Retail Seeks to Redefine Itself

The warning signals have been coming for quite some time.

They appear to be getting louder by the day.

Disruption in the retail space has sparked discussions of the death of brick-and-mortar and the extent of Amazon's world dominance.

We've been hearing about it for years, but traditional retail hasn't collapsed.

The physical store has held its own and, with some wind in its sails, consumer spending picked up this holiday season and delivered a 4% increase.

That's what makes the stream of post holiday headlines so painful.

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The list goes on. Despite a strong holiday season, retailers are being forced to make difficult moves, closing stores and eliminating headcount.

Why? While sales increased, much of that growth was online.

E-commerce spending jumped 19% during the holidays, compared with an overall 4% increase in retail spending, according to Mastercard SpendingPulse.

The Wall Street Journal reported that, by some measures, online sales expanded at nearly five times the pace of overall retail sales. Amazon and e-commerce are major pressures impacting retailers, but certainly not the only ones.

The line between brands and retailers continues to blur as more and more brands open their own retail stores and e-commerce offerings.

Macy's CFO Karen Hoguet insists that physical stores will continue to be crucial to retailers.

“The big thing we're focusing on is what should our stores look like going forward?” She goes on to explain that, “Research tells us that customers are visiting stores, and then buying online.”

This is no surprise. Showrooming has only become more prominent. The problem is retailers haven't figured out the formula for juggling e-commerce and physical stores. Just because customers are entering your store and buying online, it doesn't mean they're buying from you.

“People want to spend, they want to feel important.”Steve Rowen, Managing Partner, Retail Systems Research

Retailers know they have to change quickly. The transformation won't be easy. The question that remains to be answered is, “transformation to what?” Where does retail go from here to fend off pressures that appear to be boxing it in from multiple sides?

RSR's Steve Rowan wrote a year-end look back that hits on an interesting point.

“Right now at least,” Rowan writes, “people want to spend, they want to feel important, and they really, really want to feel like they are living a life less ordinary.” He was talking about the emphasis being placed these days on unique experience.

Consumers are seeking something different. A new, extraordinary experience that is both memorable and indulgent. Rowan points out:

“Every place I visited this year that has anything to do with tapping into people's desires to break from the routine and live a little 'bigger' had a much-better-than-usual holiday season. REI? On Fire. Patagonia? Set a single day sales records back in November with its pledge to donate 100% of Black Friday sales to earth-friendly causes. How big, you ask? $10 million in one day.”

What does this mean for retailers and their suppliers? They have to find new ways to deliver value and unique services to consumers.

They have to find new ways to innovate and touch consumers, in ways that e-commerce alone cannot. It's hard to make a customer feel special in an e-commerce purchase, but the physical store can open the door to experiences that engage the senses and make the consumer feel unique, pampered or important.

The transformation that retailers are seeking has to involve agile business models founded on digital processes, networked technology and a customer-centric strategy – one that shifts the emphasis away from being strictly product centric to one that also delivers new types of services, experiences and points of engagement with the consumer.