Will struggling retailers find new lives as pure play e-tailers?

Discussion
Photo: en.wikipedia/Coolcaesar
Mar 24, 2017
Matthew Stern

In recent years, successful e-tailers have begun to realize that they can do even better with some sort of brick-and-mortar presence. But some struggling physical retailers are taking an opposite tack, ditching their real estate with plans to operate only online.

In an effort to avoid filing for bankruptcy, women’s apparel retailer Bebe plans to close its stores and conduct sales solely online, according to Bloomberg. The company has about 170 physical retail stores. Apparel retailer Kenneth Cole has likewise announced that it is planning to focus entirely on its online, international and wholesale businesses, closing most of its physical locations.

Bebe’s closure is perhaps indicative of the overall decline of shopping mall retail. Among other once-popular mall chains that have closed down recently, as reported in People, are The Limited, Wet Seal and BCBG Max Azria.

Bailing out on the physical retail world might be a good way to get out from under the cost of leases, but e-commerce is not without its expenses. Driven largely by Amazon’s level of convenience, consumer demand has grown for free shipping, as well as premium shipping offerings like same-day and even two-hour shipping.

But such demands have not stopped some small, online-only apparel retailers from being very successful. ModCloth, for instance, built a sizeable following selling clothing by indie designers. The company’s recent acquisition by Walmart demonstrates that such e-tailers are on the radar of some of the world’s biggest retail companies. The acquisition, however, has proven controversial with ModCloth’s customer base, who took to social media to register concern about the business compromising its ideals.

Nevertheless, it was ModCloth’s indie appeal that built the brand to begin with. Retailers that are associated primarily with the mall may have to do some legwork to define an e-commerce niche.

Though Bebe is treating its remaining brick-and-mortar presence as a drain on resources, some apparel retailers have managed to succeed with no e-commerce presence at all. For instance, Irish fast-fashion retailer Primark has had success sticking strictly to a limited number of brick-and-mortar locations and not selling online.

DISCUSSION QUESTIONS: Will we see other struggling retailers become online-only concerns? What will such retailers have to do to succeed online after failing in brick-and-mortar?

Braintrust
"Flipping to online-only is a trend that I expect to see continue probably for the next decade or more as weaker chains make a last gasp at survival. "
"I’m babbling here, but as much experience and creativity I bring to my store, it may not be enough to stick around in the future..."
"Retailers moving to pure-play online just because the economics look better are taking a step towards their own decline."

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21 Comments on "Will struggling retailers find new lives as pure play e-tailers?"

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Chris Petersen, PhD.
BrainTrust

First off, struggling retailers are struggling for multiple reasons. Before jumping to pure-play online, brick-and-mortar retailers need to honestly assess what is wrong with their business. Rarely is physical location the only problem.

The fundamental reality is that pure e-tailing is NOT in the DNA of physical retailers. Pure online takes incredible systems, technology and skill-sets to manage the business hourly and at the individual customer CRM level.

And the bottom line as to why most brick-and-mortar teams would fail at pure online is that consumers will benchmark them against the world’s best — Amazon. It’s not just about driving traffic and selling products online … it is all about being competitive with a total experience before, during and after the sale. Amazon sets the golds standard that even Walmart is scrambling to meet.

Doug Garnett
BrainTrust

I can’t imagine any savvy retailer choosing to give up the difficult economics of brick-and-mortar to take on the bad economics of e-commerce. Perhaps there’s a successful place halfway between where they are today and pure-play e-commerce but I expect it will take a considerable search to find it.

Max Goldberg
BrainTrust

If you’re not offering products consumers want in stores, why should they want the same products online? Yes, online-only can reduce the cost of retail real estate and may save money on labor, but making a sale is still about having products that consumers want.

Sterling Hawkins
BrainTrust

Channel should almost always be secondary to the offering. Retailers moving to pure-play online just because the economics look better are taking a step towards their own decline. Max is right that there’s a core offering issue in these situations that needs to be addressed. The sweet spot for most is making online and in-store work better together.

Ken Lonyai
BrainTrust

This is a great litmus test to prove that with e-commerce’s maturation, we are over-retailed.

Flipping to online-only is a trend that I expect to see continue probably for the next decade or more as weaker chains make a last gasp at survival. When there was no digital commerce, they could exist in their niches. Now the light of day is shining upon them and those that don’t have the strength to stay profitable operating stores will try to leverage their buying/warehousing infrastructure for one last go of it without the cost of operating (often mall) stores. For many though, it will just slow the inevitable.

Bob Amster
BrainTrust

Switching wholesale from brick-and-mortar retailing to e-commerce retailing is base on a mistaken notion that the business is in one channel and not in the other. In 90 percent of retail categories, it’s in both. When a retailer fails in the brick-and mortar format, it’s usually for more than one reason. To think that dropping one channel totally in favor of another will result in success is to be kidding oneself and not fixing the real problems.

Ian Percy
BrainTrust
This may be off-topic, but my mind immediately went to — what on earth do we do with all that vacated retail real estate? What is being abandoned in favor of virtual shopping is the life-sustaining experience of community. Same-day delivery does not give your life meaning! “Olde Tyme” commerce was based on the central existence of the marketplace. That’s where everyone went for everything from news to bread. It held people together and gave them a spiritual sense of presence. You simply won’t get that through digital transactions and it is costing humanity more that we can imagine or admit. Most of us as parents just didn’t get why our kids liked to hang out at the mall. The answer is that it’s part of human DNA. Why do some refer to “retail therapy?” Because going to the marketplace makes you feel better. So what might we do with vacated malls, etc.? Turn them into living communities built around the marketplace! Innovative developers are attaching senior facilities, condos and apartments to the marketplace aka the mall. At one time I lived in downtown Toronto because that’s where everything happened and you could shop your heart out. Everything was attached… Read more »
Tony Orlando
BrainTrust
Excellent point Ian. I myself am at a crossroads, as our community is very poor and the Super Walmart and Aldi pretty much own the entire market as far as sales go, having shuttered six supermarkets in the last 10 years. Even though I have the homemade goodies, great service and great prices, it comes down to perception of value. Independents, along with many types of smaller retailers, are struggling horribly. The downtown is pretty much gone except for a few oddball places and a ton of empty buildings. We have a ton of boarded up places and strip plazas everywhere. Our mall is 20 percent occupied with only J.C. Penney left and a Pretzel Time store as the only food court place left open. Not much gets discussed here about the rural areas, which actually are everywhere across the country with the same story, and it saddens me to see this in my travels. I understand change, and all the talk about e-commerce and how Amazon is king, but reading your comment was refreshing as it hits home very hard for many of us in these communities. The disappearance of physical stores is not good for the sense of… Read more »
Ken Lonyai
BrainTrust

Tony: you and Ian are on point about the social change, nevertheless the mall/retail vacancy rate is going to expand. My research says that these are still early days of the transition and in a few decades retail shopping will be unrecognizable to those still around that remember the golden days of malls. Like it or not it’s social evolution and a smart society will find new ways to create community and social experiences if that’s important to them.

Ben Zifkin
BrainTrust

Online-only needs to be a proper strategic decision, not a last-ditch effort. It is generally easier to run an e-commerce site but it is extremely hard to do it well (and profitably). The biggest mistake that retailers switching to online-only make is that they digitize their real-world retail experience rather than breaking down the business and building it up from the ground. It is possible for a struggling retailer to be successful online-only but it is pretty unlikely unless they completely revise the business.

Doug Garnett
BrainTrust

Good points. I wonder if they’ll get a false short-term reward as they repurpose inventory — making the economics better for a time without realizing they’re false economics?

Adrian Weidmann
BrainTrust

Kohl’s has shown that a great physical store experience amplifies online sales. While I can understand Bebe’s decision, it will be interesting to see what happens to their overall business. They have developed their brand over the years and now have a brand following that may carry them forward. It depends on how diligent they’ve been in maintaining and developing their customer database (CRM).

As noted, removing yourself from the physical store comes at a price. As with most any decision, there is compromise and as such Bebe (and others) will need to invest in processes and policies that will cost money to properly implement. Watch what happens with returns!

Ricardo Belmar
BrainTrust

When retailers decide to close their stores and focus on online sales only, it fails to address why sales are low. The decision is based on an assumption that their online sales are somehow better than their physical stores and are produced at a lower costs than brick-and-mortar sales. I’m not convinced any retailer can say this if they didn’t start out life as an online pure-play.

In the fashion/apparel segment the fundamental issue is still product demand. If you don’t have a product shoppers want, simply changing which channel you focus your sales efforts in won’t change your bottom line.

While this does speak to the issue of whether or not the U.S. market has too many stores, Bebe and Kenneth Cole need to understand what makes their customers buy from them before they can assume they’ll move to online-only with them.

Stefan Weitz
BrainTrust

I couldn’t agree more with many of the comments re: brick-and-mortar not being the sole cause of someone going out of business. Assortment, overbuilding, logistics expenses or failures, customer experience — all these are the actual reasons that retailers are suffering yet it’s easy to close stores as a way to show The Street you are “making progress” and shifting to the shiny e-commerce bauble.

I also think they will find that losing access to their stores as strategic distribution points for their inventory will hurt. Shipping things from one or two national DCs and expecting that you will be able to make money AND satisfy heightened customer demands is somewhat foolish. The store networks plus omnichannel tech give these retailers advantages over pure-play participants.

On the other side, smartly moving into marketplaces and cross-border commerce — with or without stores — is a winning strategy and sounds like something chains like Bebe are starting to recognize.

Brandon Rael
BrainTrust

Moving from a multi-channel operation to an online-only format is a significant challenge for brands such as Bebe, Kenneth Cole and potentially others. Without a physical anchor and an inspiring in-store experience, the retailers moving strictly to an online presence will lose significant advantages they once had with their consumers.

The other comments are absolutely on point. I couldn’t agree more that the physical stores are not the only problem these troubled retailers are facing. There are a slew of issues, including significant technology, infrastructure, supply chain, planning and assortment challenges that these stores have encountered over the past few years.

It’s not an easy proposition for these once brick-and-mortar retailers to become extremely agile, innovative, digital-first organizations. In order to thrive and survive, significant organizational changes will need to take place as well.

Sky Rota
Guest
3 months 3 days ago

Bottom line, if people weren’t shopping in Bebe stores that means they don’t want their stuff. They are not going to shop in their online store either. It is sad that so many brick-and-mortar stores will be closing down, but shopping online is just more convenient for all generations. Life has changed, all moms are working now and no one is home to just go shopping from store to store anymore.

The online competition is fierce. The good thing is that online stores can offer a much larger selection than physical stores. But they will have to have great prices, easy ways to pay and very fast shipping in order to stay in the game. In the end you can have all of that but you need customers first.

Guy Mucklow
Guest
Guy Mucklow
3 months 3 days ago
For retailers across industries, being able to pair a successful physical and online store is ideal for creating a strong brand and building a large and loyal customer following. However, given today’s highly digitized world, resorting to an online-only approach is a viable option for struggling retailers. Online shopping rates are growing at exponential rates, giving online stores the ability to expand their customer base and sustain a retailer’s business—but only if done right. Customers today expect more from their online shopping experiences, including speed, convenience, and around-the-clock accessibility. In order to build a strong reputation after failing in brick-and-mortar, retailers like Bebe need to ensure they are excelling at the online shopping fundamentals and are keeping up with the latest tech trends. Creating a mobile-friendly site is essential, as more shoppers are making purchases on the go. Additionally, building a strong social media presence is becoming increasingly important for both reaching new customers and creating customer loyalty. Last, adopting new technologies, such as address verification, is important for enhancing user experience and combating key online shopping frustrations. These include complex checkout forms, manual typing, and failed deliveries due to incorrect customer data—all of which lead to cart abandonment and… Read more »
Craig Sundstrom
Guest

Desperation moves — doing something because everything else has failed — usually don’t work. Of course there are marginal retailers for whom the reduced cost structure of online, assuming of course that the costs really ARE less, may prove the difference between being in business and not being in business. (Which group these two fall into is impossible to know.) But it’s unlikely to be a solution to the very basic problem of trying to sell what people just don’t want to buy.

Kai Clarke
BrainTrust

Successful e-tailing requires a full drop ship logistical complement, as well as developing an online presence that create regular sales and profits is the key. This is a different model than traditional retail. Poor brick and mortar retailers are generally bad business people, not bad because of a model. Changing models doesn’t make them good business people.

david salisbury
Guest

In the case of very specific niche verticals, it may work to go full on e-commerce. But for the majority of brands, this will be a losing strategy. The store is the experience, and unless you have exceptional branding and following, such as a Frank + Oak, it’s not a realistic alternative.

The reality is, e-commerce is not profitable and is a very hard business to turn a profit in, unless your name is Amazon.

E-commerce brands opening up stores is a much more natural thing to do, in my humble opinion. Not only is pure e-tailing not in the DNA of physical retailers, it takes a completely different skill-set and budget to make it work. Since the majority of retailers fail in omnichannel and even multi-channel, it’s hard seeing this trend gaining much steam.

Kurt Heinemann
Guest
2 months 21 days ago

Brands that are shuttering that many retail locations will have a hard time creating demand solely for online, and they will also need to create an e-commerce experience that is more brand engaging than most e-commerce digital catalog experiences. On the first point, those store locations drove demand not only for brick and mortar, but also were constant billboards for growth and traffic of their e-commerce sites. In the absence of physical stores, brands will have to either spend a great deal more on digital advertising and re-marketing or they will see demand slowly ebb away.

And on the second point, stores are incredibly supportive of the brand relationship. Most e-commerce sites lack that recognition and engagement and feel more like an order entry site. Those migrations for new digital only brands will have to go a long way to invest in relevant content as well as more individualized brand experiences so the shopper feels like they are known and recognized as loyal shoppers online.

wpDiscuz
Braintrust
"Flipping to online-only is a trend that I expect to see continue probably for the next decade or more as weaker chains make a last gasp at survival. "
"I’m babbling here, but as much experience and creativity I bring to my store, it may not be enough to stick around in the future..."
"Retailers moving to pure-play online just because the economics look better are taking a step towards their own decline."

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