What's In Store for Retailing?

Popular perception puts bricks-and-mortar retail on life support.

Big merchandising chains are closing stores and going out of business. That must signal the impending death of the face-to-face retail business.

Except that's not the latest trend to hit the shelves.

Retail operations that launched online have begun opening physical locations to accommodate customers who want to touch and try on the merchandise. Traditional retailers are acquiring online-only enterprises to expand their reach beyond their physical stores. The retail store experience is changing to reflect what Internet-based merchants have learned about service and sales.

Five reasons retail stores aren't dead

In a piece for Forbes, business and retail journalist Barbara Thau notes that "pure-play online shopping is the imperiled model, evidenced by the lack of e-commerce-only retailers — save for Amazon and eBay — that have gained any meaningful heft and influence." In her analysis, online commerce has altered the retail landscape forever, and many store closures reflect the contraction of a marketplace that hasn't yet reached a sustainable post-recession level.

Contraction doesn't signal the death of in-person retailing, however, so much as a transition to new ways of doing business, including online-only merchants who open local stores, and the ability of online-plus-local retailing to fulfill online orders in person. Now that Amazon has acquired Whole Foods and Wal-Mart is buying up online merchants, the trend toward online-plus-local has picked up steam.

Thau makes three additional points about the state of the retail economy.

1. Physical chains not only outsell online-only merchants, but most of the largest brick-and-mortar chains show growing profits.
2. Online retailing converts fewer shoppers to purchasers than local stores do and loses profits to shipping costs. Online-only revenues also suffer from the returns that result when merchandise arrives and doesn't look like the website picture on which the customer had to base the purchase.
3. Millennials and Generation Z may have grown up attached to the Internet, but they prefer to shop in person.

Experience and service matter to consumers

Jeweler Blue Nile and decor specialist France and Son opened traditional retail stores, building "trust and loyalty" among consumers who "still want to feel and experience the brand."

Eloquii, a plus-size fashion brand that began as part of The Limited's portfolio, returned to the marketplace when former employees of its now-shuttered corporate parent reinvented it online. Three years later, Eloquii is beginning a gradual addition of physical locations that offer some of its online-only features, including stylists to offer purchase guidance beyond the amount of stock the stores will keep on hand, and focusing on the customer service that pure-play Internet retail can't offer. Its first permanent location will occupy space that formerly housed a Limited store.

What's new in the clicks-to-bricks retail migration comes from the ways these merchants configure their stores and their retail processes. Like Eloquii, many limit the amount of merchandise they keep on hand, supplementing it with products they showcase on tablets or other mobile devices. Customers place orders for these online products in store, by phone, or at home for largely free delivery.

Most online merchants open deliberately limited numbers of stores in geographic locations that offer access to large numbers of affluent early adopters or other demographically appealing customers. Pop-up stores provide a way for online merchants to test the in-person retail experience and expand their business model. These short-term locations exist only for days or weeks, or occupy kiosk-sized spaces. Among the early entrants into this new retail space: Amazon, with bookstore kiosks and stores that opened several years before it acquired Whole Foods and became a major bricks-and-mortar player.

Changes in methods, branding, and merchandising

Along with enabling merchants to focus on customer service and give consumers a chance to try on the merchandise before buying, physical stores also help formerly online-only retailers establish themselves as legitimate, lasting options for shoppers to explore.

Some merchants use the clicks-to-bricks transition as a chance to move from wholesale to retail, eliminating intermediate distribution steps between themselves and the retail purchaser. This trend appears in product segments as diverse as fashion and furniture. Other merchants view physical retail as an opportunity to reinvent the in-store environment and shed some of the traditional department-store assumptions—including the departments themselves. Instead of segregating merchandise by type, they showcase product combinations or individual items.

Some of these innovations have begun to appear in the traditional bricks-and-mortar stores of chains that only recently ventured online. In-person retail becomes an experience, not just a shopping trip, when merchants offer customers expanded opportunities to try out and engage with merchandise ranging from kitchen and bath fixtures to audio products. The showroom concept that formerly admitted only pros (interior decorators, remodeling contractors, etc.) has begun to accept and even cater to customers.

New goods aren't the only products moving from clicks to bricks. ThredUP, an online purveyor of like-new clothing, takes advantage of enhanced research into customer behavior as it opens physical stores. It selects geographic areas in which its online customers proliferate. Its in-store merchandise reflects what its online customers buy. Customers who can't find what they want in their size on the rack can use in-store mobile technology to photograph a garment and immediately see comparable goods from across the company's full inventory. The entire operation is designed to take ThredUP out of the thrift-store category and imbue its merchandise with the cachet of consignment.

Selectiveness and selection

Some online merchants, including Bonobos, Adore Me, and ModCloth, open small showrooms that support trying on merchandise without maintaining in-store inventory. Instead, purchases ship directly to customers from centralized warehousing. In the apparel market, clicks-to-bricks transitions typically include a focus on customer engagement, including in-person measurements for custom-made clothing, personal-experience services that expand on product offerings, and retail rental of designer goods.

As for Amazon, which has built its online empire through a combination of innovation and acquisition, its physical stores offer a selection of books and Amazon-branded tech gadgets, or provide a pickup location for students who buy textbooks from online Amazon college bookstores. Amazon Prime members benefit from additional advantages, including exclusive pricing on books. Automated technology eliminates check-out stands in favor of electronic product ID tags that help power purchasing direct to Amazon accounts. Limited on-display merchandise coincides with online buying trends and is shelved according to what's popular on the Amazon website. Physical locations also give customers the opportunity to make impulse purchases, which typically occur in person rather than online.

Spotting trends

What's consistent among these entrees into physical retailing? First, companies use what they've learned about retail behavior and customer interests to enhance their in-person profitability with digital technology and data mining. Second, clicks-to-bricks merchants recognize the importance of the in-store experience and size their operations so they can excel at customer service. Third, online merchants don't commit to opening large numbers of stores indiscriminately. Instead, they pick and choose their locations to maximize customer appeal. The results point to a retail landscape that's far from dead—and far from online only.

(Photo: Rachael Myrow/KQED)