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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.
What a shame - I never shop for tangible goods online. I'd rather pay a bit more and walk into a store and buy something!
Instant gratification is still a big advantage of local retail outlets. If you need the item right away, or even if you just WANT it now, retail is your only option. Seeing/touching product is often important, too - do you really want to buy an expensive jewelry item from a picture? (I know many people do, but that's something I'd prefer to get close to.)
E-commerce vendors are getting better at offering very quick gratification, though. A couple of the office chains guarantee next day delivery on any order in my area, and it can be really convenient to place an order in 60 seconds & have it delivered to my door the next morning. No driving, no traffic, no gas, no rain or snow, no parking, no annoying salespeople who can't answre your questions anyway...
I've already reduced my usage of video rental shops to near-zero in favor of Netflix.
Sounds like an excuse. I keep trying to shop at Office Max because it is close to other stores I like. But I always end up leaving quickly because of bad store layout, bad selection and prices that don't encourage spending. Instead, I goto Staples accross the street.
Same thing with Home Depot compared to Lowes. I don't but 2x4s on-line and neither do contractors that make a large portion of their business.
Even in my industry; brick and morters who were staying in business because their customers had no option but to buy from their store are complaining about the internet because they just don't understand that there is something about their own store that customers don't like.
The brick and morters had the buying power, contacts, and customer base to start awesome on-line stores. Instead they spent all their effort complaining instead of embracing.
When you see what passes for customer service in most stores, you can see why more people are shopping online. Customers will determine where they spend their money, this is the way it should be.
A local book store that was actaully sort of a landmark just shut down. In the paper they blamed it on amazon.
And I also think that you guys are looking at it the wrong way. Personally I am too lazy to go around and look for deals at stores. When I want something that I dont need right away I will order it online because I can usually find a great deal and its VERY convinient.
we had a brick and mortar for over 5 years in the automotive accessory field. Went online about 2 years in and just closed the store back in October. Some sectors just can't compete with the internet.
I buy as much as possible off the internet and I also do not shop at WalMart.
|Instant gratification is still a big advantage of local retail outlets. If you need the item right away, or even if you just WANT it now, retail is your only option. |
Sure, but what if you don't need the item right away? Take the insurance broker who buys paper, toner, pens, etc. from OfficeMax: Most of the time, it's probably easier to order that merchandise online and have it delivered. It's the little guy (the home-based freelancer who wants a dozen pens that will last him two years, or the schoolteacher who wants a gluestick for a classroom project) who's more likely to come into the store.
And often, it's easier--and quicker--to order online. I live in a city, and all of the better computer and electronic stores are in the suburbs. If I want a new router, an external hard drive, or some other device, I have to find time in my schedule for a drive to the 'burbs. Or, I can order the item immediately and have it delivered before I would have been able to go shopping in person.
Obviously, some types of retail are more--or less--"touchy-feely" than others are. If you want to try something on or examine an item's looks, a brick-and-mortar store is much more convenient than online ordering. At the opposite end of the spectrum is travel, where you'll probably get a better shopping experience online (where you can see hotel pictures, read cruise-ship reviews, etc.) than you would while sitting next to a desk in a travel agency.
In come cases the brick and mortar store exists only because of a website. This model may in come cases replace other stores that did not change to meet the customers needs, and buying patterns.
In our case, we started as only an online store, for the first 6 months. We needed a storefront/shop to get more suppliers (required in our industry for the big suppliers). We also needed a larger facility for shipping. We operate in a small town, with less than 1% of our product being bought locally (within 100 miles), and are now the largest store/shop in the town. We do not stock everything we sell, there is no need, because we do not get much drop in trade, and therefore do not have the overhead of having to have everything in inventory.
We have now progressed to the point that there is NO brick and mortar establishment that offers everything that our website offers, you would have to drive all over the US and Canada to find these items, and in some cases, we are now manufacturing some of the custom items, so you would have to drive here also. We offer one stop shopping for a very large varity of items you cannot get in any other single place. And you can shop from your home.
If a brick and mortar store cannot adapt to compete, it goes under, this is just the way it is, and always has been. You snooze,,, you lose.
Back to Watching
>>A local book store that was actaully sort of a landmark just shut down. In the paper they blamed it on amazon.
As much as a I love book stores of all types (I probably have enough inventory to open one of my own!), I wouldn't rule out bad management or a flawed marketing plan for the demise of this store. I have a brick & mortar Barnes & Noble store near me and their parking lot is always crammed to the gills with cars. I'm sure B&N has lost sales to Amazon, but they have kept their retail business vital by making the store a destination - lots of inventory (including current periodicals), inviting chairs, a big Starbucks coffee shop, book signings, musical guests, book clubs, etc.
If your retail business model is,
1) Buy inventory.
2) Display inventory in store.
3) Wait for people to come in and buy inventory.
you'll likely be under a lot of pressure in coming years.
I do enjoy small bookshops, particularly those that deal in used books. Many of them are supplementing their retail sales by putting their inventory online where it can reach a much larger audience. Win/win.
Like many, I got book tokens for Christmas, both Amazon and the offline kind. The difference in choice is astounding: I can find things I want straight away with my online vouchers, but I'll probably have to travel to the nearest city to be able to spend the offline vouchers.
My local retailers may have cut back their ranges, but my expectations have also risen. So buying offline can be a much more disappointing experience, when I compare it with the sheer amount of choice I'm faced with online.
Maybe some of the big retailers are closing brick-and-mortar stores, but plenty of little guys are opening them. I think it really depends on what is being sold. One of my competitors has an estore that has literally ten times as many products as I do, but he does not get much traffic partly because what he is selling is exactly the same as what most of other estores in our niche are selling. So he opened a brick-and-mortar store and is doing okay with that because there is no competition in the area.
|What a shame - I never shop for tangible goods online. I'd rather pay a bit more and walk into a store and buy something! |
It is not a shame. It is the trend. 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.
I'd add that smaller book retailers are particularly vulnerable - Amazon kills them on selection every time, discount stores clobber them with cut-rate pricing on best sellers, and B&N and Borders beat them on a combination of ambiance, broad inventory, and popular title pricing.
Used book marketplaces like ABE, Amazon, and even eBay take their toll, too. It's often easy to find a very clean copy of a book through one of these outlets for a fraction of the retail price.
One implication of the original article is that all retail isn't going away - rather, it's the players at the margins who are getting squeezed by online sales, overcapacity, etc.
I am not sure if this applies here but what I am finding where I live is that you can order what you want online and have it ready for pick up at local stores shortly after you buy it. It saves from paying shipping charges and waiting to get your item.
|I'd rather pay a bit more and walk into a store and buy something! |
Jeez, I couldn't be more different. I refuse to go to any b&m stores. Shipping is a factor, but avoiding crowds, inept store clerks, out of stock items, etc far outweighs the cost imo.
And on a related note...
Mail order catalogs thrive despite internet sales [news.yahoo.com]
Good find, Freedom. These days, it's hard to tell how mail order differs from online selling. Just about every catalog I get has their web address on every page, "order online!" slogans, etc.
One clever trend I've seen is mail order firms using the Web to address the SKU problem. For example, if you sell an automotive accessory, for a single item you might have a hundred different SKUs for different models, styles, years, etc. Listing them in a catalog is costly in terms of page "real estate". Now, I'm seeing a few top SKUs listed in the catalog, and "see our website for full list of models".
I sell jewelry online. I'm also opening up a store in the near future. I don't see online sales cutting into retail sales too much in the continued future. For stuff that is easily searchable via name or product code (ie. toys, electronics, watches) i don't see how anyone will be able to survive against online sales.
But for something like jewelry which is nearly impossible to price shop (except for "standard type" products like diamond stud earrings, loose diamonds, etc) there are always variations in the product that prevents price shopping comparisons. Try finding the same piece of jewelry 2 places, especially a custom peice, it's impossible. People will always want to get local service for their jewelry and especially for custom, finely detailed items, they will want to see it in person. For things such as jewelry, clothing, matresses, etc... there will always be people who want to touch the product before spending their money. I don't think that will ever change.
If you want to make it in the offline retail market you can't sell something easily searchable, and you need to offer a customizable product or high level of service that no one else can match, online or offline.
You also have to keep in mind that a whole lot of people live in places where these retailers aren't close. Nearest Wal-Mart, Home Depot, Sears, or any mall is almost an hour drive for me. The last thing I want to do is make the drive and find out they don't have what I want, or I don't have enough selection to make an intelligent choice. We do a lot of online shopping. We can find what we want at a competitive price and don't have to spend gallons of gas to go get it.
On the flip side, living in small town America has its advantages. When we needed a new gas stove, we were looking at all the big box stores, who wouldn't deliver it out to where we live for free. They also complained about the LP conversion kit we needed and wanting a certified gas technician to disconnect the old stove and reconnect the new one. We went to the little appliance store the next town over, found the exact model for just $25 more than Sears. That included the LP conversion kit, disconnecting the old stove, reconnecting the new stove, and hauling the old one away. And they were there at 9:00 the next morning to do it. Local stores that provide the service the big boys don't will always find a way to survive.
|Jeez, I couldn't be more different. I refuse to go to any b&m stores. |
Guess I'm just an extrovert! :)
[edited by: Chico_Loco at 7:54 pm (utc) on Jan. 24, 2006]
|Local stores that provide the service the big boys don't will always find a way to survive. |
My city neighborhood has a large used bookstore that does quite well, even with Amazon.com and a Borders across the street as competition. It has everything from bestsellers to antiquarian books, it carries a huge inventory, and it even sponsors author events to promote new books of local and regional interest. What's interesting is that the store didn't exist before Amazon.com came along--it was opened only in the late 1990s, if I recall correctly, so it's grown and prospered despite having had competition from day one.
Similarly, there are travel agents who do quite well in the Internet era. The me-too agents who coasted along on commissions from airline tickets have gotten hammered, but agencies that bring expertise to high-profit niches (such as cruising) can do quite well, and they can do even better if they supplement their local customer bases with referrals and PPC leads from the Web. (Luxury cruising is a perfect example--certain agents have earned reputations as experts on specific cruise lines, and they get a lot of e-mail referrals through cruise message boards and word-of-mouth.)
But I dont think that answers all the questions as to whats happening, retail spaces is very expensive cyberspace isnt, so a less profitable store can operate and survive on the web.
I know that sounds obvious and it is, but what Im trying to say is that these people, the big chains, have pushed rents up so high to squeeze out their smaller competitors. These same small guys have now gone on the web and have started beating them at their own game, they found another set of rules to play by.
Now some big multimillion pound firm isnt going to admit to shooting themselves in the foot through their own perceived cleverness. Are they? So hunt out a blame merchant to carry the can. Enter the web.
So basically what Im trying to say is that the big firms through trying to be clever and monopolistic have invoked the law of unintended consequences.
That is small guys have found a way through their defences and big rent budgets its hurting.
This is a simple case of "if you can't beat em".
Why keep building a horse and buggy - if the trend is moving toward the model-T. Don't keep trying to beat the model-T with your buggy. Buld a better model-T.
The "horse and buggy" vs. "Model T" comparison isn't very apt. E-commerce sites won't replace brick-and-mortar stores any more than mail-order catalogs replaced brick-and-mortar stores. There may be shifts in market share, but brick-and-mortar stores aren't likely to disappear in our lifetimes (if ever).
The model-T didn't replace the buggy either. The horse and buggy are still around. But people realize that it's more convenient and economical to drive.
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. That's money that was once going to B&M. There will be a lot fewer B&M in the future I'm sure.
I'm really interested in how manufacturers are dealing with the sale of their products online vs. offline.
There are so many online retailers that are capitalizing on brand recognition to sell products cheaper and more conveniently than their offline counterparts. Anything with brand loyalty is susceptable to this; coffee, ties, tape decks, soap, whatever. The problem is, these stores don't do a lot to build the brand. If they run all the offline retailers out of business then the manufacturers are going to lose a major advertising arena.
I've seen a lot of manufacturers shutting off online sales and/or trying to do it themselves.
It will be interesting to see what happens when ecommerce fully expands into all of these areas.
I walked thru the local mall yeserday for the first time in a couple months and noticed about three vacancies. Not unusual, but one of them was the only music store in the whole mall. At first I was surprised -- music stores are still magnets for teens to hang out with friends. But then it occurred to me that it's been YEARS since I've bought a CD in a store, and those teenagers probably weren't spending much money, either.
If there's a B&M industry that's about to get swallowed up by the web, it's retail music stores.
(FWIW, right across the concourse was a movie retailer. There were zero shoppers inside. Wonder if the age of the video iPod will make those stores obsolete in a few years, too?)
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