Photo: RetailWire
Don’t shutter that store! Bricks impact clicks
A new International Council of Shopping Centers (ICSC) report echoes earlier studies showing how retailers get a boost in web traffic from having physical stores. But a much larger payback was found this time to come from store openings and a smaller drawback from closings.
The study, “The Halo Effect: How Bricks Impact Clicks,” found:
- Opening a store leads to a 37 percent average gain in overall traffic to a retailer’s website and increases its share of web traffic within that market by an average of 27 percent;
- For emerging brands (less than 10 years old), store openings drive an average 45 percent increase in web traffic following a store opening versus a 36 percent boost for established retailers.
The study looked at more than 800 individual stores covering 145 U.S. markets and more than 4,000 consumers.
”That new store serves as a constant billboard in the customers’ daily travels, helping reinforce the strength of that brand and the presence of that brand,” said Michael Brown, partner in A.T. Kearney’s consumer products and retail practice, in the study.
By comparison, a store closing causes a four-percent drop in share of web traffic on average. Closings, however, were found to affect retailers differently, depending on the number of stores shuttered versus the total number of locations. For instance, the share of web traffic across the markets where one retailer closed declined up to 77 percent.
The study said retailers need to consider how the presence of stores sustains the “mutually beneficial relationship” between physical and digital, including enabling the touch and feel merchandise and supporting online returns and other omnichannel offerings.
“Do I serve a market area with five stores and my web capabilities or do I look at having three stores and a fulfillment center supporting the omnichannel experience in that area?” said Mr. Brown. “On the flip side, do I want a store that delivers marginal profitability at that location but contributes to the overall profitability of a market because we understand the positive impact of the halo effect? We have to look at the integrated contributions.”
Discussion Questions
DISCUSSION QUESTIONS: Should the potential of eroding web traffic be a concern when retailers consider store closures? What insights from the study do you find most meaningful regarding the symbiotic relationship between physical and digital?
Poll
BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Paula Rosenblum
Co-founder, RSR Research
We need to start thinking about retail holistically. It isn’t a fight between brick-and-mortar and online. It really is about a focus on the customer experience — regardless of where s/he wants to shop and how. Omnichannel really is more than just a buzzword.
ICSC’s research backs up earlier observations by Kohl’s. When they shuttered 10 stores, they noticed the online sales in those geographic regions did not match other unchanged regions. Physical and online retail go hand in hand and can help each other when integrated with a focus on a great shopper experience!
Make no mistake, consumers are shopping across platforms to enrich their experience. Focus too much on brick-and-mortar forsaking online and results will suffer; overlook the importance of brick-and-mortar and realize less than your share of sales.
Retail has moved beyond omnichannel. Retail has become “phygital” where customers expect a seamless experience. While there is a beneficial symbiotic relationship between stores and online, retailers have to innovate AND invest in how to optimize the experience across channels. BOPIS is just one example of how to optimize phygital. The virtual shelf in the store is another example of seamless integration that creates relevance and value for customers. While the whole is greater than the sum of the parts, the challenge is to make the whole profitable.
If the various analyses indicate that — on a store-by-store basis — a physical presence correlates to the number of e-commerce shoppers in the same geographic area, then the store should remain open. The connection is easy to make by matching the number of nearby zip codes of the e-commerce customers to those of an existing store. Certainly if there are two or more stores close to one another, one or more stores could be closed (the over-stored scenario) with little loss generally.
Two 800-pound gorillas not mentioned in this article: conversion and net profitability.
For all the cheerleaders of brick and mortar retail, this sounds like an “I told you so” confirmation and it may be, sometimes, but without knowing conversion and net profitability as it relates to keeping stores open, there’s no substance in the report.
For example, keeping a store open to gain 37 percent more traffic sounds like a win unless the conversion from that 37 percent traffic and the net profitability isn’t enough to offset the losses from that hemorrhaging location. If not, the store exists as a branding expense and folly for management that doesn’t see that they are still tanking. Case in point, if this premise were as simple as it sounds, Macy’s and Sears made big mistakes closing many hundreds of locations.
If a store is losing money there is not much one can do other than to close it. However, before doing so, hopefully, the retailer has examined all the possible causes. If store traffic is light and the sales are not there, closing that store will not impact the company’s web traffic all that much. When a retailer with hundreds of stores decides to close a large number of locations that will have a negative impact on all their business, both web and brick-and-mortar, no matter what they do. Today what is happening on the positive side is that retailers are seeing the value of having brick-and-mortar as well as online shopping. They are learning how to use them in combination as one business and not what many retailers were doing, running them as separate businesses. The customer should be free to shop whether they are in-store or online and the experience, offers, and service should be the same. Learning how to use the store to drive web traffic and using the web to drive store traffic has become more successful with a program like BOPIS and incentives for customers to shop in the store when picking up items.
The study highlights yet another reason why stores are still core to multi-channel success. That’s why regionally-concentrated, medium-scale retailers such as Macy’s need to think hard before they shutter stores. Retailers can’t afford to assume that markets can be served purely digitally if the brick-and-mortar banners aren’t flying nearby. This is also why flagship stores are enjoying a resurgence. They drive brand awareness that allows retailers to continue relationships online. Just ask Uniqlo and others that have shown the hand to small formats.
What’s old is new again. You would have thought we’d learned 20 years ago that stores serve a valuable function. Not only are they places to take delivery, or touch and feel and see the product, but the signage also serves a marketing function, that’s a LOT cheaper than SEO and paid search.
It’s not for nothing that so many pure plays are opening stores (I want to say around 750, but I might be wrong). As the gentleman from AT Kearney points out, it’s a billboard.
That doesn’t mean you want to keep stores in crummy locations.
The most meaningful takeaway from the study is that the “Apocalypse” was always a false flag, promulgated by people who knew nothing about the dynamics of retail.
Consumers don’t shop channels … they shop — punta — full stop. And for most retailers that means you are going to have to have some presence everywhere a consumer might look for you. Now, as the article says, this plays out differently for different retailers. There is a difference, for example, between being a born digital brand that opens physical stores like Amazon or Warby Parker and a born physical brand seeking to expand its digital share. Should Toys “R” Us have kept stores open to support its web efforts? Of course not, because its digital game was bad from Day One and the company couldn’t carry the operating costs.
So as far as they go the study’s results are mildly interesting but — at least to me — inconclusive. I would need to see a more nuanced analysis of exactly what retailers we are talking about in which categories facing what kinds of competitors before I could have an opinion about whether or not the study has identified an actual causal relationship or is fitting facts into a hypothesis that seems to make sense because it is overly generalized.
The informed, empowered and always digitally-connected customer is in charge of their journey and will choose to shop in any combination of selling channels. The challenge is for the retailers to fully capitalize on and monetize the cross-channel shopping experiences, and leverage the store not purely as a place to transact with the customer, but also a place to build new connections, serve as a conduit to the community, and act as an extension of the brand. Omnichannel has its place, and its strategies are around product fulfillment across channels, but it has to be constructed to enhance the customer experience.
The traditional retail KPIs don’t necessarily apply to the new retail paradigm. Retail strategies will always be centered around KPIs such as conversion rates, average order values and units per transactions. All of these could be enhanced with the power of an informed, educated, and empowered store associate, who is on an equal playing field with the customer. A brand ambassador and a real human connection is the key differentiator.
Consumers see one retailer and seeing the name of the brand gets reinforced every time the consumers see the name. Any decision affecting the website, the stores, advertising, and social media needs to be evaluated in terms of the impression it creates with consumers who do not see these activities as silos.
Charles mentions Kohl’s experience, and it’s relevant that their same-store sales have gained traction at the same time that J.C. Penney has stagnated. One possible difference? Kohl’s decision to keep the vast majority of its 1100+ stores open at the same time that J.C. Penney was shuttering hundreds of locations. (Not to mention Sears’ rapid collapse.)
Even though Kohl’s decided to “right-size” many of its large prototype stores to more sustainable square footage, it felt that the sheer number of locations offered a competitive advantage. This helps explain why Walmart’s and Target’s numbers continue to be healthy, too.
I am glad to see more research validating the idea that we have to stop measuring channels solely based on “black and white” sales performance. Shoppers were far, far ahead of us in thinking of the journey holistically. They don’t think about channels, they think about their objectives, and how each touch point serves those objectives. As should we. We have long underestimated the value of the store’s role in the journey, even if the transaction ultimately closes online. We have also long undervalued the store’s role in conversions because it builds trust and confidence in after-sale support and returns. We have long undervalued the role of empowered and effective sales associates in each journey. If this research helps us make smarter, more holistic decisions about the value of each store in each journey, then I am optimistic for better, more strategic decisions in the future!
Creating, building, and sustaining a brand in a digital world means doing all of these across all available channels, keeping in mind that shoppers don’t shop channels — they just shop! They utilize the easiest, shortest and most pleasurable path to accomplish their mission. The journey is rarely the same and is typically dependent upon the product and/or service. In short, the physical and digital store and journey must function, coexist and compliment each other through the entire shopping experience — before, during, and after the actual purchase.
It’s a little complicated. Retail square footage per capita in the U.S. is multiples of that in other countries. There is no doubt that we are over-stored. There must be some kind of metric that looks at density per market and four-wall profitability that optimizes how a given market is served.
If physical presence in a market can create an emotional value impression about a store’s products on their site, and build and drive sales from their web presence while creating brand allegiance, that’s probably good. Probably, because remember, the costs created by operating a brick-and-mortar store — the rent, utilities, CAM, salaries and taxes, must be covered. If we compete with ourselves, as we see Old Navy doing in the article about it today; that’s insane and destructive. All efforts must build value for one another.
There’s no doubt a correlation, but there’s still a number of stores and shopping centers that need to be bulldozed regardless of supporting online sales. This requires some intense e-commerce data analysis for affected geography, combined with the overall operational profitability of the physical outlet.
One would think that after two decades of outsized hype about online sales replacing stores — and the proven failure of that business model for scaling — we wouldn’t be the least surprised by the truth that bricks are so powerful.
Yet, many are. In part, there’s a cleanliness about the idea that online sales can replace bricks — think of all the headaches it removes.
What I don’t think this story gets right is the degree to which closing stores damages online sales. It’s a bigger impact (in the long run) than shown in the study. Most likely, there’s a long tail effect from having had stores and the decay of results with their closing is spread over too long a period to be detected clearly with these measures.
Still, retailers need pay attention to the fact that this study reflects what we’ve known for decades: Stores are far more powerful than any direct to consumer sales approach.
How much more? A few years ago I did an ad campaign for a product at Amazon and in retail (we tagged both). The retail WEBSITE sold eight units for every individual unit sold on Amazon. The stores sold 10 units for every unit sold online. In other words, stores sold 70 units for every one sold on Amazon.com. Those numbers should give us pause.
If we think about it, is it really surprising that stores help drive website traffic? If nothing else they are a form of advertising. There are so many options out there when it comes to retail from the long-standing names to endless new brands — no shopper can be familiar with them all or even aware that they exist. They have to come to our attention in some way. The store is a great way of achieving this.
It also inspires a level of confidence and legitimacy in shoppers. There’s something about a physical presence that creates brand trust. You know if you have an issue that the company cannot hide from you because you can walk in and speak to someone. And this trust feeds through into that retailer’s online business. You feel comfortable shopping with them via all channels.
Of course retailers have a lot of things to weigh up when it comes to store closures, and some are inevitable, but they should always be thinking about their business as an all-encompassing ecosystem rather than disparate online and offline elements. If they get that right then all parts of the business will benefit from all the others.
There is no question that store closures remove the brand from the eyes and presence of consumers which will impact web traffic. Retailers need to consider store closure’s impact on the total retailers business before making decisions on store closures. The most meaningful measure to me in the drop in web traffic associated with store closures. The study shows declines of up to 77%, a huge impact on any retailer.
Let’s face it — retailers, as brands, are trying to establish an emotional connection with their customer to develop loyalty over time and lifetime value. This study shows us, to no surprise, that stores are still extremely relevant in this equation to build a relationship with a customer. “Seamless” means more than “cross-channel” to consumers! Look at Indochino (with whom we visited in Seattle last week to learn more about their success) has flipped this model of what was once a digital-first, online-only brand to now driving digital sales as follow-on business to in-store sales with new customers. Each time they open a store in a new market, they bring digital, online sales up to a new level as their customers come to the store, get fitted, and then continue buying online over time. It’s a perfectly symbiotic relationship between online and the store and retailers need to accept this and stop thinking in terms of channel silos!
Sales attribution is becoming a complex issue with the advent of cross-channel shopping. Omnichannel retailing is, or should be, changing the way retailers evaluate their business performance. We shouldn’t be attributing sales to a specific touch point like the “last-touch” model, as the consumer’s decision process is often impacted by many brand interactions — not just the last one. A better approach is to look at it from a holistic perspective — measuring sales by “markets” instead of individual stores or online vs. in-store. The risk is that retailers may close physical stores that are unprofitable on paper but may be contributing to online sales – via showrooming.
There are a lot of other missing pieces required to fully understand each customer’s journey. Ideally retailers want to understand the impact of the following:
A landlord organization concludes it’s beneficial to open — or keep open — stores … I’m shocked! But setting cynicism aside for a minute, let’s concede that a physical presence helps drive traffic. But at what cost? It hardly seems plausible that retailer after retailer, many with extensive research departments of their own, are making the same mistake and ignoring the synergistic effect of maintaining a physical presence; rather, I think they’re weighing the benefits and adopting strategies (flagship stores, pop-ups, etc.) that make sense for them. The idea that we need the same amount of physical space (or even more!) as we did 10 or 20 years ago (i.e. pre-online) just doesn’t make sense — however much shopping center owners may want it to be so.
Bottom line, retailers have to stop hemorrhaging. If the physical store is not justifying its business case for remaining open, all things considered, then close it!