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While the long-predicted demise of the bricks-and-mortar store has been greatly exaggerated, there is no doubt that customers are migrating to digital channels in growing numbers.
Accenture looks at the issues, and identifies three steps that retailers can take to rethink the way they attract, serve and retain customers, then allocate capital and resources accordingly.
Since the late 1990s e-commerce boom, analysts, investors, and technology purists have been predicting the end of bricks-and-mortar retail. And while these predictions were greatly exaggerated, the fact is customers continue migrating rapidly from physical stores to online and mobile channels to fulfill their shopping needs.
Consequently, the online and mobile channels, once merely a supplemental revenue stream for traditional retailers, are now a bona fide force that is wreaking havoc on physical store sales productivity. In fact, Accenture’s analysis of 29 top U.S. retailers reveals that from 2005 to 2010, total square footage and stores in operation increased by 38 percent and 21 percent, respectively, while sales per square foot has actually declined 5 percent. And these less-productive stores are affecting the bottom line. Return on invested capital for the same set of retailers during the same time period also declined 25 percent.
Given these trends, the evidence is clear that the majority of traditional retailers today are overstored.
How did bricks-and-mortar retailers, and store productivity, get here? Conventional wisdom is that a confluence of factors, including technology innovation and consumers’ ability to shop anywhere, anytime, led to this point. While this is true, it does not fully explain why retailers have reacted slowly to correct their course.
The more complete answer suggests retailers suffer from a classic case of overestimating (and overfunding) the continued success of the store-dominant model while underestimating (and underfunding) the emergence of a new model altogether.
While it may be convenient for traditional retailers to take a “wait and see” approach to the sustainability of channel migration and its impact, it seems highly unlikely that physical selling space growth will make a big comeback. Online sales are expected to grow at 14 percent annually through 2014, while Web-influenced sales will increase to 53 percent from today’s’ 48 percent. Mobile sales will grow by 800 percent through 2015.
One must also bear in mind that online and mobile retailing is only at the beginning of its growth curve, with broadband adoption growing extremely strongly. In addition, the newest generation of shoppers only knows a world in which they can buy in any channel.
Store-dominated retailers should address channel migration by rethinking how they attract, serve, and retain customers, then allocate capital and resources accordingly. Doing so is a three-step process that starts with assessing current vulnerability to channel migration.
Assess the current store model’s vulnerability. This assessment addresses two key dimensions: the type of products offered and the profile of customers served.
Be aggressive about tactical options. Retailers must address the underlying causes of vulnerability head on—the more vulnerable they are, the more aggressive their approach should be.
Pivot corporate headquarters and its resources to future growth channels. With future retail growth continuing to accelerate in non-store channels, the final step requires the corporate organizational structure to be adjusted in order to enable suitable allocation of capital and resources.
June 13, 2012
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