How To Survive The 'Retail Apocalypse'

The battle between e-commerce and brick-and-mortar retail has reached apocalyptic proportions. At least that is what it feels like for the latter.

This March, Hedgeye reported retail bankruptcies were at higher levels than what was observed during the 2008 financial crisis. High-profile chains like Gander Mountain, RadioShack, BCBG Max Azria, The Limited Stores and HHGregg have either filed for bankruptcy or Chapter 9 protection. Department stores like Macy’s and Sears continue to shutter locations across the U.S.

While online retail has grown exponentially, the problem has less to do with its rise as it does with a shifting consumer demographic. As younger shoppers become America’s influential spenders, physical stores have to adjust strategies to reflect demand for improved experience and instant gratification.

This is not the end of the world for brick-and-mortar. It is an opportunity for rebirth. Phase Zero Design has five steps retailers can take to better compete.

1. Accept It

Retail is changing and it is never going back. Stores that fail to keep innovating will not survive. Sears, once a trailblazer among department stores with its catalogues and big-box stores, lost $748M last quarter. Not all physical stores are suffering. Off-price retailers TJX, Ross and Burlington plan to open 300 locations, according to CNBC.

The speed at which these stores rotate inventory and offer bargain prices appeals to more budget-conscious, post-recession shoppers. Companies must adapt to the new normal.

2. Embrace It

Despite more conservative consumers, Americans on average are spending $101/day as of February, the highest amount recorded since 2008, according to Gallup. Retailers have an opportunity to capitalize on increased consumer confidence.

Like off-price retailers, fast-fashion chains like Zara have built empires from adapting to demands. The Spanish clothing brand can go from trend to trenchcoat in under 25 days. Boohoo, a discounted online clothing store based in England, bases its inventory entirely on how many of an item will sell in a given week.

3. Experience It

Zara and Boohoo know their customers. The latter markets to 16- to 24-year-olds, a blend of Millennials and the younger Generation Z. By 2020, Gen Z will represent 40% of consumers in the U.S., Europe and emerging economies like India and China, and 10% in the rest of the world, according to Fitch.

Both crave experience over consumption and are attracted to companies that integrate into a broader social media narrative. Stores like Under Armour have made their products an essential part of their customers’ personal brands, preferences and cliques. Collaborating with celebrity athletes on Instagram, for instance, has fans scrambling to recreate the images.

There is also in-store entertainment. At Nike's flagship store in New York, a major tourism destination in its own right, zones offer activities tied to a specific sport. Adaptive lighting can show customers what clothes will look like in specific workout conditions.

4. Innovate It 

Omnichannel has become a buzzword for describing seamless continuity of service online and offline, but stores often mistake this for over-saturation of their product. Brick-and-mortar instead needs solutions that not only reach customers, but also make the process of buying a product easier and more enjoyable.

This February, online menswear store Bonobos opened one of its “guideshops” in Detroit. Designed to enhance the relationship between clerk and customer, the shops act more as a showroom, allowing visitors to try on pieces and plan an entire wardrobe makeover. The only catch is they cannot take any items home.

Customers pay for their purchases, and the clothing is shipped to their home in a few days.

For Target, which saw sales drop 5.8% year-over-year in Q4 2016, a new store design will physically separate lifestyle and apparel shoppers from more convenience purchases like groceries, better accommodating customers. While shopping for furniture, visitors would enter a new floor featuring curved aisles and merchandise tables, encouraging a more freeform, browsable experience. For more determined shoppers, the other side expedites the process.

5. Consolidate It

If you can’t beat ‘em, join ‘em.

Hudson’s Bay, the owner of Saks Fifth Avenue, Lord & Taylor and Gilt Groupe, is in talks to acquire Macy’s. Mergers and acquisitions offer a way for brick-and-mortar retailers to expand their footprints and have access to a large customer base.

Compared to giants like Amazon and Walmart, joining forces can also help leverage buying and negotiation power.

Consolidation plays a part in shipping and logistics. Last January, Amazon acquired an ownership stake in French delivery company Colis Privé as part of its expansion into the European market. The company’s 25% share in the delivery service also allows it to keep tabs on its shipping costs.

Physical stores can do the same, cutting costs by removing the middleman from their delivery strategies. Some stores have even started to use former retail space as ship-to-store pickup facilities.

Retail armageddon can be prevented if brick-and-mortar retailers are willing to invest in new strategies. Phase Zero Design, an architecture and interior design firm specializing in retail, can help lead them to safety.

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