Can Physical Retail Stores Remain Relevant?

Even before COVID-19 dealt a serious blow to brick-and-mortar retail, the space was already struggling as shoppers moved their habits online. The pandemic only accelerated that, with some categories bearing a larger share of the damage. To find out more about the state of physical vs. online stores, GLG’s Sidharth Satpathy hosted a teleconference with Steve Haas, GLG Network Member and former VP of Financial Planning, E-Commerce, and Brick-and-Mortar at Nordstrom and former VP of Planning at Macy’s. This article is a condensed and edited version of their 45-minute conversation.

What is the current state of the U.S. retail space?

It’s in turmoil, which unfortunately has been the state for several years. The economic pullback from consumers and macro-economic trends — whether they’re supply chain or labor costs — have contributed to some headwinds for the space. What’s more, one of the biggest changes that’s presenting challenges for a lot of established retailers is consumers’ continued and relatively aggressive online shift. COVID considerably accelerated this trend. It exposed some new customers to online shopping. It gave some increased confidence to people who maybe weren’t fully immersed in it yet.

Even now, while we’re seeing some pullback as consumers return to stores because they feel safe once again, I think the shift online will hold as a relatively steady trend, at least for the next three to five years. This leaves retailers with the question of: How do I keep my storage relevant? What do I have to do? But then there’s a large school of believers that think that physical retail is dead.

What are your own thoughts on the relevance of physical stores?

I do not subscribe to the belief that physical stores are dead. Though I believe there are bad retailers that probably deserve to be dead. Whatever the case, it’s increasingly difficult to get people to come into a store. It’s so easy to shop online. There are some key characteristics that might get people back into brick-and-mortar stores, but change will need to happen quickly.

A compelling physical environment that does more than just stack merchandise on tables is going to be a price of admission. It will have to be exciting, interesting, and bring a product to life in ways that online shopping can’t. There must be some discovery, or some experience that takes place in those stores that inspires someone to shop. Gone are the days of just having a good location and putting a bunch of stuff out and having a salesperson behind the register. Assortment is a key part of it. Merchandise will need to be distinguished and elevated.

Service is also a key component. A good example is Bed Bath & Beyond. It sells a lot of stuff. And the consumer has found that they can find the same things at the same price (or cheaper) someplace else. The store environment isn’t inspiring. There’s no real service component. I believe they’re likely to go by the wayside, like Radio Shack, which failed for the same reasons.

For nearly all retailers, the interplay between the store and their online properties will become increasingly important. But retailers must let go of the idea of driving traffic or driving sales to stores. When I was at Nordstrom, we made it clear that the objective was not to drive traffic to the stores; it was to get people to shop with Nordstrom in whatever form worked for them.

Malls are another good example. There are too many in the U.S. The surviving ones will become destinations that deliver a compelling experience, that host premium retailers: Tesla showrooms, Peloton studios, Lululemon stores, all the hot brands. These will be places people want to go. The secondary and tertiary malls, they just can’t exist anymore. The customer will choose to sit on their couch with their iPad and buy because they don’t want to put up with that subpar experience anymore.

Do you think physical stores can or should exist for every category, like department stores vs. grocery stores?

There are certain categories that are purely transactional. If I want to buy a toner cartridge for my printer, there’s nothing a salesperson can add to that exchange. This is one reason that stores like Staples are under so much pressure right now. Toner has long been one of their highest-margin items. People went in and just picked it up from the front of the store. But nobody’s driving to Staples for printer toner anymore. Today, Amazon will have it at my house this afternoon or tomorrow.

But what if I need a coffee maker? Isn’t that transactional, too? Not really. If I walk into a Williams Sonoma, I might be greeted by an educated salesperson who can show me the various features of multiple coffee makers. There’s value in that. I may be able to do the same research myself, but this interaction is something that people like — getting out, engaging with your fellow human beings. Apparel and shoes are other products that it’s maybe more beneficial to have a physical connection with.

Would you say that the effects of the pandemic are still a factor when a customer decides whether to step into a store?

I don’t believe COVID is still a factor for most customers. The greater concern is that during the worst of the pandemic, people became increasingly comfortable shopping online. So you may end up with the same outcome. Fewer people will shop in stores. Some people may be wearing masks in grocery stores, but that’s probably due to seasonality or recent COVID spikes. I don’t think most people are afraid of going out anymore. You wouldn’t have seen Black Friday results like we did recently if that were the case. The real hangover will come from people who discovered how easy, fast, and convenient it was to shop online when they were locked down.

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About Steve Haas

Steve Haas is an independent retail consultant at Tailored Solutions Consulting, LLC. Before entering the consulting sector, Steve held senior-level roles at both Nordstrom and Macy’s. He was most recently with Nordstrom for eight years, where he held a variety of Omni-Channel Vice President positions and was directly responsible for inventory management, brand and assortment planning, and full P&L results. Previously, Steve held the position of Director of Business Development at Wireless Advocates, where he negotiated and rolled out businesses inside large national retailers. Before that, he was Vice President of Planning at Macy’s.

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This retail industry article is adapted from the GLG Teleconference “How Physical Retail Stores Can Remain Relevant.” If you would like access to the transcript for this event or would like to speak with retail industry experts like Steve Haas or any of our approximately 1 million industry experts, contact us.

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Questions Asked During the Teleconference:

• Current state of play in the U.S. retail space.
• What do you think are some of the key focus areas for big-box retailers to grow market share?
• Your thoughts on the relevance of physical stores now.
• Any other key challenges you can think of that physical stores face now, and any underlying reasons that you can attribute those to?
• What are some of the customer behavioral trends that marketers and store operators must be aware of?
• Do you think the importance of having physical stores is equal for every category, like department stores, grocery, apparel?
• Would you say the effects of the pandemic are still a factor when a customer decides whether to step into a store?
• Would you agree that a shopping experience in physical stores is a key factor to ensure repeat customers?
• What are some of the principles that allow investors to identify a physical retailer’s ability to be profitable?
• Any other brands that you think are doing a good job of keeping their stores attractive and relevant?
• What is the typical revenue per square foot a store needs to make in metro areas to be viable?
• How about having in-person services at physical stores, such as restaurants and grocery stores, a nail salon in the department stores, for example. It may work for stores to remain relevant, but does it make sense from an operational perspective?
• How does retail become relevant for talent?
• Does the overall strength of a mall matter to a store, or can they stand out on their own within a larger setup?
• Are you seeing a decline in the importance of out-of-home advertising, and is this in any way related or linked to the declining importance of physical stores?
• Can online presence and physical stores coexist and, even better, can they complement each other?
• Do you think retail media marketing from CPG is going to be a more important revenue stream in the future?
• What are your thoughts on catalogs like Orvis and L.L. Bean? Do you think smart shoppers might be spending time there?
• What are the ways to leverage omnichannel presence to gain customer loyalty?
• Is there a maximum or ideal number of stores a retailer should have?