Grocery chain stocks plunged when Amazon announced its acquisition of Whole Foods for $13.7 billion. Of course, it isn’t just grocery stores that feel threatened. Retailers have been suffering for quite some time as many buyers continue to shift their purchases from bricks and mortar stores to online. As reported in Bloomberg, a record 8,640 stores are likely to close in 2017.
Why this is happening
There are many reasons why store chains are closing locations or going out of business altogether. Some of the more important ones are summarized below.
- Internet. The Internet is increasingly becoming a disruptive force for bricks and mortar (B&M) stores. The reason is that for many people, the buying of non-perishable products online is more convenient. Buyers can order products wherever they have access to the Internet. Distribution is the convenience function. Unless bricks and mortar stores can provide something buyers cannot find online, it will be hard for them to compete with the convenience of the Internet.
- Traffic and parking. With the insane volume of traffic in so many major metro areas, such as Los Angeles, too many would rather get a root canal than hop in their car, drive to a store, find a parking place, and navigate their way through the aisles looking for the items they want.
- Price competition. Many online stores can provide lower prices because they do not have the obvious overhead of their B&M rivals. Some even have virtual inventories where they show products online and have their suppliers drop ship them to the buyer. Rather than create and market their added value, too many B&M stores try to price compete with online resellers. Because of the high cost of convenient retail space, that is a game they are destined to lose. What makes matters even worse for B&M stores is the practice of “showrooming” where buyers will go into a store, touch and feel the merchandise, waste sales people’s time asking questions, and purchase the product online at a lower price.
- Aging stores. In simpler times, many stores looked good, smelled good, and had helpful sales people that could answer product questions and give advice to buyers. Rather than reinforce this advantage, too many retailers are letting their locations get worn and run down and they are not hiring the people they need to give buyers a good in-store experience. Why? They feel they need to compete on price. To do that and still make money, they cannot afford to hire better people or pay for the upkeep of their stores. Therefore, they lose an important added value advantage, which only serves to strengthen their online competitors.
- Fewer and less-qualified people. Stores are not only hiring less talented inadequately trained salespeople, they are hiring fewer people to service customers. As they try to compete with online stores B&M stores are cutting staff and paying the survivors less. Any good marketer knows that happy employees make for happy customers. Poorly trained low paid workers do not exude the happiness required to keep buyers coming to stores.
- Cutting promotion. As store chains cut costs to price compete with online rivals, they cut promotional budgets needed to bring people into the stores. If buyers are not informed of new merchandise or special sales, what will bring them into the stores?
- Busy or lazy. To make ends meet, buyers are too busy working hard to invest the time required to visit physical stores. Those that are not too busy are too often lazy. The busy ones that seek to relax when not working don’t want the hassles enumerated above when they are off duty.
The distribution rule
Since time immemorial, companies and end buyers alike have been looking to cut out resellers, or middle people, to save money and sell more. This is to be expected, and many middle people that have not succeeded in proving their added value have gone out of business. One example is travel agents. What too many forget, however, is that if you cut out the middle people, you still have to provide their function. That is a fundamental rule of distribution. Unless you are selling digital products that can be distributed over the Internet, if you bypass the middle people, you have to acquire (or pay someone else for) warehouses and you have to provide the convenience to the end buyer online and off.
You lose the marketing performed by middle people
There is another important issue that is often forgotten when companies consider eliminating middle people. When you bypass them, you also eliminate the benefits of their locations, marketing, and sales efforts. That is, distributors and dealers have their own locations and sales people, and they spend money on marketing. If you cut them out, you also lose their locations, sales people, and marketing efforts. You cut convenience for yourself and the end buyers.
How stores can compete
The key to surviving and thriving in the face of external disruptive forces such as the Internet, increasing traffic congestion, and energy costs, is to understand and prove your added value. The following steps are what physical stores need to do.
- Determine what your target audience is not getting online. Step one of every good marketing plan is to start with your target audience. What do they want that they’re not getting from competitive alternatives? To figure this out, retailers need to develop an always-on marketing information system to continuously collect marketplace data and make the necessary adjustments.
- Make changes to give them what they want but are not getting. Too many stores are in the habit of doing what they always did to become successful in the past. They need to understand that “things” change, and when they do, they need to make adjustments or more appealing alternatives can take away their customers.
- Understand retail store advantages. Stores are locations where customers can browse, touch and feel the merchandise, try it on, measure the size of items, buy it now (without waiting for shipment), easily return unwanted items, and enjoy the experience. Rather than compete with online stores on price, stores should give customers a better experience – helpful salespeople, attractive stores, neatly arranged merchandise, beacons to facilitate finding items quickly, and in-store services that customers cannot find online.
- Re-invent your brand. So that buyers understand the added-value your retail locations provide, a well designed and orchestrated brand is the necessary first step. The focus should not be on price since online retailers usually have that advantage. It should be on value, entertainment, and in-store experience. Rather than compete on price, focus on return-on-investment.
- Deliver and communicate advantages. Once stores have the right brand architecture, the store experience has to deliver on the added value promised by the brand, and successfully communicate their added value in all forms of promotion.
Easier said than done
I know what you might be thinking – the above suggestions are easier said than done. Of course, you are right. Being successful is rarely easy. However, it is much easier than closing stores, laying off employees, and losing money. While the loss of jobs in the coal industry became a political issue in the 2016 election, the number of retail jobs lost since 2001 is 18 times greater than the loss of coal jobs.
Retail success stories
There are many good examples of stores that understand their added value and are thriving in spite of the obstacles discussed above. A post in Forbes by Phil Wahba provides information on the 10 most successful malls in the US. Please notice that #2 on the list is The Grove located in one of the most competitive and traffic congested locations in the US – the middle of Los Angeles.
Advantage retail stores
Retail stores can be successful in the age of the Internet. Many people will always like the social interaction and comfort of checking out the products in person, asking questions of knowledgeable sales people, engaging more of their senses, and making sure the products fit their needs. As with all methods of distribution, a new one may come along that renders the old way of doing business less desirable or obsolete. If and when that happens, you have to re-invent your added value or competitive advantage in ways that the new methods cannot duplicate. Best of luck.