Brick & Mortal: The Life, Death, and Rebirth of Retail
It's bad times for major retailers. Just look at this list of planned closures for 2016: 500 for McDonalds, 400 for Office Depot, 223 for Barnes & Noble, 200 for Walgreens, 154 for Wal-Mart. Not exactly uplifting.
But David S. Evans and Richard Schmalensee, writing in the Harvard Business Review, have managed to pluck a silver lining out of the retail cloud of sadness. While historic brands might be dropping like flies, brick and mortar stores aren't going away, they say. After all, brick and mortar still accounted for 92.3% of retail sales in Q1 of 2016. But the physical storefronts of tomorrow are going operate very differently from the ones we've come to know.
The retail store, as it's grown through the centuries, is dead. Yet its rebirth is already underway.
To understand what that will mean for the industry, let’s take a look back at how we got here.
Life: 1340 – 1995
Commerce is arguably as old as humanity itself, when cave apes first pointed at things they wanted and peacefully exchanged them, instead of clobbering each other and taking them. But the word ‘retail’ originated in the mid-14th century from the Old French word retaillier, which meant “to cut off, pare, clip.” The fashion industry in Europe had a boom during this time, and the idea of taking something whole, like fabric, and reselling it in smaller units became the embryo of the retail concept.
As the Middle Ages progressed, marketplaces and medieval fairs became hubs for retailing. Later, when feudalism ended and the age of industrial mass-production began in the 18th and 19th centuries, we finally got a version of retail we can still recognize today: the mom-and-pop store. But as consumer society grew, so did the need to provide shoppers with a greater variety of goods at lower prices. Thus, in the late 19th and early 20th centuries, large-scale department stores, with mail-order catalogs and expansive floor spaces, began to conquer the world. And for a long time, these gargantuan retailers reigned supreme.
Every retailer got quietly poisoned in 1995, even if they didn’t realize it until many years later. It's the year that Jeff Bezos founded Amazon as an online book store. It's the year that Pierre Omidyar started eBay and discovered there were people on the internet who'd pay $14.83 for a broken laser pointer. It's the year that shoppers lined up to buy an operating system (Windows 95) because the power of personal computing, the internet, and information was finally apparent to the mainstream.
The years spanning 1995-2010 brought us the deaths of many historic retail giants: Montgomery Ward (at 129 years old), Woolworth (118 years), K.B. Toys (87 years), and several other iconic brands. Such demises continue, with The Sports Authority becoming the latest victim.
Ecommerce sales continue to grow every year, torching old business models in the process. But as the HBR story points out, that doesn't mean every storefront will be reduced to ashes.
Rebirth: 2010 –
When Neil Blumenthal, Andrew Hunt, David Gilboa, and Jeffrey Raider founded Warby Parker in 2010, GQ Magazine was quick to dub it “the Netflix of eyewear.” But Warby Parker wasn't just another e-tailer. It designed its glasses in-house, sourced abroad, engaged with customers directly, and most importantly – wielded its brick and mortar storefronts with 21st century deftness. Warby Parker understood the advantages of a physical presence – customer engagement, quality service, and the power of the showroom. Customers can try, buy, and get help in a physical store. The glasses show up on their doorstep. The rest of the usual retail stuff – inventory, promoting the brand, last mile delivery – Warby Parker relegates to the realm of ecommerce. The idea is simple: you don't walk out of a physical Warby Parker store wearing a freshly-purchased pair of glasses, but you walk out happy.
Warby Parker's physical-showroom-digital-fulfillment model isn't specifically the future. But its thoughtful linking of ecommerce and brick and mortar is. And you can see other successful retailers doing their own versions of just that.
Take Home Depot, for instance, which has experienced fantastic growth since 2010. Home Depot’s brick and mortar success is woven into its ecommerce success, in a strategy that Home Depot's management calls “interconnected retailing.” The idea is to use its digital channels to drive physical sales, and its physical stores to drive digital sales. Here’s a great stat that shows the strategy’s power: 40% of Home Depot's online orders are picked up in store, offering convenience and driving foot traffic.
And then you have Zara, the Inditex brand at the forefront of fast fashion. Zara’s success comes from using technology on both the supply and demand sides of its operations. Producing new designs and quickly getting them into stores can only happen if information flows easily between everyone in the supply chain. And then, on the demand side, Zara has a vision to use Internet of Things technology like RFID to link its inventory, in-store shopping experience, and online sales.
“The Best Retailers Combine Bricks and Clicks” is the headline of Evans and Schmalensee’s HBR story, and the stores that use technology to pull off that feat will unquestionably be the new rulers of retail. Some of them might be iconic brands, like Home Depot, transforming themselves for this new digital age. Others will be hungry young startups, like Warby Parker, that usurp markets with energy and savvy. Those who fail to combine bricks and clicks will disappear into history.
It’s like the old saying goes: brick and mortar is dead, long live brick and mortar!