Best Buy, a consumer electronics retailer, will close 50 stores this year. Sears, best known for selling appliances, tires and tools, also plans to close 173 stores within the first half of this year.
Best Buy and Sears are amongst many brick-and-mortar retailers losing business to online shopping websites like Amazon.com.
It isn’t just hardware and electronics retailers that are seeing this shift in consumer behavior. More people are choosing to buy that dress or those pair of shoes online.
Macy’s Inc. reported a 7.3 % increase in sales in March 2012 as compared to March 2011, on a same store basis. The increase in online sales during the same time period was a striking 35.6%.
Online retail is starting to out-run the pace at which store-centric retailers sell goods, and it’s starting to show. Top retailers like Macy’s, Dillard’s, JC Penney and Nordstrom are pumping billions of dollars into building up the online arms of their businesses while downsizing their physical retail presence to keep up with this shift in buying behavior.
While store-centric retailers are closing stores, online retailers are looking to open them. Retailers like eBay and Google Chrome have discovered there are distinct advantages to having a physical presence.
Traditional brick-and-mortar stores might have lost some of their relevance, but they are far from obsolete. They are merely changing to accommodate how today’s consumers prefer to shop. They have become showrooms, three-dimensional advertisements, almost, where consumers can interact with products, said Paul Swinand, a retail analyst with Morningstar Inc. They also offer consumers a direct channel of communication with a company representative.
“If I’m going to buy a shirt at Dick’s, I still need to see how it fits. But I might order three more online,” Swinand said, “And I still might want to return one to Dick’s that didn’t work out.”
And that’s the trick to finding success in the world of retail—striking the perfect balance between a strong online presence with strategic physical placement, said Howard Davidowitz, chairman of Davidowitz & Associates Inc, a retail consulting and investment banking firm.
Which is why brick-and-mortar retailers are trying to integrate the ease and convenience of online shopping with the satisfaction of the sensory feedback loop of physically handling a product. They’re using tablet computers to bridge the gap between online and traditional retail.
Guess, Macy’s, Puma, JC Penny are among the early bird retailers who’ve already incorporated tablet computers in their sales strategy. And there are many more that are either currently testing tablets in stores or are planning to do so this year.
Tablet computers are a way to engage consumer and hold their attention, said Davidowitz.
“Most retailers are focused on interactivity as an element of service,” he said. “It’s a way to build customer loyalty. It’s also a way to generate footsteps.”
Online retailers are also realizing that having a physical presence can be a real advantage.
“Now if you’re an online retailer, your business is growing, but you recognize that the brick-and-mortar guys have some advantages,” said Davidowitz, “Returns—they can bring it to the store. They can shop and actually see it.”
EBay realized this a while ago, when they opened their first temporary pop-up store, in New York City in 2009, and continue to do so seasonally. Google recently opened its first store in London. Amazon and LivingSocial plan to open their first stores within the year.
The line between online and traditional sales business models is blurring, and the bigger players are keeping up with the changing demand. But smaller brick-and-mortar businesses might not be able to keep up, said Swinand. Online retail is an economy of scale that smaller businesses just cannot achieve.
“There’s this popular notion that the Internet levels the playing field. In this case it doesn’t,” says Swinand. “It gives the Macys’, the JC Pennys, the Sears, the big companies more of an advantage.”
“But at the end of the day, if the existing retail physical landscape can do more with less, and the customers are happier, that’s good for everybody.”
Howard Davidowitz, chairman of Davidowitz & Associates Inc, a retail consulting and investment banking firm, talks about the merits of online and off-line retail: