Adithya Sanjay: Are brick-and-mortar stores just a thing of the past?

Monday, March 11, 2019 - 1:36pm

The year 2018 was arguably one of the strongest for e-commerce, with “sales in the first quarter (soaring) 16.4 percent from a year ago to a new record of $123.7 billion,” as reported by the United States Department of Commerce. While some of the more “online-averse” retail stores such as gas and car dealerships seem protected from this digital threat, the rest seem to be in full combat with e-commerce. And evidently, they’re losing. The threat of imminent bankruptcy facing stores such as Sears and JCPenney are perhaps telling of a new era in American commerce. With an impending store bankruptcy doomsday expected by most all of Wall Street, we must wonder whether brick-and-mortar retail has truly reached its end.

The truth is quite a conflicting one. While traditionally brick-and-mortar retail companies have begun to set aside more investments for their online stores, the exact opposite is happening among the e-commerce giants. Amazon’s decision to invest in Whole Foods was especially indicative of this. Even against the growth of online grocery in big-name brands such as Kroger and Walmart, Amazon seems bent on the future prospects of estate-based grocery, poising itself to open its own grocery stores (aside from its ownership of Whole Foods) around the U.S. It doesn’t end there. The e-commerce giant has plans to expand its retail bookstore, as well as its new 4-Star Store.

And they might be onto something. Seemingly countering the trend toward e-commerce, it turns out that brick-and-mortar still make up 90 percent of all retail sales. In fact, in 2017, America’s more successful retail brands reported a net increase of 4,000 new store openings. Nevertheless, Statista reports that there was a net decrease of 400 department stores during that same year.

These contradictory trends are indicative of some underlying truths. It seems fairly evident that traditional retail is fairly outdated. Iconic brands that have relied on a conservative strategy were attacked head-on by the e-commerce upstarts and have lost too much blood in the ensuing onslaught. At the same time, other more adaptive retail giants have recognized this change in trends and have slowly transformed the industry to a point where technology meets the personal touch of a salesperson.

Part of this is due to the fact that some retail sectors are simply refusing to be taken over by e-commerce. As previously mentioned, commodities such as gas and groceries have fought back fairly strongly, as customers have reiterated the need for person-to-person interaction with such items. Rather, the strongest players in the market have shown the ability to adapt to these changes by providing strong, interactive online platforms that offer a level of physical and digital connectivity that was otherwise absent from the industry a decade ago.

And this might just be the golden approach to this problem. The reinforcement of the personal customer experience is the key to winning the retail game. As we see continued strides in the technology behind artificial intelligence, it becomes more and more important to value “soft skills” over more technical skills. While some stores will still try to fully depend on e-commerce, we are seeing that in many cases, people still enjoy the social experience of going out to the mall and other physical stores. What’s perhaps more interesting is the fact that 70 percent of shoppers want malls to combine the shopping experience with entertainment activities. Malls are actively transforming to emphasize community gathering places, event spaces and galleries over the traditional department stores and food courts.

That said, what about more traditional retail stores such as Walmart and Target? These “hypermarkets” have little semblance to scaled malls, making it difficult to create “social gathering” places. That’s not to say that these stores don’t have a future, however. Walmart CEO Doug McMillon notes that the key to making chore-like activities like grocery shopping more attractive lies in integration of artificial intelligence with stores and e-commerce to most efficiently elevate customer experiences. Systems likes in-store pickup offer cheaper and, in some cases, more accessible options for purchasing items, and the experience stands to be strengthened by upcoming technologies such as smart shopping carts and in-store drone assistance.

Also somewhat interesting is the idea of the cashless store, pioneered by Amazon, that allows for customers to buy products online at a brick-and-mortar shop. While this idea has faced some resistance by lawmakers, it’s indicative of the future trends that are overtaking retail.

Ultimately, in this case, we must not fall into the trap of believing the brick and mortar naysayers. We are on the brink of a major transformation in the retail scene that will inevitably change the face of the consumer shopping experience. So buckle up and get ready — physical retail is here to stay.

Adithya Sanjay can be reached at asanjay@umich.edu.