Stop us if you’ve heard this story before: thanks to new technology, a new company starts selling goods remotely and delivers them right to customers’ homes. Though it initially offers just a few products, it quickly expands its selection to include everything from women’s apparel to musical instruments to furniture. Local merchants, unable to compete on price, are furious, and attempt to challenge the retailer’s business model.
This particular history happens to be Sears’, but it could just as easily summarize the current debate over the future of retail, with brick-and-mortar stores fighting what they perceive as the unfair advantage of cheaper, e-commerce sites. Their biggest concern, of course, is Amazon, which has been developing warehouses near major cities with the ultimate goal of making same-day delivery possible. The well-publicized liquidation of Borders and Best Buy’s decision to close 50 stores have also reinforced the idea that brick-and-mortar retailers are doomed. But it’s important to put e-commerce into context: while $194.3 billion is sales is admittedly a large chunk of change, online retail represents a surprisingly small part of the market—just 8.6% of all retail sales in 2011. In fact, several large chains have already experimented to find how brick-and-mortar stores can compete:
Offer exclusive products. To limit “showrooming,”—trying out a product in store but purchasing it for less online—Target has been working with its vendors to create limited editions and mini-boutiques that online vendors can’t replicate. This strategy also benefits smaller producers who do not have the resources to generate national exposure, such as The Candy Store in San Francisco, The Privet House Home in Connecticut, and the Polka Dog Bakery of Boston, some of the first participants in “The Shops at Target” campaign.
Curate. Who said a brick-and-mortar store has to be in the same place, all the time? This July, American Express, Target, and Paper Magazine sponsored the Super Duper Market, a three-day event featuring local vendors such as Brooklyn SodaWorks, Empire Mayonnaise Co., and Whimsy and Spice. Temporary markets give visitors a pressing reason to buy, and limit the retailers’ risk, as they never take possession of the goods.
Improve customer service. As anyone who’s wandered a floor in search of a salesperson can attest, good help is hard to find—literally. Retailers have cut back on floor help in an effort to lower costs and compete with online price, yet a recent Harvard Business Review study found this counterproductive. Low-cost retailers like Costco and Trader Joe’s that have higher labor costs due to increased training, salaries, and employees on the floor, are actually more profitable per employee and per square foot.
Adapt the experience to the location. With their smaller, non-standardized layouts, urban stores require a different strategy than big-box stores. Best Buy’s new, small-format Connected Stores, will be based on a showcase model, featuring highly trained staff, specialists, interactive displays, and tech workshops—all of which sound suspiciously like Apple stores. (If you’re going to copy a retail strategy, though, you’d be hard-pressed to find a better alternative—Apple’s sales per square foot are six times Best Buy’s). Meanwhile, Best Buy Express vending machines, typically found in airports, offer travel-oriented items but are entirely self-service.
In short, brick-and-mortar stores may not be able to compete on price, but by providing unique experiences and better service, they can maintain their relevance to consumers. Both online and brick-and-mortar retailers may end up converging in a multichannel approach—after all, even Sears eventually opened up stores, and stopped printing its famous catalog in 1993. The most important lesson though, is to be aware of new retailing opportunities: surprisingly, Sears, the company that was founded on mail-order retailing, didn’t launch a website until 1998.