Why it's not the end of America's brick and mortar retail stores
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Even in a digital age, brick and mortar retailers have distinct advantages over e-commerce. But the other day, I watched as two stores totally blew those advantages. In a bookstore, the customer waiting in line before me asked for a particular book, only to be told it was out of stock. “We can order it for you,” the customer was told. But she shook her head. “I have books on order. I wanted something to read now.” The second came as I returned an item to a large department store chain, a routine matter — or so I thought. Thirty frustrating minutes later, after being shuttled between employees like a ping-pong ball, I left, wondering why something so simple had taken so long.

Both these incidents demonstrate how the woes facing brick and mortar retailers go far beyond price competition from online shopping. The bookstore I visited had missed its advantage of instant gratification. The department store lost its advantage of convenience and the human touch. An impersonal trip to the post office to mail a return was better by comparison.

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My shopping experience underscores three primary factors that underlie the plight of current brick and mortar retailers: retreat from core competence, failure to view online counterparts through a complementary lens, and loss of focus on customer experience. Unfortunately, the results of these missteps are apparent.

 

Distressed retailers are closing stores at a record pace. According to the Wall Street Journal, more than 2,800 retail locations have closed just this year, including hundreds of locations being shut down by national chains such as Payless ShoeSource and RadioShack. The outlook for major department stores is grim. Macy's said it will close 68 of its 870 stores nationwide, affecting 10,000 employees, citing changing consumer behavior. Sears Holding Corp. will close 108 Kmarts.

Meanwhile, online sales have soared in recent years, and this past shopping season was no different. Amazon, perhaps the most prominent digital version of the all-purpose department store, reported it shipped more than one billion items during the past holiday season, making the season the company’s best ever. Nevertheless, online e-commerce in 2016 was still less than 10 percent of all retail.

Reasons for retail closures are, however, complex and can’t be entirely blamed on online competition. Thirty years ago, many retailers rushed to open new stores to take advantage of easy money and consumer-buying sprees. That created overbuilding and a bubble not unlike that of the housing bubble. Overstorage and an influx of off-price chains, as well as the burgeoning online shopping space, led many retailers to be laser focused on price rather than their repertoire of instruments for delivering customer value. Then came the 2008 financial crisis, along with heightened customer anxiety.

Moreover, brick and mortar retailers viewed online shopping with irritation, hoping if they didn’t deal with it, it would go away. They were not only late to the game, but they dealt with the rise of online retail in exactly the wrong way. They cut the very things that contributed to the customer’s store experience, such as instant gratification and the human touch. They went headlong into the arena of price discounts, which eroded their ability to invest in their core competence.

This last holiday season, for example, many brick and mortar retailers slashed prices, assuming that deals — and only deals — could lure back shoppers. Research suggests this may reflect perception, not reality. A recent study by MIT researchers looked at whether buying online versus offline is always cheaper. The answer is no. The website Clark also looked at prices on key items at T.J. Maxx and Amazon and found T.J. Maxx’s prices were often substantially lower than those of the online superstore.

My research examines the influence of various seller resources on buyer satisfaction and showcases the power of the human facet. We found that the most effective sellers are those with the ability to understand a buyer’s perspective and respond accordingly. Thus, a focus on price to the exclusion of other factors is unlikely to be a solution for brick-and-mortar outlets. Rather, focusing and delivering on what consumers value will encourage consumers to shop by foot not by mouse. This means, however, that retailers will have to break some bad habits. Like Pavlov’s classical conditioning experiments, stores have trained shoppers to respond to price. Thus, they cannot dramatically end all price cuts without pain.

A 2013 Forrester report shows a focus on customer experience is rewarded with strong loyalty and stock market performance. Viewing the digital store as complementary not competition, retailers must create a synergy between online and offline shopping. By using analytics from customer journey data from online and offline, physical retail can improve customer experience while simultaneously addressing one of the biggest challenges of online retail: returns.

Brick and mortar retailers can also be creative in creating synergy. Walmart, for example, has cleverly introduced a system that gives discounts to customers willing to pick up in stores some online-only items. Since customers more often make impulse buys in person, this is a synergistic use of online-offline models. Rather than duking it out, brick and mortar has a unique opportunity to work with their online counterparts to thrive by becoming laser focused on customer experience rather than price.

The closing of stores is not necessarily a bad move for retailers if they can improve the quality of the remaining stores to capitalize on their inherent advantages. Although actions such as training staff and keeping the right kind of inventory on hand will be costly, this is an investment imperative for the long term. The brick and mortar store is not going the way of the flip phone. After all, the online behemoth Amazon is opening physical stores.

Sharmila C. Chatterjee is a Senior Lecturer in Marketing and the Academic Head for the Enterprise Management Track at the MIT Sloan School of Management.


The views expressed by contributors are their own and are not the views of The Hill.