When Toys R Us announced earlier this month that it was closing or selling off its more than 800 stores in the United States, the news wasn’t overly surprising. After all, plenty of big-name retailers have made similar announcements in recent years. It was just one more piece of evidence that physical retail is struggling.
Toys R Us, Sears, JCPenney, Sports Authority – the list of struggling retailers has been a long one.
But beyond the negative headlines is there hope for brick-and-mortar retailers?
Yes, says Jaime Ward, group head of the retail finance group in the Boston office at Citizens Business Capital.
But to survive today, physical retailers will have to make changes. And one change that is growing in popularity? Brands that have typically been sold in physical retail locations are teaming up with online marketplaces such as Amazon and Walmart.
Ward points to Nike and Lands’ End. Last year, both retailers created shops on Amazon. Fashion retailer Lord & Taylor set up its own fashion shop at Wal-Mart’s online site.
Why do this? It brings in even more customers.
“Brands increasingly want to control how they are searched and sold online, so they will augment their own sites by joining the largest online marketplaces,” Ward said.
Ward says to expect even more physical retailers to partner with online retailers, especially the biggest one of them all, Amazon.
This move makes good business sense when you look at the evolving shopping habits of consumers, Ward said. Consider one of the most popular type of apparel today, athleisure wear. As Ward says, consumers want to look as if they exercise and are fit, even if they don’t necessarily hit the gym all that often. Athleisure allows them to do this.
So consumers want this type of apparel. But they also want to get the best value when shopping for these clothes. And the best value? Frequently, consumers find it online.
“They know they can get a better selection at the best prices by starting their search online,” Ward said. “That’s better than trucking down to the mall to a Dick’s Sporting Goods or other retailer and finding a much more limited selection and price point.”
Retailers who want to attract these bargain-savvy consumers, and those who are too pressed for time to shop in physical retail spaces, need to build a strong online presence. What better way to do that then by teaming up with those companies, like Amazon and Wal-Mart, who have already built such presences?
“That was one of the reasons why a retailer like Sports Authority didn’t make it. Customers only had access to a certain number of style in the big-box stores,” Ward said. “Customers had to make an effort to get there. About half the customers who start an online search today automatically start it at Amazon. That’s the site for the consumers who are looking for everything they want at the best value. It is an exercise in convenience. If you want to be in front of the consumers, it helps to establish a relationship with an online retailer.”
Ward said that brands that are already important, those that already resonate with consumers, will benefit the most from partnering with online retailers.
“With the better-known brands, there is less of a need to go through this intermediate step of selling to a physical store for purchase,” Ward said. “The margins for that brand will be higher if they partner with an online marketplace like Amazon. There are lots of benefits for everyone.”
That’s a solution for brands. But what about malls? The Midwest is filled with malls that are either struggling or already dead.
Of course, it’s also home to plenty of malls that have adapted and are thriving. Ward said that malls won’t disappear, even with the threat from online shopping. The successful ones, though, will continue to expand the type of tenants they attract.
Instead of focusing only on traditional department and physical retailers, malls that survive will offer consumers experiences, something that they can’t get from Amazon.
This could mean high-end restaurants, arcades and bowling alleys targeted to adults, bars and retail spaces that are encouraged more to drive consumers to an online shopping hub than they are to foster physical sales.
“No longer does the average consumer want to go to an enclosed mall and go there for a day of shopping,” Ward said. “It’s more about gaining experiences from a trip to the mall. That means eating out or going to the gym. Mall owners are trying all kinds of new things to keep up the traffic. That has been the biggest issue. Mall traffic is off. Consumers are spending more time surfing Amazon than they are shopping at the mall.”
Ward said that many mall owners are changing enclosed malls into outward-facing malls dotted with restaurants designed to attract more customers. Others are building condos or apartments above malls or adjacent to them.
“If the potential buyers of those condos are interested in being a short walk to shops, restaurants, coffee shops or movie theaters, some of those might take off,” Ward said. “The results have been mixed so far. But we are definitely seeing more of that, especially in the more urban and suburban areas.”
Is there good news for physical retailers today? Sure. Ward says that retailers have learned how important it is to adapt to the changing shopping habits of today’s consumers.
And in the future? Even more will take steps toward an omnichannel approach, where they focus on both physical and online channels to move their merchandise. This approach, Ward said, is the best way for retailers today to avoid the fate of competitors such as Toys R Us.
“Those folks who have invested in an omnichannel approach? They are typically doing just fine,” Ward said. “The name of the game today is adaptation. If you don’t adapt, then you will be in trouble.”