[Rethinking Retail] – What the Future Holds

Following yesterday’s piece predicting that retail as we know it today is almost certainly doomed (though not, I’ll explain tomorrow, to extinction!), I thought I’d take a few moments and offer some thoughts on what retail’s future may look like.

As a reminder to those who don’t know, retailing’s in my background. I’m the only kid I ever knew who had a successful lemonade stand, and I was an award-winning and top-ranked manager for a fast food chain and a video game store chain. In fact, my success in retail is what initially got me interested in business and marketing.

At the same time, I avoid retail shopping pretty scrupulously for most non-consumable items, preferring instead to shop online. (I may even start shopping online for some of my consumables down the road, because the prices are starting to become quite attractive!)  I’m also concerned that, aside from Black Friday and other retail “events,” the allure of shopping in a store has worn off for many people in the US. Sure, there are always going to be people who love to shop (or to enjoy the spectacle of it), because shopping is a form of entertainment and can provide some real novelty in your life… especially if you’re gawking at the people of Wal-Mart.

With that said, I suspect that retailing as we know it is going to experience some pretty profound changes in the next decade.

1) Inventories for most stores will be available online.  While a lot of the big retailers have resisted this in the past, it’s becoming increasingly necessary to list your available merchandise online because people don’t want to make the drive to your retail store and find themselves disappointed. Customers have never been big fans of calling stores and asking for inventory information (since they don’t like being sold to and tend to be anxious about the experience), and many prefer to passively look online and see if the merchandise is available for themselves.

This is actually representative of a large shift in attitudes towards retailing. In the past, retailers were seen as something of an influencer in the purchasing decision. If a person needed nails and a hammer, he or she might go to the hardware store and look at nails and hammers and try to decide which was best. But in modern retailing, the process for many goods (particularly high-involvement items like electronics) is now to research online, settle on an alternative, and then go to the store and pick up that specific item. Retailers play much less of a role as an influencer and much more of a role as a service provider.

But many retailers are still dragging their feet about getting online because they reason, correctly in many cases, that customers aren’t going to find them via a computer screen. They’re probably right about that, but they’re ignoring the huge change that has been brought about by smartphone applications. As consumers become more accustomed to using smartphones and other real-time tools for shopping, it’s going to be vital for stores to publish their inventory data (and very likely, their prices!) online so that those who are shopping using location-based apps (such as GPS shopping applications) can locate them.

The only exceptions to this trend will be stores that are already major destinations anyhow (like bridal stores or furniture stores), gift shops or deep discount stores (the Dollar Generals, Family Dollars, Big Lots and Deal$-type stores). All of these retailers are built around the premise of generating high levels of customer involvement, and so they’re not going to be nearly as influenced by online searching. Destination stores have always been about offering a unique specialty, which requires a strategy of distance from competitors and a high amount of external communication. Gift shops and discounters are all about location.

2) Shopping malls are going to have to change their entire purpose for being. Here in St. Louis, we’ve got a handful of malls that are surviving, and a bunch that are empty. One of the most successful, the St. Louis Galleria, is holding on because it’s perceived by many people to be the best upscale mall in the area. (There’s another mall that’s even more upscale just up the road, but it’s geared at serving luxury customers and not the common folks.) The theme of “upscale” holds that mall together, and people will drive from all over the St. Louis area to go there.

But what about the other malls in the area, which previously functioned as disparate collections of stores, and which are now sparsely populated by retailers and by customers? There are many reasons that these malls are falling apart – chief among them the perception that mall prices are higher than the prices at discount stores like Wal-Mart or Target or Kohl’s. But even the mega-outlet mall, the St. Louis Mills, is only at about a 50% capacity. And the St. Louis Mills, like many of the malls in the area, is home to a lot of stores that would have had no business being in a mall a few years ago. One of the malls in the area, the Alton Square Mall, is doing so badly that they’ve has leased a huge storefront to the local public library as a means of making use of space and encouraging growth in foot traffic. [One of the folks from Alton Square corrected me on this. See comments below for an explanation of this edit!]

So, what can these shopping malls do? One suggestion I’d have is to bring in some people who have worked in successful theme parks and try to develop their properties into places that can be a bit more of a gathering place for families. For example, the Jamestown Mall, which is not easy to get to, but which is well-situated for families in North County and the northern part of the St. Louis Metro East (which includes upscale communities like Glen Carbon and Edwardsville), could use its space to create a sort of indoor family theme park, with tons of free activities and events. The mall would have to seek out retail partners who could specialize — perhaps a store that specialized in children’s merchandise, or another that specialized in tween popular culture, or a food court that included a full-service pizzeria — and who could function in a flagship-store style manner instead of opting for the cookie-cutter planogram approach that’s dominated mall thinking for so long.

Or, take the Northwest Plaza mall, a place that was once in a thriving part of town by the airport, but which is not dominated by an almost exclusively inner city customer base. Perhaps turning this mall into a community center with events, local music performances, a study center and a giant indoor youth center where one of the anchor stores used to be, could help to bolster business in the mall. Installing a police substation could help keep the place safe, and it might even become a place where people would police themselves for the betterment of the community.

The point, of course, is that malls need to stop thinking about what they’ve done in the past and start thinking about ways to grow in the future. A lot of this involves being in tune with the community and serving needs that aren’t being met. A theme is essential. Otherwise, these malls are doomed to become giant stretches of empty hallways and deserted parking lots – and that’s not good for anyone.

3) Many product categories are in danger of vanishing thanks to the internet. Have you been to a Borders or Barnes & Noble lately? Both of these chains are deeply troubled because they’re both seeing lower sales in printed books, and so both are pushing eReaders – Barnes and Noble is pushing its own Nook, and Borders is pushing everything but the Nook, Kindle and iPad. Both chains are also changing up their product mixes to include more toys, games and novelty items. The simple reason for this is that we’re in the midst of an information overload right now, and there are so many options available to people that books have begun to lose their value as sources of information or entertainment. Both chains have also made it too easy for customers to come in, sit down and read books or magazines without making a purchase.

Of course, the reason Borders and Barnes & Noble are able to do this is because they’re selling returnable product. The stuff you see in the bargain section is generally product that was either subsidized by the retailer (to get a cheaper per-unit price), merchandise that was purchased at huge discounts from publishers or distributors clearing out their warehouses, or product that was purchased non-returnable in very small quantities and which failed to sell. Pretty much every other book and magazine in the store is going to either be returned to the publisher or destroyed for credit when its shelf life expires. That’s why these retailers don’t care quite so much – they know that the more people are in their stores, the more likely they are to make some sort of purchase.

But consider for a moment how useless most books are going to become once a viable eReader format is accepted by the majority of readers. No one’s going to want to deal with them anymore, because they’ll be too big, too heavy, too limited in function and lacking in features like searchability or cross-referencing. It’s pretty much exactly the problem that cassette tapes and vinyl records and CDs experienced when digital downloads arrived on the scene. While these formats aren’t gone for good, they’ve lost a lot of their value at retail and for resale.

Entertainment media products are going to be served primarily by the Internet a decade from now, and formats like Blu-Ray, audio CDs, video game discs, magazines and other physical media are going to seem antiquated. They won’t go away forever, at least until there’s so little demand that they’re no longer cost-effective, but they’re going to vanish. And that’s going to change the face of retail entirely, because an awful lot of the marketing done for big box retailers right now pertains to the releases of movies, music and video games.  We may not have a “video game” section or a “magazine rack” to visit when we go to Wal-Mart in the future. We may just have a kiosk where we can unlock codes for cloud-based entertainment solutions like Vudu. Retail stores may lose a lot of their charm and their fun. And then what? They’re going to have to change or die. And how that’s going to happen is an interesting story in itself.

So, tomorrow I’m going to touch upon why bricks-and-mortar retail isn’t necessarily going to become extinct, and what retailers can do to prepare for the changes coming. Don’t miss it!