Brick-and-Mortars Pivot to Logistics, Entertainment
If online shopping were the only path forward for retailers, Apple would have made the pivot years ago. Instead, Apple is one of many large retailers still investing significant resources into brick-and-mortar storefronts.
The shift from brick-and-mortar to e-commerce has accelerated during the pandemic. But ongoing changes have also boosted the need for last-mile logistics. E-commerce accounted for 14% of total retail sales in the third quarter of 2020, compared to 11% in the first quarter. Although the Covid-19 crisis has forced consumers to change their spending habits, and more online options have popped up to fill that void, many of the country’s largest retail chains have been reluctant to let go of their commercial leases. Instead, retailers are pivoting and using large storefront spaces as warehouses, logistics hubs, micro-fulfillment centers, and entertainment venues.
“We need to think about a retail location with a very different mindset. Yes, retail stores will continue to exist, but they will serve a combination of purposes,” says Raj De Datta, CEO and co-founder of the commerce experience firm Bloomreach.
De Datta predicts that we could soon see more retail stores transformed into entertainment venues, brand and marketing hubs, and supply chain outlets.
“Historically, retail stores were built so that customers could walk in the door and buy products then and there,” De Datta says. “Going forward, businesses won’t care whether somebody actually buys the product in-store. What will matter most is if the business is promoting its brand well.”
Demand for convenience
Recent surveys show that even once Covid-19 vaccines are widely distributed, many consumers don’t plan on returning to their pre-pandemic ways of life. According to a survey by Iterable, 29% of B2C marketers now say the growing demand for convenience and safety is their primary business concern for 2021, followed by brand empathy and perception.
“Consumers have developed habits that are going to stick around even after the pandemic ends,” says Iterable’s Alyssa Jarrett.
For the most part, consumers still indicate they enjoy shopping online. The biggest downside seems to be the inability to see or feel products in person. What’s the solution? In 2021, we could see more retail spaces turning into showrooms. Or, brick-and-mortar spaces could be split in half, with large marketing spaces and display showrooms in the front and warehouses in the back.
The showrooming concept has been around for years, but it’s taken on a new meaning during the pandemic. A decade ago, as smartphone usage began to soar, retailers started seeing more customers coming into stores to see and feel products, and then pulling out their iPhones to complete their transactions. The pandemic put a hard stop on that, as many storefronts were forced to close or severely limit their opening hours. However, as the vaccine rollout continues, De Datta and others in the e-commerce space believe the tide could once again be shifting.
Stores become event spaces
In 2021, retailers are working on a strategy that uses entertainment events and other live activities to bring customers back inside their venues. Those venues, which we used to think of as stores, are now turned into marketing centers. Part showroom, part entertainment space. Fitness brands can host workout classes. Technology brands can host seminars and other courses designed to market their products and also educate their customers. Clothing retailers can host VIP cocktail hours and fashion shows. De Datta says physical locations can do a great job of promoting brands, so companies aren’t going to forgo their commercial spaces altogether, even if the act of shopping looks fundamentally different.
“Apple could very well sell exclusively online, but their Apple Stores are a form of marketing and entertainment. It’s fun to be there, it’s fun to try stuff if you can have an experience. There’s a reason to go there. And, if you can go get something quickly because your retail locations can fulfill demand from a local market versus some distant warehouse, then that’s an advantage for businesses to get products to people faster,” he says. “So we can expect to see these trends become the new rules of future retail locations.”
Brick-and-mortars embrace trends
Profitable retailers tend to keep up with changing demands faster than others. Lululemon, for example, has turned its retail spaces into entertainment venues, synonymous with yoga, fitness, and wellness. The retailer has shown a willingness to embrace trends faster than its competitors, both in terms of physical and online footprints.
Other retailers that De Datta says have done an especially good job of pivoting during the pandemic have been IKEA, Sephora, and Ulta. All three have implemented AR and virtual reality tools to help online shoppers get a better sense of how products look and feel without being able to see those products in person.
That sort of reimagining of what’s possible is key to success in 2021. It’s also something that malls and other large-scale commercial shopping spaces are going through right now. Some traditional malls are already being converted into warehouses, so retailers can better handle the influx of online orders and last-mile logistics.
According to a report by the foot traffic analytics firm Placer.ai, shopping malls are poised to make a comeback in 2021 — even if they look different from what we’re used to. Although foot traffic dropped significantly at shopping malls in 2020, data suggests that shoppers now are itching to spend money. Many malls are evolving into full-service entertainment centers, with restaurants and gyms, so consumers have more reasons to stop by.
Retail logistics are something Steve Smith, senior vice president of global operations at PFS, says are becoming concerning to more retailers, as their e-commerce operations grow. Given the $70.5 billion worth of holiday purchases that are expected to be returned in the coming weeks, retailers are looking at needing an additional 400 million square feet of warehouse space for processing. Some of that space could come from abandoned shopping malls or unneeded square footage inside brands’ own retail stores.
“With the increase in substantial and sustained outbound volume, the effect on the returns pipeline expanded almost immediately at the onset of the pandemic and has maintained an increased velocity throughout the year,” Smith says.
Smith expects to see continued and accelerated adoption of true omnichannel solutions that leverage online and physical retail spaces as shopping destinations throughout 2021. In an effort to better support new consumer expectations, he also predicts that retailers will shift from monolithic distribution hubs to a system of more and smaller distribution points. Those could include store fulfillment, micro-fulfillment centers, and pop-up distribution centers. They will help retailers better spread inventory across regions and allow for the faster delivery of goods.
“Major retailers are rethinking the categories they focus on, and need to keep in-stock where there is greatest demand,” De Datta says. “We can’t forget that safety measures and testing are new realities for physical stores and fulfillment locations.”
Stephanie Miles is a senior editor at Street Fight.