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Brick-and-Mortar Buries the Hatchet with Online Shopping

Retailers who were once slow to adopt digital technologies in order to grab customers are now racing against the clock to stay relevant. As COVID-19 ebbs and flows with each new strain and subsequent lockdowns, so does foot traffic in brick-and-mortar stores. The retail industry never faced such turmoil as it did in March 2020. Profits of non-essential merchants shriveled, and many businesses were forced to file bankruptcy and close up shop. But even before the onset of the virus, in-store traffic waned over the years while e-commerce took over major retail holidays. However, brick-and-mortar is making quite the comeback. Looking at CBRE’s latest retail report, the third quarter of 2021 saw positive retail absorption for the fourth consecutive quarter, with improvements in each asset class quarter over quarter. In taking the “if you can’t beat them, join them” idiom to heart, brick-and-mortar has realized that they need to make a friend out of their online enemy. 

Physical retailers may have balked at e-commerce in the past, but those that want to remain resilient in the marketplace are banking on digital technology to drive sales. E-commerce was one of the many aspects of the economy that COVID-19 accelerated, data from IBM’s U.S. Retail Index revealed that the pandemic hit fast-forward on the expected trajectory from physical stores to e-commerce by five years. Thanks to lockdown restrictions, global e-commerce sales leaped to $26.7 trillion by May of 2021. As much as we all hope the virus’s grip will falter so we can finally go back to whatever normal we had before, it’s clear that online activity isn’t going anywhere. 

Brick-and-mortar retailers are finally understanding that they need to “reimagine their omnichannel approach to create a distinctive customer experience that will recover faster from the pandemic,” according to a McKinsey study. For those not versed in the phrase, “omnichannel” (sometimes called omnichannel) integrates different methods of shopping for a seamless buying experience regardless of whether the consumer is shopping online, over the phone, or in a physical store. 

Cash me out curbside

One of the most prominent examples of retail’s tech-averse to tech-friendly shift lies in the grocery sector. Prior to the pandemic, the grocery market had largely avoided e-commerce. Digital orders accounted for less than 5 percent of total supermarket sales. Of course, that all changed in 2020 when online demand surged and left a lasting impression. Online grocery is slated to comprise 21.5 percent of total grocery sales by 2025, which, according to a recent report, rounds up to about $250 billion and a 60 percent increase from pre-pandemic sale estimates.

When lockdowns brought other markets to their knees, grocery stores never closed. Not only did the grocery sector benefit from their ‘essential’ status so they could remain open, but they also reaped the benefits of lockdown. Dining in a restaurant was no longer an option, and people threw themselves into homemade food trends like sourdough starters, pancake “cereal,” and whipped dalgona coffees. Cooking from home was the hottest trend, as there wasn’t much else to do, and social distancing made deliveries or picking up groceries curbside favorable. So much so that grocery and other retailers began to recognize the value of allowing consumers to order their products online. 

Retail’s resurgence seems to be tied directly with the success of grocery stores, so much so that shopping centers with a grocery store at the helm are driving retail’s recovery. The pervasive success of the grocery sector, fueled by its digital tailwinds, has enticed commercial investors to grocery-anchored retail. Landlords with space in open-air shopping centers that featured grocery stores filled 17 million square feet of it during the last quarter. 

Distributing space

As businesses were shuttering left and right, retailers who wanted to stay afloat had to rethink the functionality of their empty stores. Stores became excess space, and retailers with excess space realized that they could designate some or even all of their square footage as a fulfillment center for their online orders. Of course, the idea wasn’t exclusive to the pandemic’s onset, in fact, some shopping malls were being repurposed into warehouses back in 2017. But the trend accelerated when lockdown forced retailers to reevaluate how they use their stores in order to alleviate the financial strains that wrought through the entire retail sector.

But bigger names in retail like Costco took that idea a step further by buying the warehouses where they store their products. “While most retailers still tend to lease the shops where they sell products, more firms are calculating that they will save money in the long run and have more control by owning the warehouse where they store and distribute their goods to online customers,” said Mark Maurer of The Wall Street Journal. Major retailers buying property instead of leasing it tells us two things: one, that brick-and-mortar intends to extend its online presence as a compliment (instead of competition) to its business model, and that it intends to do so for the long-term. Kris Bjornson, who leads the retail industrial task force at JLL, told Maurer that “the retailers that own the facilities generally view them as a long-term investment over roughly 30 to 50 years, whereas the ones that lease them are thinking closer to five to 15 years out.” 

The continuing supply chain crisis is another reason that retail’s relationship with e-commerce and real estate is going hand-in-hand. Inventory used to have to travel to numerous sites before finally arriving at the business. Retailers, on the other hand, are making the process easier by consolidating stores, warehouses, and websites into one location. Furthermore, the extensive shipping delays come with a hefty price tag that gets passed on to the consumer, so the retailers that are buying their storefronts and centralizing their business could very well be able to slash prices in the future and attract more customers… away from the retailers who continued to lease their spaces.

As prominent as the dramatic shift from store-to-warehouse might be for the whole of retail, it might be too little, too late. Amazon had already gobbled 25 dying shopping malls all over the country and was reportedly in talks with Simon Property Group to convert insolvent Sears and JCPenney stores into fulfillment centers last April. However, there might be one digital ace that smaller retailers could whip out of their sleeves: live video shopping.

Live stream measures

What made brick-and-mortar obsolete could become the silver bullet to pure e-commerce, and that’s offering a human touch in a time of social starvation with live-stream shopping that simulates the in-store experience. “Live video shopping works particularly well with high-consideration items,” writes Jessica Paige of Retail Insight Network. “Customers are prone to becoming overwhelmed with information and seek websites for credible reviews and authenticity. Without a concierge page, customers are often presented with a live chatbot, which is great for tackling simple queries but lacks in more complex scenarios.”

Live commerce transformed the Chinese retail landscape when it came to the fray a few years ago, exploding in popularity so much that it became a new form of entertainment. Imagine if QVC fused with sketch comedy to connect with audiences and increase brand awareness, and you get China’s retail climate. Whether or not a comedic approach aligns with a retailer’s brand, live video shopping can be a brick-and-mortar’s ace in the hole, if they factor customer’s data analytics correctly.

Amazon’s fast e-commerce expansion and highly personalized offerings have raised customers’ baseline expectations of personalization. In a 2018 survey conducted by Epsilon and GBH, 80 percent of the 1,000 consumers who participated said that they were more likely to make a purchase when brands offered a personalized experience using customer data analytics. With those numbers, personalization should be considered a necessity: buyers expect it and if a shop fails to deliver that experience, they may defect to a competitor.

The digital white flag

Brick-and-mortar might need to reinvent the consumer experience in the digital age, but that doesn’t mean that they’re obsolete. After years of Prime 2-day shipping (or 2-hour shipping in urban areas), customers expect things to be easy. That said, there is a huge opportunity for brick-and-mortar to reignite brand loyalty, something that may have been lost in the age of third-party merchants and chatbots.

Whatever the degree of intersection with the physical and digital, physical retailers are finally understanding that the key to winning over consumers (and keeping them), is to get on the e-commerce bandwagon they railed so hard against. Now we might start seeing physical stores working in conjunction with online sales rather than being seen as a competitor to it.

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