The pandemic has not killed brick and mortar stores despite the move of consumers to clicks and online buying. Only changes that provide greater convenience to consumers at reasonable cost to retailers will persist. Most disruptions have already been coming and the pace and convergence have simply been accelerated. But very big questions remain.
These were some of the insights from a panel of retail experts during the “Rebuilding Local Retail: Operations, Design, and Technology” round table webinar hosted by the soon-to-be launched Retail Innovation Center and the Center for Real Estate Entrepreneurship of the George Mason University School of Business on June 24.
The panel consisted of Paul Weinschenk, vice president for retail with the development firm Peterson Companies; Roberto Belmar, a retail technology expert with Infovista; Mike Smith, a retail strategy and design expert with Streetsense; and Mark Hasting, a senior retail executive previously with MyEyeDr, Target, and Starbucks. Gautham Vadakkepatt, director of the Retail Innovation Center, served as the panel moderator.
Physical Stores Are Not Dead (But Transforming)
Weinschenk confirmed that firms like Peterson Companies, which manages over six million square feet of retail space in the Washington, D.C. area, have been contending with how to reopen stores and bring consumers back. “We’re trying to give shoppers a sense of comfort and happiness to be there,” he said.
But even with stores reopening, the speakers acknowledged that the pain in the retail sector was worse than widely thought. “The media has provided a sense of optimism about the large increase in retail sales in May over April. But if you exclude sales of automobiles and fuel, many stores had small sales growth or declined,” said Hasting.
Smith added that some of the decline had been long coming. “The pandemic accelerated trends that were already happening. Retail was overbuilt due to pressure for retailers to expand and open new stores funded by more corporate debt. Local zoning also encouraged more street level retail. This has now led to weaker performing retailers and store locations.”
In the face of weak foot traffic and low sales at most physical stores, the discussion focused on the surge in online purchases by consumers. “Online is not going to be the death of stores,” declared Belmar. “If there was ever a time where this would have happened, now is that time. It did not, and retail is not going to be 100 percent online. Other forms developed like curbside, pickup, and by appointment.”
“Online remains good for researching a purchase and a quick buy once you know what you want. It is not great at discovery and a true shopping experience,” continued Belmar. “In a store or a mall, shopping and discovering what you want are great, but the buying and payment experience is not. The goal is to make shopping and buying a good experience for the consumer at reasonable cost.”
“Brick and mortar stores aren’t going anywhere,” agreed Smith. “It took many years for Amazon to turn a profit, so online is still a tough go. The omni-channel approach (physical and online combined) still makes sense, though physical footprints will shrink.”
“Some retail will decline like apparel,” said Smith. “True experiential retail such as food and beverage has exploded in recent years, over-expanded and is now right sizing. Fast casual restaurants such as Chick-Fil-A are less experiential and doing better with delivery and pick-up. Ghost kitchens are growing—restaurants with no front dining and offering just delivery and pick-up.”
Smith also brought up the issue of increased retail vacancies. “The longer this situation goes on, the longer these temporary disruptions linger. What do you do with the excess retail space from closures? There will be less prospects for new tenants. Municipalities and developers have to be more realistic about the real demand that exists for retail spaces. Other uses to create place will be needed other than shopping or eating at restaurants.”
Technology: The “Good-to-Haves” Became “Must-Haves”
The panel agreed that technology is addressing some of the challenges facing retailers. “Necessity is the mother of invention,” quoted Hasting. “Some technology went from nice-to-have to must-have such as touchless payment, which retailers used to postpone but are now going in that direction.”
Belmar agreed with this. “Trends in retail technology are not new but are now accelerated and converging. Some technology which was considered expensive before are now getting a second look such as augmented reality for virtual try-ons as an alternative for fitting rooms. Will customers want to use fitting rooms, and will employees want to handle tried-on merchandise? Some retailers are also looking at touch screens which are made touch free, for example, by swipe gestures.”
Online and Delivery: Convenience is King
Belmar also noted how important home grocery delivery has been throughout the pandemic. “Once consumers experience something that they now prefer, they look for it in the future. One thing that has been mentioned is contactless payment and another is grocery delivery. Grocery delivery is now convenient for the consumer who has learned how to tolerate others picking their groceries. But this comes at a high cost to the grocer so a balance will be sought.”
Although physical retail is here to stay, Weinschenk raised several implications of increased delivery and online sales for developers and users of retail space. “Are we going to see more retail sales go permanently online and will this lead to more retail space converted to last mile fulfillment?” he asked. “This affects the space choices of tenants. Would they still want more expensive retail space versus other types of spaces? Or will physical stores become a loss-leader? Will we see the same range of selections in physical stores? If curbside and drive-through pick-up stick, there are also implications for the design of retail centers and zoning rules of jurisdictions.”
It’s to be expected that many of these changes will stick after the pandemic, “Consumers have short-term memories and will go back to what they know,” said Hasting. “But things that simplify life over what used to be, will stick. If something makes life more complicated, the consumer will go back to what used to be. Consumer muscle memory is hard to change.”
“It used to be that the customer or the product or the messaging was king,” added Belmar. “Now, convenience is king. The pandemic has changed the definition of convenience but still reinforces that convenience is king.”
Big Questions at the Top of the Second Inning
In a time of continued volatility and uncertainty, the panel reflected on where the retail industry stands. “We’re still at the top of the second inning, maybe the bottom of the first,” said Weinschenk. “More questions are still to be answered. What the retail world will look like is still to be revealed. Will consumer behavior go back as before? Which new behaviors will stick around for a while?”
“How do we reduce the anxiety of consumers and employees?” asked Hasting. “Retailers also have to deal with the bifurcation in our society—for example over mask use.”
“Consumers’ ability to spend money will depend on their sense on whether the pandemic is still lurking out there,” continued Weinschenk. “There’s also the political climate—how do we engage with each other?”
Vadakkepatt, as moderator, concluded that retail is indeed transforming, many big questions certainly remain, and perhaps the panel could reconvene in six months to provide an update on continuing disruption and rebuilding of retail and retail places.
The entire webinar can be viewed on the School of Business’s YouTube channel.