What many economists view as a growing gap between rich and poor in America is being reflected in online retailing trends.
Just as the middle class finds its fortunes dwindling, forcing members either upward or downward on the economic scale, traditional mid-tier department stores such as Sears and J.C. Penney are struggling to survive. What’s left are purveyors of luxury goods and discount chains.
A similar dynamic is emerging online. Both upscale and bargain stores are boosting their internet presence, according to Jose Mendoza, assistant professor of marketing at Sacred Heart University.
High-end merchandisers are selling on the internet but maintaining physical stores as a place to display their wares. “What they’re doing is using their stores as a showroom — a way for you to try before buying, and to have a sort of experience,” Mendoza says. Examples include Tesla electric cars, Peloton exercise bikes, Casper mattresses and Canada Goose outwear. In the case of the last, cold rooms allow shoppers to test the comfort and effectiveness of jackets before purchasing them online.
The idea is to make the physical store as small as possible — just large enough to give the shopper hands-on access to the product. The same locations can also serve as pickup points for online purchases, allowing sellers to minimize their investment in pricey retail real estate.
The presence of discounters on the internet is growing, although problematic. The issue is the cost of shipping, which represents a large percentage of the total purchase price (and might in some cases exceed it). Amazon, for one, is seeking to drive down the cost of shipping low-margin items by developing its own delivery fleet. Another possible solution is the imposition of annual membership fees, which grant buyers a lower shipping price. In addition, says Mendoza, third parties might offer the opportunity to deliver for less based on volume economies, provided they can squeeze out a margin for their services.
The real crisis in retailing, however, is occurring among mainstream, mid-priced chains. Consumers are abandoning traditional department stores in favor of specialty discounters like Marshalls and T.J. Maxx. Also continuing to thrive (although coming under heavy competitive pressure from Amazon and other e-tailers) are the big-box giants such as Walmart and Costco.
Shoppers want a combination of physical stores and online presence. “If they don’t get convenience, then price is going to be the determining factor,” says Mendoza. “[Retailers] in the middle don’t have a huge footprint.”
As economic disparity in the U.S. widens, is there a place for the mid-tier retailer? Mendoza believes that entity must take dramatic action in order to stay relevant.
The first step is to base the location and footprint of each store strictly on its degree of profitability. Relatively strong stores can’t accord to subsidize weaker ones, Mendoza says.
In addition, retailers must emphasize “experiential” shopping. Mendoza cites the example of Nordstrom, whose Trunk Club gives shoppers a virtual experience of the product. It also pairs them with stylists who can advise buyers based on their personal needs.
A key trend in modern-day retailing is the blurring of the line between online and physical stores, Mendoza notes. Regular stores can draw on tools such as image recognition and the Internet of Things to match the variety and novelty of online offerings. As far as the retailer is concerned, “it doesn’t matter where the customer buys, as long as it’s from that company.”
Retailers must also be cognizant of a broader trend: the end of the big shopping mall as a social nexus. The younger generation doesn’t view malls as destinations for hanging out. They prefer to target specific stores and purchases, or do their shopping online. As a result, big “anchor” stores are shutting down at a rapid rate, dooming the mall concept. Asks Mendoza: “If you don’t have the foot traffic, how do you justify the stores?”
Mendoza sees a continuing opportunity for discount retailers, and recommends that sellers of food and groceries adapt the IKEA format of physical stores, combining wide selection with low prices.
“Online is here to stay,” he says, “but we’re human beings. We want to go outside. And some products need to be tried before you buy. So there’s an opportunity to become an experiential store.”
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