If retail is dying, what’s next?

To say that the world of retail has been struggling is somewhat of an understatement. Coresight Research released a report this month that predicts 20,000-25,000 store closures in 2020. Retail institutions like Neiman Marcus and J.Crew have filed for Chapter 11. And previous leaders, like Barneys New York, have shuttered completely. In some ways, many of these closings have been a long time coming and COVID-19 was just the tipping point. However, what feels like the end of an era might actually be, I believe, the beginning of a more evolved and innovative version of retail. 

Ecommerce is better than ever, so why should I leave my house? 

Time and convenience are such precious commodities now, that it’s no wonder that people are willing to pay a premium for it. Unlike the traditional method of browsing store displays, buying online saves time and it’s much easier to discover new products based on past purchases and shopper preferences. Unless there is a unique experience associated with the buying process, there’s virtually no need to visit a brick and mortar store. As a former Best Buy executive who spent my tenure focusing on how to get people into stores, I can tell you that writing that last sentence hurt. A lot.  

Time to redefine the meaning of retail. 

Today, retail is more than the selling of goods — it’s a lifestyle. The best retailers not only sell you their merchandise, they also go out of their way to showing you how to get the most out of their products in order to provide you greater value. For example, direct-to-consumer cookware brand Great Jones created a free text messaging service called Potline to help customers and home cooks to get real-time cooking advice and recipe suggestions. Shopping in certain categories like home improvement, beauty, fashion, and wellness can be a better experience online because it’s not as siloed. Online, shoppers can consult with experts for help whenever they need it, whether it’s finding the right widget for the house and how to install it, or the best concealer. In the past, retailers were the gatekeepers who dictated the retail landscape, but the script has flipped where the consumer controls the experience. As a result, consumers expect great service and experiences more than ever, and we have to broaden the scope of retail. Surprise! Delight! The joy of shopping should be the journey and the destination.  

Trends come and go, but physical retail has stayed mostly the same. 

Whether it’s hospitality, software, or transportation, almost every industry has been disrupted by technological innovation. But the world of retail has remained largely unchanged. Why? In the tech world, venture capitalists have seeded bold and creative entrepreneurs, but the model isn’t successful for sectors that are capital intensive. For example, VCs place many small bets, initially a few hundred thousand dollars per company across 10 or more with the hope that one will pop big. Usually one does, and that’s how a lot of big software-driven businesses get born. Software as a service is all the rage because it doesn’t require a huge amount of capital to create a platform driven by coding and very little overhead. As a result, venture capital is incredibly successful for fostering innovation that might otherwise be hindered within the walls of a large company. On the other hand, retail operates more in the physical world with personnel, tactile and visual displays, and brick and mortar operations. Add in the costs of real estate and that most VCs consider capital entry points as barriers, it makes sense that retail doesn’t have an innovation model like tech. So, while disruption in retail is slow, it is happening. Amazon is primarily an online platform, but in order to fulfill the huge volume of orders they receive, they’ve had to build an entire infrastructure of logistics and distribution centers practically from scratch. As a result, they’ve completely revolutionized the way we shop, even changing the psychology and expectations of consumers. And they’ve achieved it by bridging their digital platform with physical operations. 

Venture capital begets innovation and as you can see in the graph below, retail is dead last. With so many retailers closing up their physical shops and redirecting their efforts to ecommerce, malls are dying. Even banks sit mostly empty as customers do almost all their banking online from their computers or smartphones. And to pour more salt into the retail wound, the recent pandemic has made a stronger case for working from home, thereby opening up even more commercial real estate. The amount of unused, available commercial real estate that’s just sitting there is staggering. We could lament the old days of retail and how things used to be, or we can roll up our sleeves and build something new. All it takes is a small group of people to affect change. Can these buildings be reimagined to be more community-oriented? Can we provide better service and value to people that they can’t get from screens? Perhaps there’s a way to create an ecosystem where a customer’s journey begins with a screen and ends with a meaningful interaction in the physical world?

Value of venture capital investment in the United States in 1st quarter 2020, by industry. (in million U.S. dollars)

So, where does the world of retail go from here?

When it feels like you’re down for the count, that’s really the chance to get up and reinvent yourself. As a former Disney Parks executive and fan of Steve Jobs, I am a huge believer in failing better. You can only market research and test disruptive concepts and ideas to a certain point.  Eventually, it needs to take form in the real world for real consumers to experience, touch, and feel.  So, I’m issuing a call to action for bold investors who see an opportunity to reshape the mountains of real estate we have. This is a chance to reinvent the structures in our communities to not only better serve our consumers, but our local communities. More than ever, we’re seeing people crave and demand physical connection. Ask anyone what they miss the most from pre-COVID-19 life and I bet you they’ll respond with something like, “I miss window shopping.” or “I miss dropping by my coffee spot and reading.” or “I miss bumping into friends.” There’s no war between digital and physical commerce. We can bridge the gap to provide even more value to the people we serve. It may seem crazy to suggest this in the middle of a pandemic, but it’s possible that there’s no better time to do it. As everyone continues to social distance and recover, this is the time for us to mobilize for change. So, when people are ready to return to the physical world, we’ll be ready.