More than 100 years ago, Mark Twain famously remarked “The reports of my death are greatly exaggerated,” upon learning that one American newspaper prematurely printed his obituary while he was still alive. It seems, today, we could draw the same parallel with respect to retail. But, retail is not dead or even dying; it’s changing and reinventing itself.
“A big problem that underlines the retail headlines these days is journalists using Sears, J.C. Penney, and Kmart to represent all retail, but they don’t,” says JLL Executive Vice President Nat Heald. “These are traditional retailers that haven’t been able to adapt and evolve to how people want to shop. They’ve been suffering for decades and haven’t made the fundamental changes necessary to attract today’s shopper.”
“The terms we hear these days are ‘retail apocalypse’ and ‘retail Armageddon’,” added James Cook, JLL’s Americas Director of Retail Research. “There may have been several thousand announced store closures – an increase over last year – but stores reaching a new equilibrium is not the same as retail going away.”
The fact remains that yes, retail stores are closing. Ann Taylor, Bebe, and Michael Kors are just a few of the companies who recently announced plans to shutter some or all of their physical locations. But rather than looking to these trends and giving retail a death sentence, we should be addressing the paradigm shift that is occurring.
“People are worried about store closings, but a lot of what we’re seeing now is really streamlining,” said JLL Senior Analyst Arielle Einhorn. “Yes, there are the bankruptcies that exist, but others are also taking precautions and making sure to create a robust retail platform for themselves as opposed to maintaining so many properties all over the country and waiting for some to inevitably not do quite as well. It’s really been more of a choice for many retailers than some people give it credit for.”
Nationwide, retail vacancy rates are only 4.9%, and some savvy retailers, like Massachusetts-based TJX, are actually expanding in this time of change and uncertainty. The company said earlier this year that it will add 1,800 stores for a global total of 5,600 over the long term, and is also launching a new home concept in the U.S. later this year called HomeSense.
“TJX is arguably the best soft goods retailer in the world,” said JLL Managing Director Chris Angelone. “Their model is built on going into their stores and going on a treasure hunt so it’s very hard to replicate the experience of going into a TJ Maxx, Marshalls or Homegoods. It’s a fairly internet-resistant concept because the merchandise is different every time you go into the store and you don’t know what you’re going to find.”
But not all models are internet-resistant, which begs the question, isn’t e-commerce going to eventually kill the in-store retail model? The answer is still no. While e-commerce is unquestionably growing, the fact remains that more than 90% of purchases still take place in a store. And, if you’re comparing online vs. in-store, you’re really missing a key component of the future of retail, the blending of the two into one seamless experience.
“Oftentimes, the pendulum swings too far one way or another and in this instance it’s going to swing too far to where everyone thinks online is going to take over and take away from physical in-store sales,” said Angelone.
“But the reality is that for many retailers, their retail stores are dependent on online and online is dependent on the stores. People can pick up and return merchandise in stores they ordered online, or research online before going into the store. It’s more of this omni-channel marketing and distribution.”
An omni-channel distribution that, in fact, has meant many internet first retailers, like IndoChino, Bonobos, Warby Parker and others, even opening physical stores too.
“Many retailers that were born online realize that at a certain point they’ve saturated that sales channel. In order to continue growing, they need to engage new customers in a new way, which means expanding to brick and mortar locations,” said Heald. “There is no such thing as a digital experience, and that is one of the massive advantages brick and mortar stores have over online. They can carefully curate the shopper’s experience and allow them to develop a relationship with the brand or services in-person that is impossible to do online.”
“We’re seeing pop-up shops spring up everywhere, including places like Newbury Street, as online retailers test out physical space,” said Einhorn. “And often, these pop-up shops are the first step in a broader physical rollout plan.”
This all begs one very important question, if retail isn’t dead, which we clearly think it isn’t, what is the future of retail?
“I think people are nervous, and I think they are uncertain as to what exactly the future looks like,” said Angelone. “Whenever there is change, the sentiment is fear and uncertainty, but I think it’s exciting. There’s a lot of things happening and it’s dynamic and creates a lot of opportunity over the next 10 years. It’s kind of a change or die mentality and inevitably we’ll get to a point where people feel good about it again, it’s just going to look much different than it does today. But those that recognize where the opportunities are will be very successful.”
“It’s going to get harder before it gets easier,” added Heald. “But I will tell you that retail in the future will be much more inspiring than it is today. I think the future of retail is a really vibrant experience that validates the idea that it can be fun and energizing to go shopping.”