can offer that shoppers can't get online, and they need to make that experience come to life in their stores. So far, their online strategy hasn't been effective."
Success factors
Looking across the retail spectrum, there's some evidence to suggest that being digitally savvy does not guarantee success.
UK retail giant Tesco has found itself in a financial hole following an accounting scandal last year and a continued decline in sales. It's technology and omnichannel strategy, however, has long been one of the best in the business. Tesco was an early adopter of the customer loyalty program, launching its Club Card in 1995. It has since invested in bolstering the program with big data, buying the data science firm Dunnhumby in 2006. Its in-store technology game has also been on point, with gadgets ranging from interactive mirrors and augmented reality to digital displays and holographic greeters.
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Yet the chain still bled sales and has begun offloading several of its key subsidiaries, suggesting that no matter how well put together an omnichannel strategy is, there's little room to win when economics are a factor.
"The European economy in really bad shape, it's a tough world over there," Petersen said. "So for Tesco, it's not about a lack of omnichannel or innovation."
To an extent, the same goes for Target. The Minneapolis-based retailer reported that its online sales during the holiday shopping season were up 40 percent year-over-year, much of it from mobile. Target, like Macy's and Tesco, has been aggressively omnichannel, with a huge effort put toward its online business, mobile app and social media presence.
But the efforts apparently fell flat on some. Target announced Thursday that it was finally shutting down all of its 133 stores in Canada, following three years of poor performance in the country. Whatever was working on Target's US shoppers clearly did not translate north of the border.
Shifting spend trend
Commerce department figures released Wednesday showed that for the month of December, sales were down in 9 out of the 13 major retail categories, including electronics merchants, clothing outlets and department stores.
With so much uncertainty surrounding consumer spending and the sometimes confusing correlation between omnichannel efforts and financial success, there is little assurance for retailers grappling over whether or not to increase investments in new technology. But the differences between in-store and online sales figures suggest that the odds are better for the ones that do.
On average, brick-and-mortar stores experienced a decline of 8 percent in same-store sales over the last two years. By contrast, online sales have picked up at an average of 23 percent. Granted, around 80 percent of all retail purchases are still made within physical stores. But the scales are inevitably tipping.
Sandeep Dadlani, the head of retail for Infosys Limited, highlighted those retail sales stats during the Indian outsourcer's recent earnings call, adding that he expects them to translate into an increase in tech spend on the part of retailers.
"We see hope that retailers are recovering," Dadlani said. "Their spend is largely going to be focused on digital disruption and new digital-led experiences. That is where you will see spend revive in retail."
Amazon effect
Amazon is the obvious scapegoat for the problems facing brick-and-mortar retailers, and rightly so. The e-commerce giant has upped the ante on pricing and convenience, and ultimately redefined the way people shop.
With that in mind, it seems likely that the retail flux will continue, with more store closures to come from department stores and niche chains. Retailers with expansive footprints and shrinking in-store sales will need to offload pricey real estate that's no longer serving a purpose, and replace it with technology initiatives geared toward the modern consumer.
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