Department stores are not immune either. Sears and Kmart are shutting down 160 outlets; J.C. Penney, 138; and Macy’s 100. In total, some 5,377 retail stores are set to close this year alone. The trend is the latest manifestation of consumers’ desire to shop online, which has seen the majority of retail sales growth in recent years. Though e-commerce only represents 8.5 percent of total retail sales as of first-quarter 2017 (according to the U.S. Census Bureau) its steady growth and impact is literally changing the country’s landscape.
To comprehend e-commerce growth, it helps to examine its strengths. Online shopping gives consumers two enormous benefits compared to physical shopping: countless choice vs. limited inventory; and the ability to compare prices effortlessly, as opposed to wasting significant time, money, and inconvenience driving around to find the best price. Yet, for all that, some 72 percent of buyers surveyed by TimeTrade indicated they “…like to touch and feel products before I buy” according to the company’s 2017 State of Retail.
Nonetheless, the efficiencies created by everything from private delivery services, drones, pick-up lockers, and their own retail locations are ways that e-tailers are overcoming the desire for instant gratification. Combine that speedy shipping with generous return policies, and cheap or free shipping, and the trade-offs favor online sellers, and may explain why the percentage of buyers who prefer to touch and feel a product has dropped 13 points (from 85 percent) in just two years according to the same source.
Such closures and shifts in buying behavior are creating an unprecedented consolidation of power among a handful of retailers who are surviving or thriving based upon a combination of online and offline sales. Amazon, the biggest online retailer, accounts for more than half of online sales. Walmart, which spent $3.5 billion to acquire online seller Jet.com, saw its domestic internet sales increase by 63 percent in the latest quarter. As Walmart increases its online offerings, Amazon is experimenting with physical storefronts in categories ranging from books to groceries.
Beyond the dominance of these two giants looms the membership model, as exemplified by Costco and Sam’s Club — a concept Amazon has co-opted with its Prime membership. According to The Motley Fool, Amazon has doubled its global Prime members (who pay $99 annually or $10.99 a month) to about 80 million during the course of two years. That’s a windfall of more than $7 billion that Amazon can use to launch new businesses, create membership value, subsidize margins, and undercut competitors.
Many specialty categories have been reduced to one major player; think sporting goods, for example, where Dick’s is the last chain standing, or consumer electronics, where BestBuy is the remaining category king. Then there is the matter of white-label goods. As dominant retailers continue to earn consumers’ trust and loyalty, more and more mainline brands are ceding shelf space to such products. Costco’s Kirkland brand, for example, is now emblazoned on everything from dog kibble to booze, coffee beans, and gasoline.
Amid this massive change, what is a direct marketer to do?
- Realize that brand is more important than ever. Creating brand and product differentiation by educating the consumer and driving demand through all channels, is mission critical. Why? Because it is the best defense against being commoditized and having margins erode.
- Remember: you’re a direct marketer! You have the opportunity to sell directly to the consumer and protect your pricing model. You can get creative with different offer configurations at brick-and-mortar retail so that your products cannot be price shopped on a direct basis.
- Knock yourself off. Use your infrastructure to create alternative brands — perhaps even white label — to fortify your market share. After all, someone is going to create competition for you if you are successful. Why can’t that be you?
Perhaps the best news of all is that the human instinct to hunt and gather is not going away. The manner in which consumers choose to buy will diversify and — with that behavior — new opportunities will arise, whether it’s bricks or clicks. Marketers must be ready for the change to avoid doing what these storefronts are being forced to do: turn out the lights for good. ■