Redefining Relevance for Brick and Mortar Retail Stores

Evolving consumer expectations, ubiquitous connectivity, and the growing adoption of mobile technologies are rapidly transforming the retail environment. The retail store once held the position as the primary and most tangible means for a customer to encounter a brand and remains the principal channel for the merchant and shoppers to connect. Stores have since become only one component of a broader, more interconnected shopping experience. Retailers need a strategy beyond becoming a destination in order to attract the loyalty and a larger share of the consumer wallet.

The rise of mobile commerce and showrooming escalate price competition right inside a merchant’s store. Smartphones will influence 19%, or $689 billion, of U.S. retail store sales by 2016, according to “The Mobile Influence Factor in Retail Sales,” Deloitte study. 48% of smartphone owners who use their devices for in-store shopping say their devices have influenced whether an item was purchased in a store. Many shoppers use mobile apps: 37% of smartphone owners surveyed used a smartphone on their last shopping trip and 34% used a retailer’s mobile app, Deloitte says. 1 Reducing price discrepancies across all channels and elevating service levels diminishes vulnerability to showrooming. Anticipate that consumers have the instant ability to comparison shop. Emphasize the immediate availability of the purchasing in the store and diminish the perceived benefit of the comparable product online.

Brick and mortar footprints will likely scale back as online channel sales increase. E-commerce sales growth is outperforming the brick and mortar channels every year but remains lower in aggregate sales. U.S. retail e-commerce sales for the first quarter of 2012 was $53.2 billion, an increase of 3.1 percent from the fourth quarter Q4 2011. Total retail sales for the first quarter of 2012 were estimated at $1,082.6 billion, an increase of 1.7 percent from the fourth quarter of 2011. The first quarter 2012 e-commerce estimate increased 15.4 percent from the first quarter of 2011 while total retail sales increased 6.5 percent in the same period. E-commerce sales in the first quarter of 2012 accounted for 4.9 percent of total sales. Total U.S. e-commerce spending reached $256 billion in 2011, up 12 percent from 2010. Consumers remained cautious spenders overall, but increasingly turned to digital commerce due to two prevailing factors: price and convenience. 3

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for March were $411.1 billion, an increase of 6.5 percent above March 2011. Total sales for the January through March 2012 period were up 6.4 percent from the same period a year ago. 4 NRF forecasts retail industry sales growth of 3.4 percent in 2012. The International Council of Shopping Centers (ICSC) is forecasting 3% growth in 2012.

No new retail development and hundreds of store closings require retailers to bring the right technology into the physical space to deliver the most compelling consumer experience. Malls and retail stores are central to shopping experience for many consumers. The retail store is not departing. More square footage no longer equals greater sales volume or a broader offering. Retailers need to reconfigure the physical space and operations to meet or exceed dramatically changing customer demands. Big box retailers, like Best Buy, announced store closings of 50 locations and plans to scale back existing store square footage by 20 percent. The pilot “Connected Store” in San Antonio, Texas combines the best of both virtual and physical retail experiences. 5

Even as measures of consumer optimism surface, retailers are culling unproductive locations exploring options for the optimum retail format. There is no uniform solution. Solutions will vary widely based on retail formats, margin and volume, regional trends, as well as geographic and demographic characteristics.

2012 retail store closings 6:

  • 500 Blockbuster
  • 180 A&F
  • 172 Sears
  • 123 Collective Brands (Payless, Stride Rite) by 2013
  • 100 The Gap
  • 50 Best Buy
  • 35 Office Max
  • 25 Lane Bryant
  • 1 Bloomingdale’s
  • 1 Nordstrom

CoStar’s Randyl Drummer indicates that retail property remains challenged due to lackluster consumer spending and the availability of a large amount of empty space to fill by the few retailers that are expanding. As a result, the Retail Index has seen no discernible pricing gains yet, though pricing losses have fallen to minimal amounts on a year-over-year basis, suggesting that the index may be nearing an inflection point. Developers continue to be risk adverse, resulting in continued erosion of land prices. 7

Retail properties and shopping centers thrive or implode based on the gross sales performance of the merchants. Retail executives need to drive cross-platform marketing programs offering a compelling brand experience and meaningful interactions with sales associates. Traditional retailers can no longer out assort Partnering more deeply with distribution partners implementing strict distribution and pricing allocates product to the most profitable channels without committing to greater manufacturing capacity. Mobile point-of-sale, in-store social media marketing, augmented reality, and real-time inventory visibility are platforms which improve processes and further differentiate beyond a purely transactional experience.

Michael Lagazo Commercial Real Estate Retail PICORMichael Lagazo has held leadership roles at some of the largest commercial real estate companies including Westfield Group and Forest City. Michael optimizes performance and drives financial results for top commercial real estate projects in the U.S. Among his projects, Michael managed a 1.7 MSF coastal luxury development and was a shopping center executive at Forest City’s 160-acre super regional center, Victoria Gardens. Highlighted in Shopping Centers Today, Wall Street Journal, Commercial Property Executive, National Mortgage Professional, Michael holds an MBA as well as a dual Bachelor’s Degree in business.

Editor’s Note: Learn more about PICOR’s retail brokerage services 

1 Deloitte study of 1,557 smartphone users, Internet Retailer, June 28, 2012

2 U.S. Dept. of Commerce, Quarterly Retail E-Commerce Sales, 1st Quarter 2012

3 comScore, 2012 US Digital Future in Focus

4 U.S. Dept. of Commerce, Advance Monthly Sales for Retail and Food Services, March 2012

5 Death Of Best Buy’s Big Box Store? Company Will Shift To New Model, Close 50 Existing Stores. Forbes, March 29, 2012

6 2012 Retail Store Closings Roundup: U.S. Retailers Closing or Liquidating Stores, April 19, 2012

7 CoStar, CRE Price Recovery Continues Despite Seasonal Volatility, May 21, 2012

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