Is Retail Really Dead?

Everyone's talking about it-it's nothing new. "Retail is dying", they say or worse, some even say it's already dead. Yikes. As Amazon continues to grow, it's easy to think that brick and mortar stores are a thing of the past- especially with COVID-19 still in the picture and many still working from home.

But, did you know that online e-commerce sales in the second quarter of 2020 accounted for just 15.1% of total retail sales? Source: US Census Bureau

It's hard to believe- I know. So if 15.1% of retail sales are from e-commerce, what accounts for the other 84.9%? Well, According to Coresight Research, they estimate 25% of America’s malls will close within the next three to five years. Source: CNBC

But how does that add up? If 84.9% of total retail sales are from brick and mortar stores, then why are malls all across America closing? I'll tell you right now.

With department stores like Neiman Marcus and Barney's filing for bankruptcy and most recently, Lord and Taylor announcing they will be closing their stores, it's easy to assume that all retail is down when that's not necessarily the case. Yes, COVID-19 has changed consumer spending habits- but the virus is not all to blame as these stores were hurting long before the pandemic.

Source: Flickr, Eugenuity

Let's dive deep into some reasons why the malls are suffering:

There are a few common traits among these failing department stores- they have loads of inventory- but not the inventory consumers want, they lack good customer service and there's too much competition. What was once common among these retailers is that they served as anchors for the malls which drove customers in. Now, it's just the opposite.

Think about the last time you stepped foot into a big department store like Lord and Taylor, for example.

It was probably difficult to receive assistance from a sales associate (if you wanted any), the fitting rooms were unorganized and messy, and it was most likely pretty empty in there- unless you were shopping on Black Friday. You search through the racks and maybe find a few things you like if you're lucky. But the price- if only the price was just a little bit lower...

I'm going to stop there for a second. Because the main issue here is the combination of these traits I spoke of above which all add up to one thing- value. The single most important thing a brand can have.

Customers don't value products at Lord and Taylor anymore because:

1.They can find it anywhere and probably for a cheaper price

2.It's not special or unique

3. There's no positive store experience associated with it

Unless it's unique to their in house line, consumers will often google the item they want to see if they can find it cheaper at any other department store. The chances that the consumer is loyal to Lord and Taylor is low if they can find that blouse cheaper at Macy's. What does Lord and Taylor offer them that Macy's doesn't? Not much- and most times, they don't turn to the cheaper option because they can't afford it, but because they don't value it enough.

Now, I could probably say some similar not-so-great things about most Zara stores- one of the most successful retailers in today's market. Although it's smaller than a department store, the store is usually two levels and is often messy. It can also be difficult to find someone to help you at times.

The difference between the two stores?

The store is BUSY. Not even just busy, it's packed all the time and the line is almost always out the door. Why is that? Although I think Zara could improve on their customer service, they do everything else so well- it doesn't matter as much to most consumers. Although it does get messy in the store due to the fast pace, the store is generally merchandised beautifully making it easy to create outfits from head to toe. No shoe department or handbag department to walk to here- it's all put together in one spot for you. They make it easy to walk out with one or more high fashion outfits in a short amount of time, for a great price.

Zara's inventory doesn't usually have too much overflow as their promotions are rare. If an item is really popular and sells out, customers will often travel to multiple different stores to find it. They want it because it has that value to them. It's in a limited quantity which creates scarcity and the need to get it now because once it's gone- it's gone for good because you can't find it anywhere else. It's really basic economics here.

In addition to that, Zara always makes sure it has what the customer wants, when they want it. Every few weeks new merchandise rolls in to stores so that the latest trends that consumers want are theirs to purchase. But this subject is less about Zara's efficient supply chain and retail operations and more about the big picture of simply giving their customers what they want, when they want it and always keeping them excited and engaged.

Is it unfair to compare Zara to brands like Macy's and Lord and Taylor since they're so different? Probably. But even athleisure brands like lululemon have actually seen an increase in sales during the pandemic due to the demand for comfortable, yet stylish work-from-home outfits and their unwavering brand loyalty. It proves that retail success is still prevalent, even during the pandemic- just maybe not in the department stores.

It's clear why brands like Zara outperform the big department stores at the brick and mortar level. But what about e-commerce? In the age of coronavirus, online shopping has definitely been an asset to help keep companies alive. But is this the future of retail?

No, I don't think so- and let me tell you why.

People want to connect with each other- we know that now more than ever in the age of Zoom calls and FaceTimes that replace social gatherings and meetings. As humans, we crave that connection with others and although online shopping is convenient, the in-store shopping experience is irreplaceable. Zara was a poor example of this as the experience I've come to know is throwing together as many outfits as I can before somebody else does and interacting with as little people as possible to speed up the process (oops). However, in most other stores it's not like that.

Especially at the luxury level, (where online sales account for an even lower % of total sales) customers want to speak with sales associates and form relationships with them. The shopping experience then becomes something beyond the clothes and brand and gives way to customer loyalty. Some luxury retailers have even opted for virtual styling sessions, hold virtual events, and send gifts to clients to show that they value their best customers.

And what about your favorite boutique that knows you by name? Small business owners account for a large percentage of retail and the in-store experience there is usually a positive one. At least in my experience, even if it's not a luxury boutique, the associates are often willing to assist you and create relationships with the customer and they treat their "regulars" like family.

Even though right now things may look grim in retail and beyond, I know that brick and mortar stores will be here for a long time, it's just going to take some creativity, innovation and commitment to keep up with the changing times and suit the customers needs.

It may be too late for Barney's and Lord and Taylor but retail isn't dying- it's just changing.