A Bold Prediction From 2005: Now Comes True

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On August 1, 2005, Playthings Magazine (now GIFTS) published my article, "Know when to fold 'em; but know how to hold 'em – Internet sales and the tipping point for bricks and mortar".  I recently had cause to read it again it and was surprised, now fourteen years later, how accurate it was in predicting the bricks and mortar store closings of the last two years. I thought it was worth sharing again. (To see the original article – click here)

Like those old science fiction movies, people are going to start disappearing.  That’s right disappearing.  You will be walking down a store aisle one day and you will see a lot of people.  Then you will come back a few months later and they won’t be there.  In fact, the store might not be there either. 

What’s happening?  Are aliens abducting them?  Are they teleporting to other planets?  No, it’s scary but not that kind of scary.  It’s this kind of scary – they’re going to the Internet.

Have you given thought to what is going to happen when the Internet siphons off enough consumers to start closing brick and mortar stores?  Think about it.  It doesn’t take a great deal of customer erosion to create a big problem.  We’re already over-stored.  These stores and malls were built with the belief that the consuming population would continue to grow.  The problem is that the number of people who go to the store is going to start to decline.  Why?  Because consumers are buying online.  There is a steadily growing constituency that likes the lower prices and loves not having to leave the house.  To an Internet shopper, all the stores are local.

No matter what their size, brick and mortar stores’ break-evens were based upon pre-Internet calculations that all consumers were foot traffickers.  Oh, for sure, they anticipated future competition, they planned for economic downturns, and they even began to plan for Wal-Mart.  All of these plans, however, were based upon an established set of demographics and, most important on an ever-growing consumer population.

According to the Department of Commerce, 2004 was a very good year for retail.  Store Retailers (bricks-and-mortar) experienced a 5.8% increase in 2004.  Nonstore Retailers (online and mail order) experienced a 12.8% growth.   It’s wonderful that both sectors experienced growth.  It's ominous, however, that nonstore sales more than doubled the growth of store sales.  At some point, it seems logical that the pie will cease to grow larger and non-store sales will begin to cannibalize store sales.

Foot traffic does not need to be off that much.  Just enough to create a tipping point where there are not enough dollars to support the fixed costs of a 200,000 square foot store with an enormous parking lot. 

How then can one determine a store’s level of risk for losing foot traffic?  The first step is to determine whether the store’s average shopper is wired to the Internet.  The more affluent and younger they are, the more wired they are.  The more wired they are, the more at risk the store is. 

Second, take a look at the store’s online competition.  Don’t just consider their current market share but their potential market share as well.  Ten years ago Amazon was just getting started.

How quickly, easily, and pleasantly can consumers enter the store?  Is the parking lot easily accessible?  Is it clean?  Is the surface smooth?  Is it well lighted?  Do customers feel safe? 

In the same sense, how quickly, easily and pleasantly can consumers exit the store?  Can a customer check out in minutes?  Are there self-checkout lines?  Do a high percentage of transactions proceed without having to verify a price?

Are the store’s check out clerks friendly?  Have they been trained in social skills as well as scanning?  It’s nice to have a greeter, but it’s the impression leaving the store that lasts the longest.

If there is a concern about losing foot traffic, here are some ideas for making sure consumers continue to visit the store:

  1. Make shopping at the store a value-added experience. Ally with food establishments and cinemas in the area and offer a movie and or a show as a gift for a minimum purchase.
  2. Create an entertainment experience in the store. If the place of business is not convenient for people who want to order from the comfort of their living room, give them a reason to leave the house.  Hire a sword swallower if necessary but do something to create an experience.
  3. Create an e-commerce web site for the store and use it to generate synergies between onlineand, bricks-and-mortar shopping. Allow customers to order on the web and pick up at the store to save on freight and time. Run special online coupons and advertise with a search engine like Google so when a consumer is searching for a particular product, the store’s ad comes up before any of the competitors’ websites.  
  4. Create Internet portals in the store. By doing so, the store can offer goods and services that it would normally not be able to handle.  While the consumer is visiting the beachwear section encourage them to use the department’s Internet kiosk to book a cruise or purchase an in the ground swimming pool.  If they are purchasing new golf clubs in the sporting goods department, they can book tee times at the local golf course in that department’s Internet portal.  You will generate nice dollars from commissions for the referrals and provide your customer with convenience and a broadened shopping experience.
  5. Guarantee a minimal wait to check out and back it up. Consumers hate to wait to give you their money.  Make sure they get out fast once they are finished.
  6. Above all make sure that entering and exiting is pleasant and fast.

Retailing, like everything in the last quarter century, continues to evolve at a rapid rate.  Sharp business people stay ahead of the curve by looking for the early warning signs and taking proactive steps.  Are you staying ahead of the curve?

—– Article written by Richard Gottlieb, Global Toy Experts

 

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