Once-coveted retail spaces now hang “For Rent” signs in their windows. The retail industry is rapidly changing. There are many explanations why.
Technology, particularly the internet, has a major impact on the retail industry. Overbuilding of retail space is important, too.
In 1990, Tim Berners-Lee introduced the WorldWideWeb and gave the web its first browser, changing retail forever. Not until 1994 did e-commerce really begin to flourish. In 1995, Amazon launched. Almost anything a consumer needed could be bought online.
The internet took the retail industry by storm. It left those retailers with only brick-and-mortar presences in the dust. Even 10 years has made a difference, proving retailers must quickly update their business model or run the risk of failure. Blockbuster and RadioShack are prime examples of retailers who did not successfully adjust their business models. Both declared bankruptcy, in 2010 and 2017, respectively.
Today, it is difficult for a retailer to thrive without an internet presence. New retailers are rapidly emerging with a lesser need for floor space because of online shopping. Many retailers combine online stores with their brick-and-mortar stores in a practice known as omni-channel retailing. Research proves physical stores boost online sales, attesting omni-channeling is complimentary, not contradictory. Amazon’s recent acquisition of Whole Foods demonstrates this.
Retailers use alerts sourcing from Facebook to Twitter to their own app to inform users of sales or to reward them with coupons. A consumer with no shopping plans may be drawn to shop. With price comparison apps, consumers virtually shop for an item at multiple stores to find the best price. Web analytics, an internet tool tracking customer browsing patterns, is increasingly popular among retailers.
How people shop has changed drastically over the past 25 years. Sridhar Ramaswamy, in Omnichannel, explains one such change: “shoppers know as much as the salespeople.” 25 years ago, a shopper relied on a salesperson to select the right items. Today, shoppers do extensive research, often knowing exactly what they will buy before they set foot in a store. Shoppers 25 years ago decided where to shop based on familiarity. Today, consumers use their smartphones to find the closest store that fits their needs.
Online shopping is a private activity. Brick-and-mortar retailers are going in the complete opposite direction, promoting shopping as a communal experience. Retailers are looking to make stores a fun and exciting experience.
Brick-and-mortars retailers seek innovation to stay competitive with online stores. An example is tracking technology in shopping carts which record the browsing patterns of customers. These stores now receive the same analytics as online stores.
The challenge retailers face is to be the first to implement an innovation. Darrel Rigby of the Harvard Business Review explains, “Adopting successful innovations three years after competitors do is unlikely to generate much buzz or traffic.”
Brick-and-mortar retailers are trying to match the speed and efficiency of online shopping in their stores. Fast-fashion retailers buy large spaces, allowing them to update their selections more quickly than ever.
Many blame the internet for the decline of traditional retail stores, yet the internet is just one cause. In Q1 2017, the U.S. Census Bureau reported e-commerce accounted for only 8.5 percent of all retail sales. Although online shopping is growing more quickly than traditional retail, the decline of brick-and-mortar retail also reflects the overabundance of space.
Terry Lundgren, CEO of Macy’s, described the amount of U. S. retail space as “ridiculous.” Nearly one-fifth of the country’s enclosed malls have vacancy rates of 10 percent or greater, reports Nelson D. Schwartz of the New York Times. Although high-end malls perform well, small and medium income malls are faced with rising amounts of empty space, or are even closing altogether.
U.S. retail space equals about 7.3 square feet per capita, much higher than other developed nations. Japan and France have 1.7 square feet per capita while the U.K. has 1.3 square feet. This excessive unoccupied space leads to a rise in rents among the remaining retailers, and subsequently, the shuttering of stores at an increasingly rapid rate.