Why Online Isn't the End of the Physical Retail Store - Myths, misconceptions and opportunities - Colliers
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Retail Services | May 2017 SPOTLIGHT REPORT In collaboration with Why Online Isn’t the End of the Physical Retail Store Myths, misconceptions and opportunities
One of the most exciting elements of retail is that the industry Retail on the Rise
is ever-evolving. Shifts in consumer preferences, the rise of
new technologies and the constant battle to stay ahead of From a growth perspective, U.S. retail as a whole is performing
competitors create a dynamic environment in which retailers reasonably well. Over the next five years, spending in all major
need to adapt — or risk becoming irrelevant. sectors is projected to increase, although the pace of growth
likely won’t be even.
Such an environment drives innovation, but it also creates
confusion. It can be hard to understand the real causes of Forecasts from GlobalData predict that beauty will top the list
change and easy to misinterpret the implications. A perfect in terms of growth over the next five years, with a projected
example is the rise of online shopping and the consequences for spending increase of almost 32%. This rise will be driven by
bricks-and-mortar stores. The headline-grabbing view is that several factors, including an aging population determined to stay
e-commerce is the driving force behind the store closures and youthful, an increase in the number of men buying personal care
declining customer traffic some retailers are witnessing. There products and continued product and format innovation by both
is partial truth in this belief, but the full picture is much more manufacturers and retailers.
complex and invites us to ask why.
Home retail — which includes furniture, housewares and home
In this report, we have collaborated with GlobalData to explore improvement — is also expected to see above-average growth.
the next chapter for U.S. retail, the demands based on consumer A robust housing market and the willingness of consumers to
habits and the facts and figures that should make you ask: How invest in products for their homes are both beneficial drivers
can you find the right new opportunities? of expansion.
Apparel is likely to remain a laggard in growth terms, however.
Quick-changing consumer preferences, price deflation from
continued discounting and a lack of product innovation are all
contributing to relatively lackluster performance.
Projected U.S. Retail Spending Growth: 2017–2021
BEAUTY
31.7%
HOME
19.8% ELECTRICALS
GROCERY OTHER
16.2% 15% APPAREL 15.6%
12.8%
Source: GlobalData
Note: “Other” includes books, news, stationery, crafting, hobby, jewelry and watches, entertainment and leisure products, sports and leisure
equipment and a number of smaller categories.
2 Retail Services Spotlight Report | Colliers International & GlobalData
As E-Commerce Grows, Stores Remain Vital Far from painting a gloomy outlook for stores, this perspective
underlines how vital physical space will remain for retail.
Although all sectors of retail are growing, it is often the growth However, looking at these raw splits between online and
of e-commerce that grabs the headlines — something that leads physical only provides a partial view of the real role of the store.
to gloomy conclusions about the future of bricks-and-
mortar stores. Today, many consumers shop seamlessly across the various
touchpoints offered to them, using a combination of stores and
It is certainly true that online is growing at a faster clip than online channels to complete their purchases. In essence, this
physical stores, which also means that e-commerce’s share means that physical stores are driving significantly more than the
of retail is steadily increasing. For the first time, online retail $3.2 trillion of spend that went directly through them in 2016.
is forecast to account for more than $1 out of every $10 spent
in 2017 (approximately 10%). By 2021, online’s proportion is The True Value of A Physical Store
forecast to be 13%.
Value of sales where consumers
have browsed items in a store
The flip side is that in five years’ time, physical stores will still before buying them online
account for the vast majority of retail spending. Online will likely $119.6 billion
penetrate more heavily in certain categories like electricals and
media, but in others — like home and grocery — its influence is
expected to be more muted.
Historic and Forecasted U.S. Retail Spending
Direct sales through
5.8% 6.3% 6.9% 7.5% 8.3% 9.2% 10.1% 11.1% 11.9% stores 2016:
12.6% 13.3% Value of sales where $3.2 trillion Value of sales where
consumers have collected
consumers have bought
online purchases in store
online while in a store using
mobiles/kiosks, etc. $81.7 billion
$10.2 billion
Source: GlobalData
94.2% 93.7% 93.1%92.5% 91.7% 90.8% 89.9% 88.9% 88.1%
87.4%86.7% Notes: All figures are for full calendar year 2016. Retail spending excludes foodservice,
gasoline and automotive sales. There is duplication between some of the factors (i.e.,
consumers may have been inspired by a store before buying online and then subsequently
collected the product in a store).
In 2016, consumers spent $119.6 billion online on products they
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
first browsed or researched in a physical store. Some $81.7
billion spent online was on products picked up from a physical
Physical Online
shop. And consumers spent $10.2 billion online while actually
Source: GlobalData
standing in physical stores, using their mobile devices or in-
store ordering points.
Notes: All figures relate to full calendar years. Retail excludes foodservice, gasoline and
automotive sales. Other remote channels like mail order or TV shopping are excluded from
the analysis. Stripping out the duplication between these three components
shows that physical stores supported $132.4 billion of online
sales in 2016. In combination with in-store purchases, this
means stores played a role in 95% of all U.S. retail sales in 2016.
Retail Services Spotlight Report | Colliers International & GlobalData 3
Some Retailers Innovate While Others The off-price sector has also been particularly successful
in driving traffic to stores. Some three-quarters of regular
Struggle off-price shoppers say they like visiting stores because the
constantly changing assortment is interesting and fun to shop.
Although physical stores will remain of vital importance for This compares favorably to mainstream clothing stores, which
consumers, the type of stores consumers frequent is shifting. an increasing number of consumers say are homogenous with
This is giving rise to new retail formats and ways of shopping. ranges that rarely change — something that reduces
visit frequency.
One of the more notable trends playing out is the rise of the
value sector — those retailers that help shoppers save money Historic and Forecasted Growth Rates
without asking them to make too many sacrifices in areas like
Growth Rate Forecasted Growth Rate
service, quality and convenience. The interesting thing to note U.S. Retail Segment
2012–2016 2017-2021
about the rise of these value players is that their business
models are predominantly physical and the vast majority of their Off-price 43.2% 39.8%
sales are made through stores.
The apparel segment is where off-price retailers have really Dollar stores 34.9% 22.1%
boomed. This sector has experienced 43% growth in the past
five years and is expected to see almost 40% growth over the
next five, based on the forecasts from GlobalData. Discount grocers 18.7% 26.2%
Total retail 15.1% 18%
Source: GlobalData
Notes: Off-price includes all off-price stores and includes off-price divisions of full-price
stores. Total retail excludes foodservice, gasoline and automotive sales. All figures are
U.S. only.
The success of these value formats has come largely at the Where Have Macy’s Customers Defected To?
expense of more traditional middle-market operators, which
TJMAXX
have recorded significant declines in in-store customer traffic 25.6%
and purchases. However, this is not typically the narrative you
see in the headlines — rather, online commerce (and Amazon in ULTA NORDSTROM RACK
particular) is often held up as the culprit of the traditional 14.8% 22.5%
retail decline.
The reality is more complex. Amazon has certainly had an impact
but, as the example of Macy’s shows, the underlying drivers are
DILLARD’S MACY’S PREMIUM BRANDS*
more widespread. These factors include the value players plus a 15.0% HAS LOST 3.4 MILLION 19.4%
range of other physical and multichannel retailers. CUSTOMERS OVER THE PAST
3 YEARS. HERE’S WHERE
THEY NOW SHOP INSTEAD…
As this chart shows, online has certainly played a role in customer
erosion, but not as big a role as is often made out. Of those that
have gained customers who defected from Macy’s, Amazon sits
just outside of the top five. Other online specialists, like Wayfair, are AMAZON KOHL’S
even further down the list. 18.7% 18.9%
JC PENNEY
18.8%
* Premium brands include standalone higher-end brand stores like Coach, Michael Kors,
Ralph Lauren, etc.
Source: GlobalData’s U.S. consumer survey of lapsed shoppers from different retailers,
conducted in February 2017. Macy’s sub-sample size was 2,454.
Notes: Diagram shows only the top eight retailers. Numbers sum to more than 100% as
respondents could mention more than one retailer to which they had switched.Physical Stores Must Adapt (Faster) To
Change
The rise of online commerce and new shopping formats requires
retailers to rethink the role of the physical store and the in-store
experience. Many traditional players have been slow to adapt, which
has left them with stores unsuited to the needs of
modern shoppers.
The chart below shows that rather than e-commerce pulling
people away from physical shops, physical stores have actually
pushed people toward online. The most common complaints from
consumers who have reduced their visits to shops are that stores
are dull, uninspiring, hard to shop, rarely have new things to look at
and offer poor customer experience.
Reasons for Reduced Visits to Physical Stores
FACTORS THAT HAVE PULLED FACTORS THAT HAVE PUSHED
CONSUMERS AWAY FROM STORES CONSUMERS AWAY FROM STORES
EASY TO SHOP ONLINE HARD TO SHOP STORES
35.4% 64.6%
ONLINE IS INSPIRING STORES ARE UNINSPIRING
29.3% 70.7%
OFTEN NEW PRODUCTS ONLINE SELDOM NEW PRODUCTS IN STORE
38.9% 61.1%
ONLINE IS CONVENIENT PHYSICAL IS INCONVENIENT
56.7% 43.3%
ONLINE IS CHEAPER PHYSICAL IS MORE EXPENSIVE
58.2% 41.8%
ONLINE SERVICE IS GOOD PHYSICAL STORE SERVICE IS POOR
40.6% 59.4%
ONLINE IS A FUN EXPERIENCE STORES ARE A DULL EXPERIENCE
27.9% 72.1%
Source: GlobalData’s general U.S. consumer survey of shopping habits, conducted March
2017. Sub-sample size for shoppers visiting physical stores less is 2,182.
Notes: Consumers who have reduced visits to physical shops in the past three years were
asked to select the most important reason from each pair. Those who said, “Don’t know” or
“Neither factor” in each pair have been excluded from the calculations.
This sends a clear message to physical retailers that they can
still drive success — if they deliver interesting and engaging
experiences that pull in shoppers.
6 Retail Services Spotlight Report | Colliers International & GlobalDataSummary and Outlook
The retail industry continues to evolve at a breakneck pace. But
when it comes down to it, consumer behaviors have always driven
change in retail. It wasn’t so long ago that haute couture was only
available to the wealthiest — until one designer decided to create
everyday, affordable designs that could be replicated quickly for a
broader audience. This drove a consumer-focused surge that led to
the proliferation of stores, catalogues and now online shopping.
But retail today is not just about e-commerce. In this report, we
have highlighted some of the myths and misconceptions about
where, how and why consumers are shopping. In particular, there
is value in the realization that disappointing in-store experiences
have been a meaningful driver of consumers’ shift to clicks over
bricks and from tired department stores to more dynamic and
value-driven retailers.
This suggests that at least some of the challenges facing retailers
can be stemmed, if not reversed, with more appealing experiences
that give shoppers a reason to spend more time — and dollars — in
physical stores. In this way, the key drivers of retail are the same
as ever — it’s still all about engaging the consumer and addressing
their needs to drive brand strength and sales.
The time is now for retailers and landlords to think critically about
what the future holds and how to innovate to stay one step ahead.
For more retail insights and opportunities, visit:
colliers.com/us/retail
Retail Services Spotlight Report | Colliers International & GlobalData 7Anjee Solanki National Director, Retail Services | USA Colliers International +1 415 288 7871 anjee.solanki@colliers.com Andrew Nelson Chief Economist | USA Colliers International +1 415 288 7864 andrew.nelson@colliers.com Neil Saunders Managing Director and Retail Analyst GlobalData Retail +1 718 708 1476 neil.saunders@globaldata.com About GlobalData GlobalData is one of the largest data and insights providers in the world, delivering unique data, expert analysis and innovative solutions to more than 4,000 companies across the globe. Copyright © 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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