Dr. Rafay Ishfaq, Auburn University’s Allen Reed Associate Professor of Supply Chain Management, comments on the trend of brick-and-mortar store closings and on the outlook for retail and online stores.
What do you expect regarding the outlook for retail stores in the next few years?
The recent news of store closures is indicative of the retail industry right-sizing its store networks due to socioeconomic shifts in society, i.e., declining popularity of shopping malls and the rise of e-commerce. The right-sizing of store networks will continue in the coming years until a smaller store network emerges that is more aligned to customers’ needs and that is increasingly shifting to the online sales.
The current trend of store closures is also influenced by the changing role of stores in the new age of omni-channel retail. Traditionally, stores have acted as showrooms where customers can browse, touch and feel merchandise. If they like something they can buy it right away. However, customers’ appetite in recent times for a broader mix of merchandise, more variety and shopping choices has significantly increased.
A direct consequence of this situation is shallow store inventory due to limited shelf space in stores. To keep service levels up, retail firms rely on their supply chains to replenish stores quickly and often. This situation increases costs and thereby adversely affects stores’ financial bottom line. If a store is not profitable, it would be closed.
What are the pros and cons for a retailer to keep brick-and-mortar stores?
Retail is a dynamic and evolving ecosystem where businesses must adjusts to survive. As one retail executive recently stated … “retail is not dead, but there are some dead retailers.” The closure of stores in itself is not unusual. Retail firms continually assess their store networks, opening new stores and closing under-performing ones.
Stores will continue to be an integral part of retail … it just may be in a different role.
We are already seeing firms rationalize their store networks to support growth in omni-channel retail, like closing old stores and opening new stores to get closer to customers. New stores are opened in locations that can support new omni-channel services, such as buy online and pick up at the store.
A new format of stores is emerging that has a relatively smaller footprint: 15,000 square feet rather than 150,000 square feet. Such stores serve the dual purpose of a traditional showroom and a fulfillment center for retailers’ online business. In this new role, stores are facilitating last-mile delivery for the growing number of online customers.
How are some online retailers successful in adding brick-and-mortar stores?
The enduring benefits of stores—customer rapport, convenience, sales service and personal touch—are realized by online retailers, too. As the volume of online sales continue to increase, online retailers are looking for ways to get closer to the customers.
Shipping orders from centralized distribution centers hundreds of miles away does not help your online customers’ demand for quick order delivery. The mantra of ship-fast-and-free creates a supply chain challenge that can have dire sales implications for online retailers.
The success of some online retailers with brick-and-mortar stores is encouraging. But, it remains to be seen how things turn out when they scale up their store presence beyond a few stores. Expanding their store networks may bring them to face the same challenges that store-based retailers are currently grappling with.
Will major stores like Walmart be affected by online retailers?
Store-based retailers, like Walmart and Target, have developed superior logistics and operational capabilities, fine-tuned over the course of decades. Many had believed that such capabilities in the store-channel would be readily transferrable to the online channel. However, this had not been the case.
There are inherent differences in the online channel: higher customer expectations, different profile of online orders and the additional logistical challenge of last-mile delivery of orders. Store-based retailers have had to realign their strategy to sustain their success in the omni-channel age. Over the course of the past decade, store-based retailers have made necessary adjustments, right-sized the store network and acquired talent from online retailers that have helped make them more competitive over their online retail competitors.
This battle is far from being over …. only time will reveal the winners.
About Dr. Rafay Ishfaq | Dr. Rafay Ishfaq is Auburn University’s Allen Reed Associate Professor of Supply Chain Management. His research focuses on exploring the interplay between operational and service issues in retail supply chains. One of his key areas is order fulfillment and delivery services in omnichannel retail supply chains. The findings of his research studies have been published in numerous scholarly journals. More information about Dr. Ishfaq is available at http://harbert.auburn.edu/directory/rafay-ishfaq/.