Martin Pelletier: Own the companies that are choosing to adapt rather than sticking their heads in the snow.
Article by: Martin Pelletier
There is an important story unfolding that will have a dramatic impact on consumers over the next decade if bricks-and-mortar retailers don’t adapt — and soon.
Thousands of retail stores closed across North America last year, and the trend is looking to continue in 2020. Already the owner of Carlton Cards and Papyrus has announced that it is closing all of its stores in North America, including 76 Canadian locations. Ten Thousand Villages is also shutting after 74 years in business with 15 stores closed.
On top of that, audio giant Bose just announced that it is shutting 119 stores globally including all physical stores in North America, Europe, Japan and Australia as its shifts its focus to “online retail.” Bench is also closing all 24 of its clothing brand stores in Canada, reportedly to focus on e-commerce.
To add some further perspective on the magnitude of this shift, according to a recent study by Euler Hermes e-commerce has been growing at a 10.5 per cent annual pace and showing no signs of slowing down. This comes even though new e-commerce entrants are posting ultra-low profit margins with many struggling to be cash-flow positive.
Consequently, the carnage has been deep and wide: For every job created in e-commerce, four-and-a-half jobs will be lost by traditional retailers.
For example, not only have 41 per cent of retailers experienced a margin compression but an estimated 57,000 stores (representing 10 per cent of the market) and 670,000 net jobs have been lost in the U.S. since 2008. Looking ahead, Euler Hermes expects that further e-commerce penetration will eliminate another half million jobs and 30,000 establishments over the next five years.
While the change is being driven by younger generations such as Gen-X and millennials, we believe the baby boomers will soon begin to mirror their shopping habits, and that as a result we are only in the early stages of this paradigm shift.
For those who don’t believe this generation will deploy a similar consumption pattern, simply have a look around you the next time you’re at a restaurant or any public space and notice the prolific adoption of smartphone technology and social-media platforms such as Facebook, by seniors.
Perhaps all it will take is one bad experience in retail to make the jump. Or simply discovering the ease of returning an item to an online retailer as compared to a traditional bricks-and-mortar store.
Retailers wanting to not only survive but prosper in this new environment are going to have to adapt their business models quickly by either moving their services online and/or turning their stores into experiences that offer an extreme level of convenience and personal service.
Take Canada Goose’s new flagship location in a west Toronto mall, which they have dubbed, “The Journey: A Canada Goose Experience.”
Customers experience a number of themed rooms including a crevasse featuring a crackling ice floor, rock walls and arctic sounds. They can then choose a test jacket and try it out in a cold room. Importantly, there is no actual in-store inventory but instead an online catalogue from which to order.
We’ve noticed a similar approach is also being adopted by some malls, which are converting themselves into entertainment centres that create an experience as a means to attract consumer foot traffic.
If you’re wondering how to invest amid all this change, a great place to start is by having a look at your own consumption patterns and personal experiences along with your parents and your kids.
Own the companies that are choosing to adapt rather than sticking their heads in the snow.