When the Retail Bubble Bursts, With Whom Will You Side The convenience of E-commerce places brick and mortar stores on the ropes
Keep your friends close and your enemies closer — it’s what you’ve always known and it’s a fundamental statement that’s defined the axis of business for centuries. Yet from the perspective of a consumer, what can be done when your friend is also the enemy of your local economy?
This is the case in the current market regarding the way that consumers are spending, and there’s one brand in particular that sits in the grey areas of our minds when consciously selecting where to buy anything from toothpaste to new tires – Amazon and others like it. The king of convenience is a best friend to many. While the simplicity of clicking a button and having the product arrive on your doorstep two days later is a gift from above for consumers, it’s hell on earth for competition that have relied on the traditional model of brick and mortar storefronts throughout their entire existence.
Suffice it to say, they’re the consumers’ friend, but the competitors’ enemy – large online retailers are taking that familiar phrase and transitioning it in its favor – keeping you closer than ever before. With innovations constantly being added to its already crushing suite of features included under their Prime Membership, the Amazon brand is focused on not just becoming your first place to shop, but a piece of your daily life. In an effort to catapult the brand further into the stratosphere of convenience-based sales, Amazon is integrating this idea into users’ homes through automated purchasing software and digital assistance with the Alexa enabled Echo lineup; which allows you to do anything from ask how many pieces of Captain Crunch it would take to measure the circumference of the moon to ordering a movie to broadcast directly to your TV.
It’s the idea of making these small integrations into the average consumer’s daily lives extremely accessible that has allowed large online sources to place the retail market in a chokehold. Other major retailers have positioned their business model to offer a similar sense of convenience, but as the market suggests, this isn’t causing Amazon to pump the breaks.
Amazon has dominated consumerism, extending its reach to every facet of product imaginable. If there’s something you need, you’ll find it. The idea of having everything readily available in one spot was the foundation of large brick and mortar brands such as Walmart. In a response to Amazon’s overbearing business model, Walmart launched its own two-day shipping services in June 2016. However, the paid service that required a $49 annual fee did little to lure consumers back to the brand. As brick and mortar stores scurried to make their brands more recognizable – they may have missed the bigger picture of things.
“Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce,” said Richard Hayne, CEO of Urban Outfitters during an earning and analyst call in March. “Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s. Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst. We are seeing the results: doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”
Unable to compete with Internet giants, many companies were left standing on their last leg. Many big name companies filed for bankruptcy or shut down hundreds of stores nationwide. Notable brands undergoing closures of hundreds of stores include The Children’s Place, which had closed nearly 300 stores since 2015; Walgreens, which closed nearly 1,000 locations shortly after merging with Rite Aid; Sports Authority, which filed for bankruptcy in 2016 and has closed 140 of its 450 locations; Sears Holdings, which has closed nearly 80 of its stores; Macy’s, which recently closed nearly 100 locations and JC Penney, who just this March announced the closure of 138 stores nationwide.
As in-store sales continue to fall, businesses are also forced to cut ties with a massive number of employees. Macy’s, for example, cut nearly 6,200 positons alone during its initial closing of 68 stores in January. The aftermath of store closings can leave a lasting effect on local job markets and create a tension amongst the newly unemployed, who typically are given short notice prior to the closing of their given location. Internet retailers are responsible for is the displacement of many workers across the world. So far, 2017 has brought Lansing the closures of JC Penney, Macy’s, Family Christian Stores, Radio Shack, Kmart, Abercrombie & Fitch and more.
Freeing up shelf space, reducing shipping costs to stores and reducing the number of employees on the payroll are not only a benefit to the bottom line of the company, but a step in the right direction for those looking to convert inventory to wholesale, direct-to-consumer shipping models. As a method that was once greeted with apprehension, last year’s record-breaking Cyber Monday, in which consumers spent nearly $3.45 billion online compared to Black Friday’s sales that trailed by $110 million, solidified the practice as the future of retail. Many are quick to note that this perhaps isn’t the future, it’s the present.
Walmart is standing its ground more than most companies. Constantly looking for new ways to keep its stores alive, while introducing new online sales and convenience initiatives has allowed it to stay afloat. In recognition of the increase of online consumer spending, Walmart has gone all in, pushing its chips toward acquiring niche brands with strong online sales. In March, Walmart acquired the Michigan-based outdoor apparel and sporting goods company, Moosejaw. While the company doesn’t intend to alter the brand’s business model, it was quick to identify online sales as the main reason behind the purchase. Instead of taking on Amazon as a whole, Walmart is strategically placing a $51 million investment into Moosejaw, in hopes of chipping away at its grasp on outdoor and activewear. Walmart continued to experiment with this idea of taking its piece of the cake from Amazon by swiftly acquiring the high-end fashion e-store, ModCloth. Previously, the brand had acquired Jet.com, Shoebuy and Hayneedle with similar intentions.
“It’s not very complicated; the customer wants great assortment, price and service, and we haven’t been delivering as well. [Moosejaw, Shoebuy and Hayneedle] are great, but they don’t have enough money to go market their brands and scale them. By joining Walmart, they can make their products available through Walmart and Jet and they can scale faster,” said Doug McMillion, president and CEO of Walmart Stores Inc., during the Bank of America Merrill Lynch Consumer and Retail Technology Conference.
The purchase of these brands may seem like bad PR, as many are often hesitant to closely align themselves with Walmart, who has a history and reputation of poor business practices with manufacturers and suppliers, however, these investments are more of a partnership in terms of practice. Walmart is forced to invest in these brands as such, because they may very well make the difference between closing its doors as others have and thriving in the world of e-commerce. It’s a win-win for those looking to grow that have proven themselves on the digital forefront.
“Thinking about customer acquisition, the opportunities online and offline are both really exciting for us,” said Matt Kaness, chief executive officer of ModCloth, during an interview following the announcement. “As primarily a digital retailer, one of the things we can now do is grow faster through digital channels. Offline, we’re just getting started, but we’re confident about our model, where all the styles in the shop are available in all sizes. The model of the store is predicated on accelerating digital business by using the storefronts to drive engagement and recognition.”
It’s an odd time for retail. While the narration of the past decade has been littered with stories of small business and startups combatting the practices and business model of multibillion dollar corporations — it appears the times have changed. Those very same businesses, the very same giants that once squashed the idea of small competitors are now looking down for assistance. As niche, hyperlocal brands evolve and join brands like Walmart to dip their toes into the world of e-commerce, they do so with a similar enemy in mind. These friends are keeping close, as their enemy stays closer to you. Only time will tell how unlikely tag-teams such as these will playout, as each fight for their place on the mantel of your search bar.