It doesn’t take a retail thought leader to identify the past year as a period of unusual turbulence and distress for the retail industry. Over the past twelve months, several formerly vital retailers (e.g., The Limited, Sports Authority) have vanished from the American retail scene.
Ominously, the trend only appears to be increasing in the early months of 2017. On a daily basis, news headlines seem to bring reports revealing a fresh set of store closings across the department store (Macy’s, JC Penney) and specialty store (Abercrombie & Fitch, BCBG) landscape.
Unsurprisingly, the retail bloodletting of the past year has been a subject of acute deliberation amongst industry writers and bloggers. A whole host of causes have been cited for the poor performance of these once viable retailers, including the threat of Amazon, changing customer demographics, and a proliferation of online and social media shopping. While it is true that each of those threats played some role in reshaping of the retail shopping landscape, it is also possible that some of the recent market instability might be traced back to the way store success – or failure – is evaluated. By this, I specifically mean through the lens of same-store sales.
I recently spent some time reflecting on how the use of this seemingly benign indicator of retail productivity might negatively impact retail strategic decision making. A decade ago, store expansion was seen as the chief means to pursue top line growth objectives. In order to illustrate the impact of store growth on overall revenue, retailers began to regularly compare current sales against prior years. While it could be argued that the use of the metric may have led to the over-stored situation today, overall the use of same-store sales made sense in the context of the times.
Which brings us to today. With the role of stores in a state of transformation, I find myself increasingly skeptical about the overreliance on “same-store sales” to measure modern store performance. This is an important concern, as the question of how to measure store performance lies at the heart of what might be the most important issue facing omnichannel retailers: how to ensure the ongoing viability of the brick and mortar store model.
We all know that ecommerce sales are growing at impressive levels. According to Smart Insights, online shopping increased by 45% in 2016. Impressive growth rates for ecommerce are expected to rise year over year. However, according to government statistics, online sales still only account for 10% of sales, and stores will continue to produce the most significant portion of overall sales, even with the projected online growth.
But stores can’t stay the same. Omnichannel shopping has become the new norm. Customers are now accustomed to navigating between devices, desktops and in-store visits to finalize their purchase. The actual buy transaction can occur at any point along the way, with sales success dependent upon the retailer’s overall relevance, as well as the effective utilization of the retailer’s physical store.
Retailers have been learning that online sales increase in zip codes in which there is a physical store presence. Recently, JC Penney CEO stated that their stores impact 75% of online orders. “Ship from store”, “buy online” and “pickup at store” are all key online services expected by today’s shoppers. Beyond the final transaction, stores are evolving to become critical contributors to the overall execution of the digital experience.
However, physical stores cannot exist simply to support digital sales. Stores must themselves be reshaped to cater in a more compelling manner to the modern consumer. According to Smart Insight research, 89% of retail executives believe that the overall customer experience now serves as the key competitive differentiator.
Retailers hoping to compete can no longer simply lay out merchandise “high and wide” and expect that shoppers will come or buy. Proactive strategies to enhance the in-store customer experience are essential. As one example, in-store technologies should grow in importance as a way to help attract and retain customers who increasingly expect retailers to “know and get me”. Stores must also continue to play an active role by supporting loyalty and rewards programs instrumental to maintaining market share.
Stores will continue to play an essential role in any omnichannel strategy hoping to win the heart and soul of the shopper. At the same time, success in the new world of omnichannel (which by design is more data dependent) is also predicated upon being able to correctly assess store value, and react accordingly. Retailers who are able to successfully harmonize and measure the customer experience across channels are going to be those most likely to survive and win.
The store will continue to be about sales, but it won’t be the same sales.