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|Online Sales Drive Brick & Mortar Store Closings|
CNNMoney.com - Why big retailers are shuttering stores [money.cnn.com]
OfficeMax is closing 110 of its 950 US stores, Toys-R-Us is closing 75 outlets... the list goes on. The successful home improvement chain, Home Depot, has said they'll focus on growing sales in current stores rather than opening many new outlets. Only the Wal-Mart juggernaut continues to grow, with 270 new stores planned for '06.
Online sales, along with energy prices and retail overcapacity, are cited as a factor in the trend toward brick & mortar closings. (It's fair to say that some of the examples cited in the articles have been troubled for years, and suffer from a variety of ills.)
E-commerce sales are pegged at $143.2 billion in 2005, up 22 percent over 2004. It's hard to believe that this will have no brick & mortar impact over time. Already, stores are doing multichannel marketing. Half the solicitations I get from office supply firms like Office Depot, OfficeMax, and Staples push online ordering. It's easy to see how they could close a money-losing store and just redouble their efforts to encourage web orders.
I was reading in the WSJ that kids are using cell phones to tell time. Low price watch sales were off sharply in '05.
And people always thought it would be the order way around, s wristwatch with a phone in it. Ala Dick Tracy (U.S. cartoon character in 1930s/40s mostly)
|I was reading in the WSJ that kids are using cell phones to tell time. |
My 19-year-old son does that. I can't blame him, really--his cell phone has been more reliable than the cheap watches that he's bought.
|Of course the B&M will always be around, but as more and more people come online, they will realize the convenience of online shopping. |
It's more convenient for some things. Not for everything, though. Clothes and shoes are iffy (especially dress clothes where fit and appearance are more important than with, say, a parka or cargo pants).
My own rule of thumb is: "If you're confident that it won't need to be returned, online ordering can be convenient. Otherwise, shop in person."
its not really about competition that b&m stores are closing down.. i think its about the idea that we have a gazillion variety of choices if we choose to shop online. i mean where else can you compare a dozen products at the same time? people are starting to realize that there are more possibilities online compared with a b&m store.
i would also like to ask if that figure on online sales include transactions for second hand or used items. i think that the second hand business is really doing well in 05 it believe it would double this year.
I haven't read all the posts here, just the first page.. but wanted to add that I buy online whenever possible. My schedule is almost never rushed, so the delivery time isn't a problem. In fact, in the past week, I've spent over $1140 shopping online. If I didn't work online, making it so convenient(all shopping done during a lunch break), I probably would have spent that money locally.
Something that's a major problem in some sectors is consumers who shop in person to decide what they want, then order it online from a discounter.
In one sector I'm familiar with, there's a serious trend amongst brick and mortar retailers to charge a consulting fee that will be applied to the price of the item when/if you purchase it. It's not an easy decision to start doing that but it's one way to fight back when they get tired of being used as free showrooms to subsidize someone else's business.
|Business is business. To keep more profitable in this more competitive world, businesses have to figure out every way, to do their utmost to cut costs. As long as physical stores can bring more money constantly, nobody will hesitate to build stores. |
Absolutely. But there is more to cutting costs. As mentioned earlier about store layouts, etc, there is a psychological side to selling that many miss. Some companies are arrogant and dont get it. Others understand, adapt, and will do well.
ex: BestBuy lets me buy online, usually at a discount off of the B&M price, then go to the local store location and pick it up if i dont want to pay or wait for shipping. The manager of my local BestBuy told me he honors the price offered online for anything I buy from the store if I ask, so I can still pick it up and get the online price.
He is a smart businesman. I save a few bucks and he gets me in the store hoping I'll buy more on impulse, plus his store, not the online side, gets credit for the sale. It worked, because I walked away from him happy, and I did continue to browse and my impulse buy equated to a few hundred dollars more within a few minutes.
No doubt some manager upstream may not like it, but this manager's approach to customer service is actually generating more business for the company.
|In one sector I'm familiar with, there's a serious trend amongst brick and mortar retailers to charge a consulting fee that will be applied to the price of the item when/if you purchase it. |
Is that a retailer like a camera shop or a jewelry store where the customer can't touch the product without a clerk's help? It's hard to see how that approach would work in, say, a big electronics store where a customer can play around with the laptops and cameras before heading home to buy at cheapwidgets.com.
I buy stuff online if there is free shipping and no sales tax.
How can you beat that from a retail store?
|Is that a retailer like a camera shop or a jewelry store where the customer can't touch the product without a clerk's help? |
Not those categories, but yes, the product requires a lot of personal service if the customer is going to end up with a satisfactory purchase.
The consulting fee has hit my local golf pro shop. They charge $50 to try clubs. You get the $50 back when you buy.
I'm sure its to fight the people who try out the clubs at the proshop's driving range, and then go to an online discounter.
I've started to dislike shopping in many bricks and mortar stores because, quite simply, they make it HARD to take my money.
If a store makes it difficult to take my money - frequently through lack of help or huge long lines to check out - quite simply put, I'm outta there.
And thats' the beauty of web shopping - no lines and all too simple to spend money. And usually, if the cart is well designed, no hassles either.
I think this is one reason (among many) online sales are doing so well. People are getting tired of shopping due to all the hassles/roadblocks encountered anymore to simply go shopping - from lack of parking, traffic, long lines, thin selection of products, exaggerated markup, etc...
While I understand the plight of some of these stores, its my own opinion that most b&m problems are due to bad management and policies, not just because the web is around.
A lot of high priced items are shipped from the manufacturer by the brick and mortars also just like many websites do, making the instant gratification issue obsolete. They just stock product examples in the store, and drop ship ship from the factory to save money. Anything but a large chain store has a very difficult time getting enough people in the door to facilitate sales on specialized items. If they try to carry more different products to sell to the customers who do enter the store, they become less known for the specialized items and hurt sales them this way and end up like a general store with browsers off the street from a hopefully good location with a lot of foot traffic. The customers can then not find specialized items in their neighborhood and end up looking online for them.
tip: invest in the shipping business - they'll never go under!
I'm currently awaiting a part via overnight DHL/Airborne
for a "mere" $15 that I called over a dozen places locally for yesterday.
Wasn't available at any price in town.
Goes to show you the power of the internet, not only did I find it, I found it for reasonable overnight delivery
(was $30 shipping at most places until I really hunted).
Hard to believe Sears closed their mail-order catalog system a decade ago, believing that the b&m system was costing them profitability. Everything comes full circle.
Thats true rural post offices in teh UK reported recently that online auctions had increased their business.
I think people on this thread are too self-cogratulatory about e-commerce and how it affects the public. It's not really how guys like us, who are online most of the time, know how it works and all the benefits, think. The real issue is the majority of customers, who are neither early adopter, not prosumers.
For these guys, online shopping is another whole experience. For example, shopping for women is different than shopping for a guy. When I "shop," I have the money in my pockets, I am prepared. My goal is to get to the store, online or offline and get out as quickly as possible.
For a woman, especially those around me, shopping is a whole different experience. They just shop. They just "waste" their money buying stuff they don't need at the mall. They want to be able to return it no hasle, the next week, because they changed their mind and all. This is how they think. The malls and the bricks and mortar are for them. They will not change.
As a e-commerce, my challenge is to make my store feel like a mall, with the window shopping, the feeling of wasting one's money ;), the cart, the baby carriage you have to push through crowds, the popcorn stand nest to the shoe store, where, they just happen to buy a bag og kernel, because it was there.
Most women, and many men are still that type of shopper. There's nothing I can do right now to replicate that mood. If I include too much copy with the products, to make them feel cozy and all, I transform them into readers - readers don't buy, buyers do. If I limit the copy and the information, I transform them into quick shoppers - a good thing, but not every one has the genetic make-up of a quick shopper.
So far, the best alternative I have found to transform typical female shoppers and people who crave going out and get a feeling for window shopping, is Ebay. Ebay is the closest thing for this crowd - ie, the majority of shoppers. The only problem is that I don't like Ebay and that it's not suitable for all my products. Now it's up to me to adapt.
|In one sector I'm familiar with, there's a serious trend amongst brick and mortar retailers to charge a consulting fee that will be applied to the price of the item when/if you purchase it. |
Anyone have other examples of this trend. I haven't heard of it in the U.S.
Ive heard of it but this is the first time ive found someone who can point at a store and say it happens there.
Wouldnt surprise me if it happened in some of the really upmarket boutiques.
|I buy stuff online if there is free shipping and no sales tax. |
How can you beat that from a retail store?
Well, the retail store doesn't charge shipping either when you go and buy it in-store, so not really a comparison. Plus the retail store can just as easily pad the retaul rpice with the amount of the sales tax and call it "no sales tax" just like many onliners do.
If you truly don't want to pay sales tax, about your only option is a cash-based transaction at a swap meet where the seller's not reporting the sale. For online sales, there's almost always a credit card payment trail.
Another issue that just popped into my mind- we're hearing about all the B&M stores closing shop because they can't compete (or whatever reason they give). But we're not hearing much about the thousands of ONLINE shops that also tried to make a go of it, but also closed becasuse they didn't make money.
When a B&M store closes, there's usually a big "Going Out Of Business" sign on the front window and the shop sits vacant until someone else leases the store. Lots of people walk by tsk-tsking about the demise of B&M businesses.
But when an online site goes away, how many people notice? If it wasn't popular to begin with, not many people will notice it's gone. Unless it had a lot of inbound links, few people are going to "wander by" and see that it's closed. And if it's shut down completely, the search engines will eventually drop it from their listings.
Or, how about the many online sites that stay up because they still generate some sort of positive cash flow, but not enough to be considered "successful?" An online site without the need for huge lease payments, high renters insurance premiums, and lots of sales staff can still turn a profit with a much lower sales amount than a similar B&M retailer.
|Well, the retail store doesn't charge shipping either when you go and buy it in-store, so not really a comparison. Plus the retail store can just as easily pad the retaul rpice with the amount of the sales tax and call it "no sales tax" just like many onliners do. |
And, of course, in some places the sales tax is built into the price anyway (VAT).
I have someone very close to me that works for Office Max corporate and their is a reason for the Office Max closings. They actually closed their lowest profiting stores and are actually opening nearly 75 new stores in better profiting areas. They are also changing the layout...looking more like Best Buys and having free WiFi access and instore cafes.
Expect this to continue on an exponential upward trend. As more and more consumers are becoming comfortable with doing financial transactions online, the local brick and mortar big stores are going to feel the crunch.
Music, videos, anything technology related will shift to a heavy online buying environment. There is no longer a need for CDs which in turn makes the stores obsolete. There really is no longer a need for Video stores, but they still appear to thrive in some areas. It won't last long and that is why Blockbuster scrambled to get into the mail order DVD business. They needed to save their existing business while they rethink their strategies (just my opinion).
Reasons why Online Stores will make certain brick and mortar stores obsolete...
Let's face it, we live in a society of conveniences. Our time is valuable and anything that helps us to save time is a major convenience.
I live in Southern California. The traffic here is horrendous at all times. Years ago, there used to be some breathing room. These days you are lucky to find an open stretch of freeway during normal waking hours. ;)
Why bother with the hustle and bustle of the malls? You've got the traffic, parking, possible damage to your car (door dings, etc.), the waiting, the mad rush, stuff all over the place in the stores, who wants that? And, you've just spent an entire day and probably didn't even get half of your shopping done.
Now, take that same process and go online. Research the products you want. Add to cart. Checkout. No traffic, no parking, no lines, no nothing (stress related) other than you've just added a day to your life!
Wear and Tear
Just think how much more healthier your life would be if you could eliminate those stressful holiday buying practices. It's happening! And, it is happening quickly.
Think about all the things you can do with those extra hours you save by shopping online. And, think about the money you'll save by using any one of the price comparison engines out there. That sure beats driving from mall to mall looking for sales and/or comparing prices. Yes, people still do that. They are a dying breed though and will be the last ones left in the malls. ;)
I think some of the growth has to do with the major ISPs like AOL and MSN providing their customers with spam blockers, spyware blockers, etc. I've seen a lot of educational commercials on TV that go a long way to helping the consumer feel comfortable with buying online.
So, the big rush now is to foresee which industries are the first to fall and then which are next in line. Time to get those online stores in shape and ready for next year's rush.
I think Harry makes a great point about trying to replicate online the activity of shopping in a brick-and-mortar store. I do use a lot of copy, and yes, some people do turn into readers or just use the site as a kind of reference book, but I still get enough customers to keep me going. I also try to draw people out when they decide to call and order that way, because I think that this is another way to duplicate that feeling of shopping, only they get to talk to the owner instead of a clerk. It does take some time, but I also learn something from every person about what's out there and possibilties for products.
|I also try to draw people out when they decide to call and order that way, because I think that this is another way to duplicate that feeling of shopping, only they get to talk to the owner instead of a clerk. |
This is a very important aspect of doing business online. More and more businesses are realizing that real time operator services along with a phone number to call are a big plus for the consumer. And for online sales. ;)
I've seen many big businesses get in on the LiveHelp, LiveChat, LiveOperator bandwagon and also have telephone operators standing by during normal business hours and some have even gone as far as 24/7/365 (the true leaders in online convenience).
Thinking about it we had a small chain of musc CD shops close due to online slaes, eating in to their profits.
When you sit and think about theres more to this than enough.
Let's talk about the convenience and service factor.
I've been thinking about this deeply since the original topic was posted. I thought to myself, "okay, what are the industries that are going to thrive in today's/tomorrow's technology society. I have a small list...
- Shipping Services - From UPS down to the local courier service whose business is only going to grow. Shipping is the foundation of making it all work.
- Coffee/Cigar Shops - A trend that I've seen grow exponentially over the past few years and one that I see growing more as Internet Cafes become the norm and replace those Brick and Mortar businesses that are closing.
- Food/Restaurant Industry - Good restaurants will continue to thrive. The mediocre ones will continue to open but close shortly thereafter. The good ones have established in-home delivery services and bring the good food to your door.
- Entertainment - After all that time on the Internet, you need to have a little fun. The entertainment industry (live) will definitely continue to thrive. Nightclubs, local hotspots/hangouts, etc.
- Big Ticket Items - I think the industries that deal with big ticket items will survive a bit longer. Items such as jewelery, vehicles, real estate, etc. Anything that requires a large financial purchase from the consumer. We're not at that point where many of us would feel comfortable charging $10,000 to our CC for an online purchase.
- Music/Video Stores - This one is a no brainer. Once you eliminate the tangible media, there is no longer a need for a storefront. The business model is dead and those who are left will consolidate and diversify.
- Bookstores - Same here, eliminate the tangible product and eliminate a certain sector of the industry. Many have already started the diversification process. Add in a Starbucks, WiFi, a Cigar shop next door, a small restaurant and you have a survivable business model, at least for now.
- Computers/Software - Another dying business model. No need to ever buy a computer at the brick and mortar level. Same goes for software. It won't be long before we see software boxes disappear from the existing stores. I just bought a 2G piece of software and downloaded it less time than it would have taken me to get ready to go to the store. ;)
- Electronics - Circuit City, Good Guys, Best Buy, Fry's, etc. The list goes on and on. A few will survive but most are going to be closing their doors in the near future. Many have diversified along the way to handle the trends but, you can only diversify so far. That market has matured and is now dying.
Smaller mom and pop establishments will continue to thrive due to local popularity and the service factor. There is still a generation or two out there that enjoys the face to face interaction of buying.
A little OT but on the topic of convenience...
A popular dieting program now brings your food right to your doorstep, daily...
|You simply select your foods online (or on the phone), and they arrive on your doorstep. So, no matter if you're trying to get breakfast in before the baby wakes up, fitting in a quick lunch at work, or even busy cooking for your family, you can still eat healthy foods and lose weight. |
I have a few neighbors who are indulging in this convenience. Every single morning within a 15 minute time window, their meals arrive at their doorstep. They get 3 fully portioned meals for the day that were made fresh just for them. It doesn't get much better than that! :)
I don't know. I disagree with the optimism about people switching to e-commerce. I for one would not order a meal online.
Going to the restaurant is an experience. Having the staff bring out a small chocolate cake and sing happy birthday to my loved one is an experience in itself. I think we would be a poor society if we abandon things like that.
I don't think cocconing will expand at the rate that some hopefuls here think. There are things for which one must go out.
If I owned an online restaurant, my first concern would be how to make a family reserve with me and have my staff sing happy birthday to their birthday boy or girl. I would worry about how best to help them select their bottle of wine or sample a little piece of that rare blue goat cheese before ordering a full plate.
As you can see, my entire focus is on experience, as opposed to convenience. Experience is a social thing. Humans are social animals and need to interact with people. Convenience is about saving one's time to have more time for social affairs, like entertainement.
In my view, shopping for most, is part of that social affair. Shopping is partly entertainement. it's a rite. I believe there is a place for e-commerce, but I strongly disagree that e-commerce is an end in itself. If I cannot replicate a full social expericence online, then in the long run I will not succeed.
A good example of a working online model, is the exotic dancer that responds to the directives of the guy in his room, via an online camera, chat software. This is close enough to the real thing, in a dancers' bar. It is a successful conversion. Convenience is also a factor, because of anonimity.
However, when I want to celebrate a loved one, I want that person to feel that everybody in the restaurant feels she is the special persion for the day. The other customers, in this case, reinforce this idea. That's pretty hard to replicate online.
brick and mortar is not dead, even, for cds, books, and electronics. People will change, but they never will abandon some old pet peeves, like radio.
|Food/Restaurant Industry - ... |
The good ones have established in-home delivery services and bring the good food to your door.
Alternatively (or additionally), offer curb-sdie pick-up for to-go orders. A lot of people like the convenience of ordering dinner and picking it up at the restaurant on the way home. Several local restaurants offer this service and their to-go business picked up more than 40% when they offered customers the convenience of not even having to get out of their car to walk into the restaurant.
|Big Ticket Items - ... |
We're not at that point where many of us would feel comfortable charging $10,000 to our CC for an online purchase.
Also, a lot of people don't have that amount of credit on any one card, although they probably have several times that amount summed over several cards. So online companies offering big ticket items need to make it more convenient for customers to split payments over several cards.
The way for many brick and mortar stores to survive is to reduce their brick and mortar sales facility to a demo facility, complete with internet terminals for people to shop, compare and place their orders online. The demo store lets them see, touch and feel the product if they wish.
That's what a lot of stores are already being reduced to by default .... a demo facility. But alas, their patrons often go online after a brick and mortar visitation and buy the product online from a dot com that can offer the product cheaper. The dot com's don't have a big sales staff to pay salaries to. Nor do they have the expenses of local stocking, inventory shrinkage, theft losses etc.
The demo store could charge a modest service fee at the door. That can keep them in business even if their online rival beats them out on price.
We have a B&M client, who opened an e-commerce site a couple of years ago, because people were asking them if they had a web site. (At the same time a direct industry competitor opened a B&M shop a couple of blocks down the street.)
As an e-commerce site, the design is no great shakes, it's pretty basic; but they get a bundle of business they probably wouldn't have got otherwise. It adds to their t/o very nicely, thank you very much. And as a result, the competitor doesn't seem to have adversely affected their bottom line.
FWIW, we live out of town (70klm drive, once a week or so to pick up mail, do business, general shop etc.) and do a lot of research online for many of our purchases, then print out the results, take them into the local shop/s, and ask them if they have it in and can match, or get close to, the online price. If we can't get the deal f2f, then we buy it online.
Usually, our local blokes (and sheilas) retail price is about the difference in shipping cost, and sometimes they even have it in stock. And if they don't, they get in in for free. Also, if they think they can get the sale by shaving a few more $$ off, or offering another "benefit" e.g extended warranty, they will offer it, or (more often) we just *ask* them for it.
Additional upside. Local business - something goes wrong, you generally get a lot better attention and fix. Plus, you're keeping the $$ local, keeping locals employed = more $$ in the local economy.
win win for everyone.
Circuit City, Good Guys, Best Buy, Fry's, etc. The list goes on and on.
This is the only thing I disagree with, pageone. These types of stores are all making wads of cash on the current TV explosion -- and the one thing you cannot do on their web sites, that you can only do in their stores, is compare picture quality. I think their stores are pretty safe, because there are still plenty of electronics products that you want to see/hear before you buy -- TVs, computer monitors, speakers, other audio gear, etc.
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