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Research - SEPTEMBER 6, 2019

Technology takes on brick-and-mortar stores, creates a new era of retail

by Andrea Zander

Technology is taking the forefront at brick-and-mortar stores, creating a new era of retail consumerism. For example, the sector is seeing the rise of niche retail, specifically digital-based retail boutiques making their mark on the brick-and-mortar landscape. JLL estimates 850 of these retailers will open stores in the next five years.

According to a survey by Retail Dive, New York City is the top destination for both pop-up stores and online brands' first permanent locations, with markets such as Los Angeles and San Francisco also popular, JLL said. More than half (59.5 percent) of the online retailers studied opened their first pop-up locations in New York City, followed by Los Angeles (16.2 percent) and Toronto (5.4 percent). More than a third (41.3 percent) opened their first permanent location in New York City, followed by Los Angeles and San Francisco (12 percent each) and Chicago (5.3 percent).

The retail market will see retailers fulfilling the consumer desire of faster delivery, competing with Amazon Prime’s two-day and even one-day shipping. It’s no longer a perk; it’s an expectation.

Starting in 2017, Walmart began offering free two-day shipping to both stores and homes on more than 2 million items. Next, Walmart created its own grocery pickup and delivery option. It currently offers grocery pickup from 3,100 stores and plans to offer same-day grocery delivery from 1,600. And in May, the retailer upgraded its services to offer many items with free “NextDay” shipping. First beta testing in Phoenix and Las Vegas, NextDay has expanded to Southern California.

Costco partnered up with same-day grocery delivery conglomerate Instacart for its members.

As another example, Target offers free two-day shipping for thousands of items when you spend $35 or use the Target REDcard. In 2017, Target acquired Shipt, a delivery company of groceries, home products and electronics. This service allows consumers to choose from thousands of items to be shipped same-day.

To go with the convenience and instant gratification of consumerism is the online subscription ecommerce model. The appeal is being able to customize the types of products received. In 2011, the top retailers were making $57 million from subscription-based online sales. By 2016, the figure had grown to more than $2.6 billion. According to a survey from McKinsey & Company, “15 percent of online shoppers have subscribed to an e-commerce service over the past year.”

The concept helps retailers build a relationship with their consumers, so customers feel like they are getting their money’s worth.

There is also a benefit for retailers that have created the best, most user-friendly websites. According to ICSC, opening a physical store increases traffic to that retailer’s website. It also drives up the share of web traffic within that market by an average 27 percent.

Tom Mullaney, managing director of restructuring for JLL, said the shift we are seeing in retail is just an uncomfortable part of a historic tradition academics call “the Wheel of Retailing,” where new ideas and opportunities are created as old concepts die.

“Itinerant peddlers were taken over by the general store. The general store was taken over by Sears and Kmart and other mass merchandisers, who in turn were eviscerated by major national chains at the local level and by the growth of e-commerce,” said Mullaney.

Mullaney continued, “Today, prominent chains that have overbuilt and are no longer consumer-relevant are, in turn, moving to a natural death. But they always get replaced by new concepts, and that will be true this time as well.”

 

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