Will Cashless Retail Really be a Thing?

There is an emerging trend in retail that would have seemed implausible not too long ago. Many of you have already observed this or will soon experience it on your own. Retailers and other business owners are politely telling their customers that “your cold, hard, cash, will no longer be accepted as a form of payment at our establishment”. What I first observed in a few smaller retail establishments and restaurants the past few years in my home city of Atlanta, is now rapidly spreading to larger business across the country. Just last week, Mercedes-Benz Stadium in Atlanta announced it will now go cashless, becoming the first NFL and MLS stadium to do so. This is just another example of business such as Bonobos, Indochino, Everlane, Reformation, Amazon bookstores, and Drybar hair styling that are cashless. United and Delta airlines have also gone cashless at both their ticket counters and in-flight purchases. Amazon Go is checkout-free and plans to open 3,000 stores by 2021

So why the sudden momentum swing to cashless commerce? Afterall, it wasn’t too long ago in large cities such as New York, that you needed to check if that establishment took credit cards as many operated on a cash only basis. Well for one, the rise of digital wallets such as Apple and Googles pay has had an impact as well as the growth of debit card transactions. Also, as retailers are looking for ways to reduce friction in the brick and mortar channel, cash payments are a slower transaction to execute. A cash transaction can usually be in the range of 10 seconds longer to perform and for a retailer doing millions of transactions annually, that can be significant. It is estimated that across all sectors of retail, 30% of transactions are cash and this percentage is decreasing every year. There are also other benefits of going cashless such as employee safety, cost of armored car pickups, trips to a local bank for cash deposits, and reduction in employee theft. If retailers elect to go this direction, they will need to consider their labor model and needed adjustments. Labor standards must be adjusted to account for efficiencies realized by a quicker transaction time. Other operational processes may be eliminated or reduced and the labor impact but be quantified.

So, should retailers make the jump to go cashless? Well, there are many factors to consider. The demographic of your target customer is critical. Millennials are less likely to use cash as payment than older generations. Low income may be negatively impacted by removing cash as an option of payment. Some retailers are addressing this by offering in-store kiosks that allow customers to use cash to obtain pre-paid store debit cards. Analysis must be performed to determine if the benefits achieved are greater than the incremental expense of credit card transaction fees. Certainly not a decision to be made without understanding all the ramifications.

One thing is for certain and that is this trend will continue to grow. However, it is now facing another obstacle. Cities and even some states either have legislation in place or are introducing legislation to ban cashless operations. In recent weeks, New Jersey and Philadelphia have passed laws prohibiting cashless stores, and four more cities — Chicago, New York City, San Francisco and Washington, D.C. — are contemplating doing so. The city of Atlanta is already pushing back hard on the decision by Mercedes-Benz Stadium and feels cashless establishments discriminate against the poor.

It will be interesting to see how this all shakes out, but one thing is for certain, the velocity of change in the retail segment continues at a rapid pace as they are all trying to create an enhanced customer experience while achieving efficiencies and driving down costs to both survive and thrive.

RILA 2019 Link Conference Recap

On February 24-27, 2019 The Retail industry Leaders Association (RILA) held their annual conference in Orlando, Florida. As a first-time attendee, I found that the conference delivered on its promise of engaging topics. There are a couple of themes and three specific sessions that I found particularly impactful.

In terms of themes, the one topic that was on top of mind in most sessions was labor. This manifested itself in conversations around sourcing, developing, managing and retaining labor in an era of extremely low unemployment.

Gary Maxwell, from Dollar Tree, laid out a simple yet effective strategy for combating the recruiting challenges experienced by those in the Supply Chain and Warehousing industries.

He recommended:

  • Expanding the recruiting pool by going after non-traditional workers
  • Connecting jobs to a higher purpose to combat some misconceptions about the quality of the work
  • Selectively automating functions to reduce the physical demand of the job

In a panel session, Chris Bright VP, Supply Chain Operations for Nordstrom highlighted the need for companies to consider the cost of attrition when planning their labor needs. He drew the analogy between a labor model and a car, where technology provides the power, engagement is the fuel, but culture is the transmission that allows all the potential to become reality. He also emphasized the need to focus on people to achieve operational goals.

There were numerous wonderful discussions and presentations from Dick Johnson of Footlocker, Arthur Valdez of Target, and Dean Carter from Patagonia among others…But, the presentation that stood out the most for me was from Barbara Kahn of The Wharton School of Business.

Barbara spoke on the Shopping Revolution and outlined a model to help explain, among other things, the emergence of Amazon as a world power. She outlined four strategies for differentiation, and showed how successful companies dominate one, leverage it to become a leader in another, then maintain a “good enough” position in the other two. The four quadrants in her model break down between product benefits and customer experience on one axis and increasing pleasure versus eliminating pain on the other axis.

The four quadrants are:

  Product Benefits Customer Experience
Increase Pleasure Brand (i.e. Zara) Experiential (i.e. Sephora)
Eliminate Pain Points Low Price (i.e. Walmart) Frictionless (i.e. Amazon)

Suffice it to say, I am excited to read her book, The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption.

I found the RILA 2019 Link conference to be of tremendous value and cannot wait to go back next year. I would highly recommend it to anyone who is looking for a fresh perspective on the current state of the Supply Chain industry, who enjoys networking with other senior executives going through similar challenges, or for anyone with an inquisitive mind who just enjoys learning.

The Future of Retail Store Design and What that Means for the Omnichannel

I’m not an Industrial Engineer. I’m a marketer. More specifically, I’ve spent most of my career working with or for advertising agencies and creative technology firms. When retail clients came to us with issues of sluggish sales or low store traffic, the response was almost always the same…more advertising, a new campaign and product discounts.

Sure, if the campaign was good enough and the discounts were deep enough, store traffic and subsequent sales would almost always improve. At least in the short-term…But, with the proliferation of ecommerce and the evolution of the highly educated consumer, most of the traditional strategies and tactics of driving customers to the store simply started to have less impact over time. And that’s where the importance of the retail store design has begun to play an ever-increasing and crucial part in this narrative.

Recently, I was able to sit down with Andrew Taylor, a Senior Director here at Connors Group and he explains…

“When you look at the retail winners and losers over the past several years, a few case studies come to mind. And, they all revolve around what happens in the store…”

“For example, Take Best Buy…they could have easily dug in their heels and ignored the internet and Showrooming; but instead, they embraced it and made changes to their stores that provide the consumer with a streamlined experience, better customer service, the ability to pay at multiple locations throughout the store, BOPIS and great visual displays with marquis brands presented and merchandised in a visually appealing way.”

Andrew continues…

“Future design is also about frictionless commerce like AmazonGo and Immersive experiences like what Starbucks is doing with their Reserve Roastery locations or what Restoration Hardware has done…”

“Recently, they (RH) built a 4-story showcase store in downtown West Palm Beach with a rooftop restaurant and bar. The store showcases their product in real-world settings and features a design center. It is not intended to directly drive sales, but to be a real-life experiential showcase. The restaurant is high-end and drives traffic through the three floors of lifestyle showcase below it. Talk about embracing the new world!”

“But, If you look at those retailers who haven’t embraced future-focused design strategies, you’ll likely come up with names like Kmart, Sears and Radio Shack…and we all know how that worked out.”

Online sales are growing rapidly, but still not the bulk of all retail sales globally…

These statistics from Statista, show that how and where customers shop is changing rapidly, but it also highlights that as a percentage, there are still far more in-store customer sales (globally) than exclusively online. That said, focused and nimble retailers that are ahead of the curve can remain successful by answering the needs of the consumer wherever they decide to purchase.

Source: E-commerce share of total global retail sales from 2015 to 2021 – Statista 2019

What does this mean for the Omnichannel?

“As Industrial Engineers, our focus is to help our retail clients maximize their design strategies and capitalize on those customers that are in their stores. This is very important to the Omnichannel experience, because the customer is now in control and wants a consistent and convenient experience wherever they choose to shop or engage with the clients we serve.” Added Jeff Peretin, President of Connors Group… “It is also important that future store designs address flexibility over time to account for the continued evolution of digital commerce and consumer demands.”

What are your thoughts?

How do you see retail addressing the needs of the customer through store design?

Stay tuned for more insight on this subject and more!

Wrapping up #NRF2019 with Our 3 Key Takeaways

The NRF Big Show is the world’s largest retail conference and expo. And while the official numbers aren’t in yet, in years past, the show has boasted over 37K attendees, 16K Retailers and more than 800+ exhibitors from 99 countries.

The sheer volume of new ideas, technologies and companies we experienced this past week was incredibly inspiring. And while we could create a top 50 or even 100 list, we’ve settled on 3 key takeaways from #NRF2019:

  1. Associate Engagement
  2. Retail Analytics and Customer Insights
  3. Machine Learning and AI

Associate Engagement

The daily pursuit of continuous operational improvement shouldn’t come at the expense of a companies most-valuable asset, it’s employees. As a people-centric organization, it was great to see that there were many new technologies and platforms focused on improvements in task management and employee communication. Tools and apps like those focused on shift-swapping are quickly becoming organically adopted by employees, which in-turn is garnering the interest of management. There is a clear win-win when associate engagement and morale are improved.

Retail Analytics and Customer Insights

Pulling disparate information sets together, like online sales, instore sales, CRM and traffic data is challenging. There were many offerings from organizations promising a more holistic view of the customer. Queue management, shopping patterns, dwell time, and getting employees where they need to be at the right moment were also topics and focal points for a variety of dashboards and data aggregation tools promising the holy grail of actionable consumer insights.

Machine Learning and AI

According to this NRF session summary, by 2021 75% of retailers will be using AI /Intelligent Automation for supply chain and demand forecasting, consumer intelligence, and marketing campaign management. And while we agree that adoption is and will continue to occur, much of the hype around AI and Machine learning is very reminiscent of the “Big Data” and “Cloud” buzzwords and phrases we’ve been seeing and hearing now for the better part of over 5 years. That said, industry giants like IBM, Google, Microsoft and Salesforce will continue to lead the charge, while many will take the wait and see approach. Either way, it’s here and not going away, but right now it still feels like there are currently a lot of half-baked solutions out there looking for problems to solve.

What were your takeaways?

Is Black Friday Relevant Anymore?

A week from today, we will be inundated with stories, images and videos of long lines and frantic masses grappling over the latest tech gadgets and door busters. There is no doubt that big box retailers like Walmart, Target and Best Buy still rely on this “tradition” to drive traffic, interest and excitement with the hopes of kicking off and keeping the sales momentum going through the end of the year.

But, is Black Friday relevant anymore? Sure, those images say yes, but the reality might point to no.

Here are three reasons why:

1. It’s not just Friday anymore

For the past several years, we’ve witnessed an increasing number of retailers opening on Thanksgiving Day. What was once a day reserved for family, food and football, has now become just an early-bird version of Black Friday. And while there is always the inevitable discussion on whether it’s the right or wrong thing to do, this once strategic, albeit controversial differentiator has now become the norm, with this year seeing numerous retailers, including such major retailers as Walmart, Target, Kohl’s and Best Buy opening on Thanksgiving.

2. Online penetration continues to trend upward

This graph from Statista compares the online revenue in the United States on Thanksgiving and Black Friday from 2008 to 2017. On Black Friday 2017, US online revenues amounted to 2.36 billion US dollars, up from 1.97 billion US dollars in the previous year. 2018 will no doubt continue this trend.

3. People visiting stores are trending down

A report from RetailNext Inc. that analyzed in-store videos to count the shoppers shows that In 2017, the number of people visiting stores on Black Friday and Thanksgiving declined 4 percent from 2016.

And in another report from Harris Poll and OpenX shows that Six in 10 shoppers think Black Friday is overwhelming, and 59% plan to skip it and instead, shift their holiday spending online.
As the retail world continues to shift and modernize, the traditions of the past continue to come under pressure.

What was once an annual event for Baby Boomers is not a consideration for millennials. The data shows that Black Friday is becoming, if not irrelevant, then increasingly concentrated. Specialty retailers are no longer trying to compete with the Walmart’s and Targets of the world and are merely extending hours for Friday morning. All the evidence points to the fact that Black Friday is no longer a relevant event for most of the brick-and-mortar retailers.

Do you agree? Let us know in the comments section.

Current Trends and Business Challenges in Supply Chain Labor – Part 1

Last week, several Connors Group Consultants were in Chicago for the JDA Autonomous Supply Chain and Workforce Labor Summit. As a sponsor of the event, we were very pleased with the turnout and content. The speakers presented case studies and industry insight that helped frame deeper conversations with our industry peers and clients.

During our panel discussion, Connors Group provided a summary of the Current Trends and Business Challenges in Supply Chain Labor

Here is what we are seeing…

Staff Sourcing and Retention is a recurring challenge for all industries, but retail and distribution seem to be feeling the brunt of the tight labor market. High-quality workers are hard-to-come-by and turnover continues to escalate as workers leave for higher wages, the promise of better schedules and work environments…Some of the trends we are seeing to address staffing and retention issues are employee engagement initiatives, performance recognition, schedule equilibrium, and reward programs.

Another challenging area is with Forecasting Labor Demand. Inaccurate forecasts are causing wide swings in labor demand, primarily at the day level, but weekly challenges also exist. We are also seeing an uptick in special events and promotions becoming more difficult to accommodate using current forecast models…To remedy this, most of our clients are seeking assistance in researching and implementing systems that can forecast a variety of complex labor models and scenarios, no matter what time of year or event.

Schedule Optimization is also an issue… “We have heard several DC managers say that they still create schedules like they did in the 1950’s, with fixed shifts, that neither adjust for demand, nor easily accommodate for the changing labor market.” Says, Ty Law, Senior Director and Labor Specialist. He adds, “The workforce management scheduling systems coming to this market both optimize shifts based on labor demand as well as generate schedules that are equitable for the employees – which helps drive retention”.

The bottom line…

Labor continues to be the largest controllable cost in warehouses and distribution centers. As a result, companies must continuously reassess their current processes and technology, while looking for new ways to maximizing the value they get from their labor investment.

In Part 2 of our follow-up, we will discuss the specific ways that best-in-class companies are tackling these challenges in the workforce today.

Winning the War for Retail Talent in $15/hr. Era

The starting hourly wage rates for many retailers are no longer at or slightly above the government mandated minimum wage. In the current economic climate, starting rates cover very wide ranges including many at or above $15 per hour. However, the requirements for these jobs are all essentially unchanged; they are entry level positions.

Historically, hourly employees would not change jobs for money alone. It would take a significant increase, normally an increase of $1 per hour or more, to induce an employee to leave a job. Many reasons, such as job comfort, enjoyment, relationships with their manager/team, recognition, etc., were enough to keep them in their role.  The reality is that $15+ per hour is giving employees a $3 to $5+ per hour increase in hourly rates – more than enough incentive to leave the comfort of their current job.

This poses a big problem for employers…

For those employers already at $15 per hour or employers who are unable to pay $15 per hour, how else can they compete for and retain talent?

“Competing for and retaining retail talent is often mistakenly seen exclusively as a HR issue,” says Jeff Peretin, President of Connors Group. He adds “balancing pay and benefits into a ‘total comp package’ is where HR Directors tend to focus. And, while that formula might show 2 or even 3 times the hourly rate, employees typically won’t focus there…where retailers can really make themselves more competitive and encourage more employees to stay is by making their retail stores a great place to work.”

Based on recent Connors Group client case studies, some of most common reasons why retail employees leave their employer (excluding pay) is due to the conditions of the workplace and the lack of proper training. Employees find it difficult to do their job or feel they are not setup for success if they don’t have the rights tools. As a result, they become unmotivated, performance suffers, and they ultimately leave. Retailers often overlook this important consideration for employee retention.

The formal mechanisms that have traditionally been the domain of HR in retail (pay, benefits, rewards, etc.) remain essential, but are no longer enough to win the war for talent. Company culture will trump formal mechanisms when companies can no longer afford to increase their “hard” financial investments. This culture manifests itself in stores through a great work environment; clear expectations, consistent two-way feedback, effective and ongoing training, a neat, clean and orderly workplace, and a clear understanding of how the role of an associate contributes to the company mission. In today’s challenging economy, the company that masters these at the store level will win the war for talent!

Retail Holiday Hiring Strategies

With the recent announcement by Amazon, that they will be increasing minimum wage for hourly employees to $15; the first reactions have been great, but true altruism might not be the
real reason…

Let’s take a closer look at a few key facts:

  • Currently, unemployment is at record lows. In fact, it’s the lowest it’s been since 1969.
  • Consumer confidence is high and holiday sales this year are expected to be the best they have ever been.
  • Retailers and DCs will be battling for temp labor to meet this increased customer demand.

Amazon understands this reality and has made a proactive move to make sure that they are attracting and retaining enough labor for this busy holiday season.

Other retailers are using similar tactics to hire the necessary people they will need to generate sales and maintain customer service levels.

  • Holiday is a time where companies cannot afford to let customer service slip, this is an opportunity to gain new customers as some are shopping specific retail stores and online channels for the first time. A bad first impression can often lead to lost future sales.
  • Returning customers have come to expect a level of customer service. Lack of proper staffing will most-likely disappoint the most-loyal customer advocates.

Reality is that most retailers are not going to be able to hire the number of people that they think they need so operational efficiency becomes extremely important.

Retailers need to be asking themselves:

  • How do we predict how many temporary staff we will need, and when we will need them?
  • How do we get what we need to get done with what we believe is not enough people?
  • How do we decide what tasks we are not going to be able to do or tasks we are going to do less frequently?
  • What does customer service look like during this time and how do we more quickly deliver that message?
  • How do we quickly train temp workers and put them in positions and performing tasks where they can be successful?
  • How do we maintain a good level of customer throughput at the Cash Wrap so that we don’t lose sales through abandonment?
  • How do we limit losing customer traffic because someone decided not to even enter the store because of how long the lines are or store condition?

So, what’s the quick advice?

Retailers need to understand the different shopping patterns in holiday versus traditional times of the year…

Typically, holiday customers are shopping more intentionally…think gift buying. And, with less visits to the fitting room, it may be necessary to shift the fitting room and go-back labor into customer service and cash wrap. Also, less returns and more sales during the holidays, but right after the holidays another shift as returns are typically quite high as customers are returning the merchandise they don’t want.

Avoid Reacting…

Store management tends to get into a head-down tasking mode during holiday peaks and stores suffer as a result. Leadership needs to focus on maintaining good utilization and performance.

Plan Earlier…

The holiday shopping season may not feel like it yet, but it is just around the corner. Proactive retailers (online and brick-and-mortar) need to be planning their staffing strategies now to be competitive.

Some considerations include:

  • Sales forecasting:
    • Holiday sales are projected to be up sharply this year in total, but what does this look like by channel for each individual retailer? All planning starts with accurate forecasting
  • Hiring plan:
    • Retailers should know what the learning curve is for temporary associates, have a discrete list of functions that temps can effectively perform, and a solid methodology for determining how many and when to hire.
  • Management reporting:
    • Having a plan is essential, but executing a plan is crucial. Successful retailers adapt their reporting for the holiday season to be able to react quickly, if not proactively, to changes in the economy, whether micro or macro in nature.
    • Focus on leading indicators rather than lagging result metrics and incorporate into all levels of management in the organization.

The holiday season is full of opportunity for retailers. By focusing proactively on potential inhibitors, such as a lack of qualified staff, retailers can gain a competitive advantage going into this vital season. It is not yet too late to modify your strategy.

The New Retail Reality: Part 2 – Disruption

Over the past several years, the Retail industry has undergone significant disruption.

The retail industry cannot continue to operate as if it has separate channels. Customers no longer find value in shopping that way and will avoid retailers who persist in forcing them to shop “the way it’s always been done.”

The integration of online shopping into the buying cycle has introduced numerous factors that must be reconsidered for retailers to prosper. Four of the most significant are:

• The hyper-educated consumer
• The death of “browsing”
• The inability to differentiate on convenience
• The dominance of showrooming in physical retail

The Hyper-Educated Consumer

In the traditional retail model, shoppers came to specialty stores for advice from knowledgeable associates and to have a broader and deeper merchandise set to consider. For larger purchases this might have involved numerous visits to multiple physical locations to develop the consideration set, to cross-reference the knowledge imparted by sales people, and to allow for time to discuss with friends and family. These factors would contribute to a rise in traffic numbers…
As retailers became aware of the nature of the buying cycle, shelves and queue lines began to feature smaller, inexpensive “impulse” items that might capture dollars during a “non-purchase” visit. As online retail evolves, it offers a wider and deeper set for consideration, with instant price comparisons, deep product knowledge and reviews from other shoppers that cannot be matched by the physical store alone. By the time a shopper enters a store for any destination purchase, they are either at the “Purchase” point and are ready to satisfy their need, or they need to experience the tangible element of the “Research” step and are in the store for a very specific reason. Often, by the time the consumer arrives at the store they are far more knowledgeable about the product than the associates in the store and know the lowest price for which the product can be bought. This makes it very difficult for physical retailers to differentiate based on expertise or offering.

The Death of “Browsing”

A secondary impact of the ability for consumers to complete nearly all the first three stages of the buying cycle without leaving their homes is the death of “browsing”.
As the need for multiple visits to develop a consideration set and research alternatives evaporates, the number of physical visits required to make a purchase shrink. This means that the ancillary smaller purchases that might have occurred on these “pre-purchase” visits also diminish. There are fewer shoppers that are just “browsing”. This erosion of smaller purchases might show a false positive in the retail equation. Conversion and Average Transaction might increase with the decline in traffic, but the health of the physical location erodes as traffic declines. It is important for retailers to understand the lower-level dynamics as they evaluate the business. Not just how many are shopping, but WHO the shoppers are.

Convenience Is No Longer a Differentiator

As mentioned before, the traditional retail model relied on convenience to attract shoppers to physical locations. Department stores collected a wide breadth of product into a single location. Specialty stores added depth of assortment and expert knowledge previously unavailable. Malls added to the availability and convenience of the shopping experience by congregating multiple retailers under one roof, eventually adding a social aspect. Lifestyle centers further expanded on the social aspect, making an experience that moved shopping to a secondary position, but still included shopping in the mix. The introduction of online shopping has diminished all these factors for retailers. As Chris Anderson writes in his book, The Long Tail: Why the Future of Business is Selling Less of More (2006), online offers infinitely more depth and breadth of product than any single physical location could ever offer. The role of the store in terms of the traditional offering is obsolete. Retailers must redefine the role of the physical outlet to survive.

Showrooming is King

The role of the store must consider that it is not a part of the “Consideration” or, to a large part, the “Research” cycles. Again, Best Buy is a great example of a company who recognized the permanent shift in buying dynamics and adapted its stores accordingly. Consumers will continue to have a tangible need to touch, feel and see product, especially product that is new or cutting edge. While fulfilling this need physical retailers also have an opportunity to showcase product in an environment where the integration or supplementation of other product may enhance the customer experience in ways that were not considered during the online shopping “Research” phase. This is the new reality of selling. It is no longer about product features and benefits, but rather about lifestyle integration. To that end, associates have a new role in the selling cycle. Their knowledge can no longer be about individual products, but rather must be about the broader integration of that product into the life of the consumer.
The new reality may seem daunting, and the challenge is very real. Transitioning is difficult for large, public companies, but transition is required for survival. In the omnichannel world stores have a primary function to support the online purchase, not the other way around. While subtle, the difference is a significant departure from the traditional mindset for most retailers. This has direct implications to the operating model of physical retailers, but resistance is futile. Change is necessary for survival in the new reality.

The New Retail Reality: Part 1 – Get Over It.

A Reexamination of The Customer Buying Cycle in the Omni-Channel World

Over the course of the last several years, one of the most-discussed topics in the economic world has been that of the “Retail Apocalypse.”
The theory goes that the Amazon Effect has diluted brick-and-mortar retail sales to the point where many retailers cannot maintain solvency. This has been attributed, in large part, to the decline in retail traffic. In truth, traffic has shifted from brick-and-mortar to online. However, the retailers that are being most damaged by this trend are those that see the two (online and physical businesses) as separate and competing entities. It is necessary to re-consider some of the assumptions about the nature of traffic to adapt to this new reality.

Consumer demand is healthy…

Even after adjusting for price inflation retail demand has increased steadily since the economic downturn of 2008. Consumer spending habits are diminishing, as shown if Figure 1. This means that if brick-and-mortar retailers are doomed the spending must be shifting away from stores and into the cloud.

Figure 1 -Retail Trade Spending, Source: United States Census Bureau

It is true that e-commerce as a percentage of total retail spending is increasing. E-commerce as a percentage of retail spending has increase from less than 4% in 2008 to over 9 percent in 2018, as shown in Figure 2. Expert projections have this increasing to as high as 17.5% by 2020.

The rise of the importance of e-commerce is undeniable…

Figure 2 – E-Commerce Penetration, Source: United States Census Bureau

However, this is tantamount to arguing that because the rich are getting richer that the poor are worse off. Even after adjusting for inflation and removing all e-commerce sales (which includes Amazon), from 2009 through 2017 brick-and-mortar sales have increased at a 2% compound annual growth rate, as shown in Figure 3. (This trend held true again in Q1 of 2018.)

Figure 3 – Retail Spending Growth, Source: United States Census Bureau

If the macro argument that sales are shifting en masse to e-commerce does not hold true, then what is behind the fear of the “Retail Apocalypse”? To answer this, we must re-examine the nature of traffic in the customer journey.

The Customer Buying Cycle…

If we consider the traditional consumer buying cycle, it looks something like this.

Figure 4 – The Consumer Buying Cycle

The way that shoppers satisfied the phases of the cycle has changed over time:

  1. Traditional retail provided the consideration set, the research facilities and the purchase point
  2. As retail became more sophisticated stores took steps to make the cycle more convenient for shoppers.
  3. Department stores offered a “one-stop” place to consider, research and purchase goods.
  • A wider breadth and depth of product was available for consideration.
  • The staff were experts who helped to educate consumers.
  • The product could be touched, tried on, and evaluated in real world conditions.
  1. Eventually malls came along to further broaden the breadth and depth of product available, and the addition of offerings that would entice more people to shop were added.
  • The food court became the focal point of the social life for generations of teenagers.
  • Stores began to compete for their share of the traffic and the purchase dollars of the shoppers coming to the mall.

The retail industry may have competed internally on service and quality, but the traffic became a given, and was driven predominantly by the CONVENIENCE of the having a “full” consideration set of product and service in one location.

With the advent of online shopping this dynamic has changed. The reality of the omnichannel world of today is that shoppers no longer need to leave their seats to develop a broad consideration set, research the options and make a purchase.

However, all is not lost for today’s retailers…

The need for “showrooming” can be a boon. Companies like Best Buy have realized that instead of fighting this trend, they need to embrace it. The one thing that cannot be satisfied in the virtual world is the tangible element. Shoppers still need to touch, see and feel product. This means that retailers need to accept the new reality and reconsider the role of physical stores in the eyes of the customer.

Let us consider this new world!

Next week, visit our blog for The New Reality: Part 2 – Disruption.