Shoptalk recap: Are stores flying or dying?

Discussion
May 20, 2016
James Tenser

For the movers and shakers who gathered at the inaugural Shoptalk conference this week, an existential question still remains unresolved: Are stores poised to soar in the digital stratosphere or are they circling the digital drain?

“Stores are incredibly challenged,” said Ron Johnson, CEO of Enjoy, the online services startup he founded this year following his stunning success with the Apple Store and shocking disappointment at J.C. Penney.

“Over the past 20 years, stores have been in a relative decline,” he added, referencing the faster growth posted by Amazon.com and recent reports of soft quarterly earnings and closings from brick and mortar chains.

But Jerry Storch, CEO of Canada’s Hudson’s Bay Company, which operates Saks 5th Avenue, Lord & Taylor, Gilt and Germany’s Galeria Kaufof, as well as its eponymous stores north of the border, would beg to differ.

“That narrative is all wrong; 90.2 percent of sales are still in stores,” he told a packed audience. “Amazon still only controls 1.5 percent of U.S. retail sales.”

Mr. Storch described a new status quo in which nearly all transactions are digitally influenced or involve at least one digital touchpoint. “Eighty-two percent of online retail interactions involve stores at some point,” he said, while “seventy percent of digital interactions create a store visit.”

Mr. Johnson said the business model for Enjoy – which sells, delivers and sets up high-consideration consumer purchases like home automation and electronics – is investing in high-quality hires instead of bricks and mortar.

“Our customers order items digitally and receive a hand delivery and high-quality personal experience, at home,” he said. So far Enjoy is offering services in San Francisco, New York, Los Angeles and Chicago markets, with plans to widen that to 10 markets in its second year. He expects to be “profitable at the market level” by next fall.

The two presentations offered contrasting views about the future of stores. While Mr. Storch’s Hudson’s Bay has been doubling down on high-quality department store brands and seeking to digitally empower them, Enjoy’s Johnson is avoiding brick and mortar like a disease, preferring a high-quality field force who can deliver an in-home experience that is Apple Store-inspired.

Ron Johnson (left); Jerry Storch (right) – Photos: James Tenser

DISCUSSION QUESTIONS: Are brick and mortar stores poised to soar or hit the floor? Do you agree with Hudson’s Bay strategy of adding more physical retail assets and empowering them digitally? Or is Enjoy channeling the future with a pure online service model?

Braintrust
"Having worked in organizations run by both Ron Johnson and Jerry Storch, I've got to side with Jerry on this one."
"Experience is a huge game-changer, and who better than Ron to get that right?"
"Experiment with that combination of stores, online and connected properties, pop-ups, et al. that drive retail sales. This is when retail gets fun."

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18 Comments on "Shoptalk recap: Are stores flying or dying?"

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Paula Rosenblum
BrainTrust

Interesting … Brian and I are working through some data on retail growth strategies and we’re finding that retailers who are doing well see a valuable and valid future for stores along with digital channels. Those who are not doing as well in overall sales are betting their futures on digital channels.

Since Mr. Johnson didn’t exactly set the world on fire at J.C. Penney, it’s no wonder he thinks digital is the future. Hudson’s Bay is doing a bit better, I think.

Separately, I think it’s really important that we stop quoting the “10 percent” number as gospel. When Neiman Marcus is consummating 26 percent of its sales online, Nordstrom 19 percent, Macy’s 12 percent and Walmart 3 percent, it’s clear that the “average” is pretty meaningless.

Bob Phibbs
BrainTrust

Ron Johnson would have to say that after the damage he inflicted on brick-and-mortar retailer J.C. Penney. Retail offers a variety of ways to sell right now. I think the amount of online retail is understated and the potential upside of brick-and-mortar is also understated. And no, I don’t look to Ron Johnson as the oracle, he’s human like the rest of us.

Shep Hyken
BrainTrust

It makes sense that brick-and-mortar store sales decline. Online is taking those sales away. It is important to note that overall sales aren’t declining. Just where the purchase is made (in-store or online) is changing. The best retailers will strike the balance between brick-and-mortar and digital. Some are already doing it.

Bob Amster
BrainTrust

Stores will not “soar” unless some new paradigm shift takes place. Stores will share their loot with commerce. An equilibrium will be reached in which there will be fewer physical units doing well and there will be a larger e-commerce business for omnichannel retailers.

As I have said before, for any one retailer, sales in an omnichannel model are a zero-sum game. The stores will lose sales to their e-commerce brothers and sisters and there will be fewer of them. I think Ron Johnson has it wrong. As to HBC, that strategy may backfire. There are fewer prime real estate locations and even fewer for a department store format. Unless HBC has a real estate secret sauce, increasing real estate assets won’t work.

Anne Howe
BrainTrust

My answer is that both strategies are legit in today’s retail world. In the category that Enjoy competes in, I think Ron Johnson is moving in the right direction with high-quality staff and service to focus on getting the customer set up quickly and effectively. Word of mouth could really help grow this model in the select markets. Experience is a huge game-changer, and who better than Ron to get that right?

I also believe that brick-and-mortar retailers can thrive if they really understand their shoppers and learn how to use all digital touchpoints to satisfy what the shopper wants at that time. We as humans are culturally motivated to shop at markets and engage with others as we do so. Understanding what can trigger a visit seems to be what Jerry Storch is focusing on and if he can deliver clean, well-merchandised stores with helpful human service, his model will last and produce effective results.

There is a lot to learn from each of these leaders, and I give them credit for forging ahead and sharing their methods for growth.

Ross Ely
BrainTrust

Physical stores continue to be the preferred environment for presenting goods and services to potential buyers. The retailer can showcase products in their optimal setting, giving shoppers the best possible experience in a controlled space. The shopper can fully experience the product — through sight, sound and touch — without the intrusion of a home visit.

Storch makes a strong point that over 90 percent of sales take place in stores and that the vast majority of digital interactions involve a store visit. Online communication with shoppers is highly important for demand generation, product research and answering questions, but the digital services will enhance the store experience, not replace it.

Larry Negrich
BrainTrust

Creating a great shopping experience that draws the customer into the channel is what all retailer should strive to accomplish. The retailers that devise vibrant shopping paths that engage shoppers across channels in a manner that is consistent with their brand, their unique charm and that fits with their product offerings will be the ones that get more out of each channel, be it store or online vehicle. Experiment with that combination of stores, online and connected properties, pop-ups, et al. that drive retail sales. This is when retail gets fun.

Lee Kent
BrainTrust

Human beings are still tactile and as long as that remains, there will be a place for stores. Are the stores poised for it? Absolutely not, for most. There are a few brands out there who are getting it right.

I tend to lean in the direction that staple goods, which we buy regularly and don’t really need to touch or interact with, will be consumed digitally. But we still need a way to discover new products and services as well as those that require more pondering of the senses. Stores need to learn how to do this.

Just as an example, and I get no payola from them, have you ever been to PIRCH? They get it!

For my 2 cents.

Cathy Hotka
BrainTrust

The answer is YES — stores are flying AND dying. There’s no getting around the fact that online stores have way less chance of out-of-stocks and improve the customer’s ability to compare products. And it’s indisputable that customers will want to see items in person, try them on and try them out. The smart strategy will be to nurture commerce in every way that consumers want it.

Ralph Jacobson
BrainTrust

Stores will ALWAYS serve a place in society. They are social outlets for people, as well as therapeutic, let alone a shopping tool. These aspects won’t go away. More and more pure digital retailers are opening stores. Long live the stores!

Kai Clarke
BrainTrust

This is a good contrast of differing views on stores, but as was duly noted, retail stores are required for their physical presence and eventual consumer decision making. Amazon only has a few percentages of the entire market, but that doesn’t change their impact on the importance of omnichannel marketing and the online presence in the consumer decision making model. Stores are here to stay, but their importance is changing as our retail models continue to evolve.

Lance Thornswood
Guest

Having worked in organizations run by both Ron Johnson and Jerry Storch, I have a lot of respect for both, but I’ve got to side with Jerry on this one.

I don’t see brick and mortar dying: the physical store is adapting to a new reality where the vast number transactions are now influenced by digital — and where brick-and-mortar still has a very vital role in displaying product, enabling face-to-face customer interaction, warehousing & fulfillment, and, oh yeah, also selling merchandise directly to consumers who can take it home right then and there. Cool, right?

10 years ago it may have looked like eCommerce v. Brick-and-Mortar, but now it’s the synergistic experience of both that will define retail success going forward. We should come up with a new way to talk about that combination. I dunno, maybe we could call it “omnichannel” for like, all channels working together. Just throwing it out there…

Herb Sorensen
BrainTrust

Bricks self-service retailers are largely NOT SALESMEN. They are merchant warehousemen, leveraging grossly inefficient unpaid stock pickers, also known as shoppers. Online merchants, tend to be good salesmen — Jeff Bezos perhaps the best in the world. I believe that it is POSSIBLE for bricks self-service retailers to be very competent salesmen, but mostly the thought never occurs to them. That’s because they have 100 year old practice engrained in their minds.

Costco is the ONLY major bricks self-service retailer who does exhibit significant selling skills. See: “Selling Like Amazon… in Bricks & Mortar Stores!“However, they do this by chopping off the long tail — only 4000 SKUs in a giant shopping warehouse, built for SUPER EFFICIENT shopping.

Amazon is following the Apple model for sales in their bricks stores — TOTALLY inappropriate for high volume, low margin self-service sales. If Amazon was making a serious move on bricks retail, they would have learned from COSTCO, not APPLE. Doesn’t mean the Amazon Apple-ish move is not a good one — especially for image, and their growing technology business.

Ken Morris
BrainTrust
This is not a black and white issue of in-store vs. online. It is very complicated, as both online and in-store transactions depend on each other and neither would be as successful if they were standing alone. Consumers have a complex purchase journey that involves research, transactions and delivery that often involves stores, web and mobile touchpoints. What makes this even more complicated is how retailers credit transactions when there is a webrooming or showrooming aspect to the sale. If a consumer spends an hour with an in-store associate to select the right product and then goes home and purchases the product online, the credit goes to e-commerce, but the sale may not have happened without the store. Conversely, if a consumer shops product info, prices and product reviews online and makes their decision online and then goes to the store to try the right size and purchase the product, the total sale credit goes to the store. And how about the products purchased online and picked-up in the store? The credit goes to online, but the store definitely plays a role in the sale/fulfillment. Is it a fair representation of the contribution of various channels? Probably not. The bottom… Read more »
James Tenser
BrainTrust
While tried my best to pose this question even-handedly, I suppose I can now reveal that I side more with the digi-bricks camp than the pure virtual camp. Of course for digital merchandise like music, video and software, online distribution is by far the lower-friction option. In-person services, like Mr. Johnson’s Enjoy also fit this mode, with a dollop of Uber-ish thrown into the mix. Tangible goods, on the other hand, require a more complex matrix of shopper interactions. Mr. Storch is counting on his shoppers’ desire to feel and try on their clothing at least much of the time. At the same time, he recognizes that digital channels help extend that store experience into his shoppers’ private worlds. Hudson’s Bay’s acquisition of Gilt in January confirms he understands that some fashion experiences work better remotely. Vive la difference! One final thought – Amazon’s Dash Buttons exemplify how some frequent-replenishment purchases can behave more like digital goods and less like high-consideration goods, extending the store all the way into the pantry. This option is not for every shopper, but it is useful for us professional observers to visualize how conditional the in-store v. on-line debate needs to be. I suppose… Read more »
Brian Numainville
BrainTrust

Makes total sense. Some items make more sense in the digital realm while others will thrive more in a traditional retail environment. But there is clearly room for both and and some of each will survive and thrive while others will drown and die.

Vahe Katros
Guest
10 months 6 days ago

Fall in love with a problem, not a specific solution.

Digital and stores are solutions; the problem is adding value to consumers. Yes I know, you have leases, and AMZN is killing you with free shipping and your margins are in trouble and so many things. And yes, it s**ks. But somewhere in your company and among your customers there’s got to be some joy and love. Go and find it. Don’t look for answers outside of yourself — think deeply about why you exist.

Retailing is where the rubber meets the road and I know you know this.

Karl Haller
Guest
This is not a simple either-or issue, and really needs to be discussed at the category level, not in aggregate. Thinking specifically about Enjoy, they are going after an opportunity abdicated by traditional retailers who lost their focus on customer service / experience / relationship. (Not dissimilar to Crutchfield back in the day). And they may be able to carve out a meaningful niche business. Who cares if they become the predominant way of shopping for consumer electronics. I bet they don’t. All Enjoy needs is to be big enough to afford their infrastructure on a market-by-market basis. And without the cost of stores, there’s a lot more to spend on a different type of infrastructure. Switching to department stores, and apparel and softgoods in general, I think that Jerry Storch is right in many aspects. Digital will be involved in almost all shopping / buying activities, the vast majority of which will continue to include a store at some point in the process. The challenge, though, is cost structure. In specialty apparel, it only takes a sales decline of 10-20% to wipe out store four-wall profits. And combined with the investments required to build out Ecom, Mobile, Social, Omni-channel,… Read more »
wpDiscuz
Braintrust
"Having worked in organizations run by both Ron Johnson and Jerry Storch, I've got to side with Jerry on this one."
"Experience is a huge game-changer, and who better than Ron to get that right?"
"Experiment with that combination of stores, online and connected properties, pop-ups, et al. that drive retail sales. This is when retail gets fun."

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