In the battle of clicks versus bricks, retail must transform or die

In the battle of clicks versus bricks, retail must transform or die

Summary: Ten years hence retail footprint will be a shadow of its former self and heavy competition from online will allow only the strongest brick and mortar businesses to survive.

SHARE:

This article is an expansion of Jason Perlow's arguments in our ZDNet Great Debate Series: Is e-commerce killing brick and mortar?

Photo from Brian Ulrich's Copia "Dark Stores" photo project

As much as it bothers me to say it, clicks are absolutely killing bricks. No, it won't happen overnight in some kind of apocalyptic mass extinction event -- but anywhere between ten and fifteen years from now, the makeup of what we call "brick and mortar" today will be largely a cultural anachronism.

Ten years hence, it will be the mice and the trackpads and touchscreens that will rule the earth and generate most of the retail sales in this country, not feet on the ground and bodies in stores.

ZDNet Editor in Chief Larry Dignan notes that current retail brick and mortar business is about ten times the size of current online sales.

That may not sound like a lot right now but let's look at overall growth. Earlier this year Forrester Research projected online retail sales in the U.S. would increase 11.98% in 2011 compared with 2010, to $197.3 billion from $176.2 billion.

Originally, back in March, Forrester projected that the annual rate of increase will decline slightly each of the next several years, with online retail sales in 2015 rising 7.81% over 2014, to $278.9 billion from $258.7 billion.

That represented a 9.62% compound annual growth rate for the U.S. over the five-year forecast period.

And where is that growth occurring? At the expense of Brick and Mortar.

If we take in this last Black Friday's sales (a 26 percent increase over the previous year's online sales activity according to ComScore) and the record breaking $6 billion dollar "Cyber Week" into account, then I am sure we are looking at revised e-tailer growth figures in the offing from Forrester and other industry analyst groups.

Post-Thanksgiving 2011 should serve as a wake up call for department stores and large walk-in retailers. Change is already underway.

Will Brick and Mortar disappear entirely? No. We'll always need certain types of walk-in retail, and some types of businesses will be more resistant than others. Just like the Crocodilians survived the big 'ol asteroid 65 million years ago, we'll still need places like Walgreens and maybe even Target or Wal-Mart.

But ten years hence retail footprint will be a shadow of its former self at best, and heavy competition from online will force only the strongest and most customer-oriented brick and mortar businesses to survive, with the inevitable consolidation of some of the largest businesses to follow.

The dinosaurs didn't go extinct overnight. And there are reptiles that still live today that aren't much different than ones that lived in the Cretaceous. Similarly, the most robust brick and mortars will still be with us ten or twenty years from now. But the weak or unadaptable will not survive.

Much of this is going to occur as a result of transformative changes in consumer behavior.

I agree with my colleague David Gewirtz that there is going to be a digital divide which could pose challenges to moving towards a completely online based commerce model, because the have-nots may lack the technological resources to participate in it.

However, I've already explored this to a certain extent in my two Digital Underclass articles in which I detailed how the Public Library and the brick and mortar bookstore is almost certainly going to face a similar fate to that retail.

Unfortunately, I think the Public Library and bookstores are likely to disappear much quicker than retail and we'll be seeing the majority of written media being consumed electronically within five years.

However, that being said, the cost of personal computing devices are also going to go way, way down over the next five to ten years. Anyone who wants to be able to get online and shop will certainly be able to.

The shopping apps and websites are also going to become much more sophisticated and user-friendly over the next five years.

They will also learn individual consumer behavior and know exactly what kind of products to push, and consumers will be able to set up recurring shopping lists (for things like groceries) and integrate this into their financial planning with their banks to track their spending behavior and set up savings for particular items.

This isn't Sci-Fi, this is what banks and retailers are working together on for their customers now, and you'll see some of this coming to banking apps/websites on your favorite smartphone or tablet this year.

For those of us that leave the cities for the suburbs or even developing semi-rural areas for a better quality of life, these apps and websites will be a godsend.

Yes, there will be "Food deserts" as David describes in the big cities, but these are problems associated with de-population in general. And with de-population brings inevitable retail vacancy.

The question has also been posed as whether or not the collection of sales taxes will have any impact on Internet-based commerce.

While some consumers will agonize over ten dollar differences between one vendor or another in terms of total end to end door to door cost (of which taxes are a factor) ultimately they will want to gravitate towards vendors that are giving them the best deal overall, and that could be in the forms of incentives and or loyalty programs, such as Prime.

It should be noted that in ComScore's most recent reports, Free Shipping (using programs like Amazon Prime or via promotional programs) was a driving reason why customers shopped at particular online retailers. Taxes really didn't factor into the equation.

So which retailers are most ready for this transformation?

The ones with the most retail power -- Wal-Mart, Target, Best Buy and the warehouse stores like Sam's and COSTCO are the ones that will be ready for Multi-Channel commerce.

Now the department stores -- those guys got real problems. I don't see them thriving in this new model. Tyrannosaurus, meet asteroid. I could see Sears returning to its roots and becoming more of a catalog goods supplier and hooking up with Amazon or perhaps Wal-Mart.

But Macy's? Bloomies? Nordstroms? Neiman-Marcus? Dillard's? Saks? Like Fortunoff, which died in 2009, they'll all be pushin' up the daisies, folks. Alas, poor Gimbels, I knew him.

The only evidence they ever existed in future decades will be preserved in Miracle on 34th Street every time they run it on Video on Demand during the holiday sales push.

The New York Thanksgiving Day Parade! Sponsored by Amazon.com!

And just what do you think happens to shopping malls when these anchor stores have to inevitably close? It means they will have to find other ways of being profitable.

Can you say big time consolidation of the big box stores within the next decade? Yep, I knew you could.

But before these big box stores start to heavily transition to an online model, the vertical businesses and the specialists are going to center around online commerce in order to increase their overall footprint and reach.

Certainly verticals are going to move towards an online business model, particularly if they sell highly specialized items and want to reach a national audience. This is already happening.

Perfect example: Who did I buy my portable 6,500 watt generator from during the aftermath of the summer tropical storm that completely whacked our local infrastructure in New Jersey?

Did I go to Home Depot or Sears who had people piling up for days trying to buy one because they couldn't keep one in stock? Nope. Home Depot's and Sears' websites couldn't even get me one quickly enough even if I wanted to overpay to expedite the shipping. Neither could Amazon, for that matter.

So I went to PowerEquipmentDirect.com which had plenty of units in stock. Did I need to see the item in person before I spent $1500 on the system and had it shipped 3 day UPS to my house? Did I need to touch the thing? No, I read reviews, and the company had a great "Choose your Generator" app that showed me how various models compared to other ones from different manufacturers.

Now, granted, this company has a showroom and warehouse in suburban Chicago filled with their merchandise, but I wasn't exactly going to go down there and look at one. I knew it was an established business with a good reputation and my AMEX platinum card rep would fight tooth and nail if any funny business occurred.

So do you really need to see a refrigerator or a lawnmower in person? Or a commodity desktop or laptop computer? Some old-school sticklers do, but I certainly don't. Apple has certainly proven that people will buy iPhones and Macbook Airs on the web sight unseen, months before product availability.

I'll give you that certain businesses such as say, luxury fragrance merchants, a jeweler, a watch store or Crabtree and Evelyn might require brick and mortar presence, but these are really only likely to survive in affluent areas, and will concentrate themselves around completely re-designed malls in New Suburbia rather than as free-standing stores.

Now, there is one other major exception I think to this online transition: service-oriented businesses and especially restaurants are not really part of this new electronic retail model that I envision.

Dining out is something that is much more fundamental and essential to American culture. It will change, to be sure -- and it is well underway -- such as decline in fine dining and more of a trend towards QSR-oriented concepts (Quick Serve Restaurants) but it absolutely will not disappear.

That being said, many people are already eschewing Bricks for Clicks. My 65 year-old parents live in Boca Raton, Florida, are perfectly ambulatory and fit, but buy virtually everything online. If they can avoid going to a shopping center, they do.

Sure, sometimes products arrive that aren't exactly what they wanted, but guess what -- Amazon and other large e-tailers have a great customer service departments and you can return items, just like brick and mortar. You got a United States Post Office near your house? Then there's no problem.

If COSTCO had a service that dumped stuff right at their front door, I'm sure they'd pay a premium to do it rather than burn gas and wasted time.

And I suspect many millions of people feel the exact same way.

Topics: Smartphones, Mobility, Tablets

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

16 comments
Log in or register to join the discussion
  • RE: In the battle of clicks versus bricks, retail must transform or die

    In the battle of clicks versus bricks EVERYONE must be subject to the same SALES TAX!

    The rest is BULL....
    AlxHamiltn
  • RE: In the battle of clicks versus bricks, retail must transform or die

    Brick and Mortar stores will never completely go away. There are still too many people that like the instant gratification that comes with making a purchase. With any large ticket purchase, there is an almost urgent need to handle the object. How many people would purchase a car/motorcycle/boat/etc. online? commodity items can be purchased online, but important purchases re still done in person.
    Rick_Kl
    • RE: In the battle of clicks versus bricks, retail must transform or die

      @Rick_Kl Many people purchase these things online. eBay Motors is HUGE. Plenty of people make direct online purchases of new and used cars (and it has had a significant impact on the auto industry as a result) and boats but they've SEEN them elsewhere.

      I've bought cars online. Used ones. But for example, eBay has an inspection service where the car has to be brought into an authorized dealership and a full report on it has to be made before the transaction is complete. That's how I bought my vehicle five years ago.
      jperlow
  • RE: In the battle of clicks versus bricks, retail must transform or die

    I agree with @Rick_Kl When he says that retail stores will never go away. There will always be those who prefer the feeling of going into a store and hand picking the item(s) they are going to purchase. They say 10 years in this article, but I would take that a step further and say 20 - 30 years.<br>For example if I'm going to watch TV or a movie (I'm in my early 20s) I'm going to watch it on Hulu or Netflix. But if my parents watch a movie, they are going to rent it at BlockBuster, RedBox, or some other store.<br>The older generations are used to retail stores, so I think it's going to be a while before things change drastically.
    http://gbstechnews.com
    Gabriel Bowen
  • RE: In the battle of clicks versus bricks, retail must transform or die

    Food stores will always survive. Tech stores, clothing stores, etc.? No, those will move on to online only or die sooner or later, save if they are a 'Walmart'-type business that has a very big balance sheet.
    Lerianis10
  • RE: In the battle of clicks versus bricks, retail must transform or die

    There goes a whole lot of jobs forever.
    edkollin
  • You are all men.

    I'm a man. I can zoom into a store or log onto Amazon, pick the thing I want, and be gone in 60 seconds. You are all men, and you can do the same. But there are also these creatures around we call "women," and many of them enjoy shopping as a sport. My wife is one of them. At 59, she's now officially old (although she sure doesn't look it), but guess what? Her daughters and granddaughters also "go shopping."

    Hear that? They "go shopping." For what? They will give you a puzzled look if you ask them, most of the time. They aren't going shopping for a specific item the way you or I would. They are going shopping.

    And even if these women are shopping for, say, a pair of shoes, they go to the mall and check out beauty supplies, skirts, jewelry, and a bunch of other items that are NOT SHOES.

    I'm not complaining. I've been married most of my adult life, and a woman who like to shop -- and therefore does all the household's shopping -- is a pearl beyond price. Mine is, especially. I have a lifetime supply of Hawaiian shirts because Debbie spotted a bunch of designer-label ones at Macy's for $20 each -- and didn't buy them. Instead, she stalked them the way a lioness stalks a wildebeest herd. And when those shirts got down to $6 on sale, she swooped in and grabbed 10 of them.

    Have you ever shopped for blouses for your wife or girlfriend with that level of dedication? No. Only women and homosexual men (and only about half the gay men I know) shop like this.

    As long as there are women, there will be stores where they can look at, feel, try on, and even maybe buy stuff.

    I need to go buy some video camera accessories now. From B&H Photo. Online.
    robin@...
    • RE: In the battle of clicks versus bricks, retail must transform or die

      @robin Women like bargains better than they like to shop. Especially the ones you and I know about.
      jperlow
      • LMAO!!!!!

        @jperlow
        "but honey!! It was on sale!!! I saved sooo much money!!!!"

        Never have figured that one out... :(
        rhonin
    • Men and women

      @robin@...
      It's funny how women are exactly the same no matter where on planet Earth you live. Thank you for the entertaining short story. :)
      Mikael_z
  • OK, Jason and @Robin, here's the lowdown from a woman

    I'm not letting go of the fitting room yet!! In every other aspect, you're probably both right.

    Another exception is cars. Kicking the tires and test drives will always be with us.
    jthelw
    • RE: In the battle of clicks versus bricks, retail must transform or die

      @jthelw You still need to drive a car, but that doesn't mean you need more than a showroom with test drive models to run a dealership if the stock is centralized. They won't need inventory onsite if the transaction takes place online and you end up doing home delivery of the car.
      jperlow
  • RE: In the battle of clicks versus bricks, retail must transform or die

    So physical retailers must do something that cloud retailers can't: give actual service. Provide an experience that people will be willing to pay for. Price is only one way to differentiate your product. Ask AAPL how differentiating on things other than price works.
    txscott
  • RE: In the battle of clicks versus bricks, retail must transform or die

    I have read some of the previous articles concerning bricks and clicks. I agree to a great deal but I think that some of the changes will be subtler. <br><br>For years many have thought that Wal-Mart would create barren landscapes in some cities and many towns, destroying the mom and pop stores and destroying small retail. While some stores have gone under because of stores like Wal-Mart (and Costo/Sams), stores like Wal-Mart have not entirely gutted the culture of city retail. (I hope that many cities will continue to have vibrant areas. It would be a shame if some of the nicer gathering places vanished.)<br><br>I think that Wal-Mart would survive, it has an extensive on-line store and they keep costs down. It is easy to purchase from Wal-Mart on-line and have items shipped free to a local store for pickup or have the item shipped to your door for a pittance. I would think that Wal-Mart would be a survivor, but that could change. Stranger things have happened.<br><br>For some items I do believe that 'Clicks' will surpass 'Bricks' but for many things I am a try it on kind of person and would need a retail store for that. <br><br>For clothing I need to try it on. I know of some people that purchase clothing or shoes on-line but that is not for me. I hate getting clothes in the mail and finding that they do not quite fit so I need to send them back. I would rather go to a brick and mortar to try on the six or seven different pairs of shoes and get one that does not pinch my foot rather than go through six or seven cycles of playing snail mail roulette to find the correct fit. And no, a virtual clothes fitting gadget/app will probably never really work correctly for some clothes because each item of clothing that is supposed to be one specific size may be similar in size but not actually exactly the same. Each item often fits a bit different. <br><br>I am not just talking about trying on shoes or shirts. I am talking about trying on TVs too. Ever walk into an electronic section of a store and see the multitude of TVs that are spread across the wall. Some TVs have great pictures and others not so great (and reviews do not always set things straight). When I purchase a TV I would want to try it on first by looking at it and comparing the picture to other sets before I purchased it. Once I selected a TV though the retail shop had better have a reasonable price or I may just get the item on-line. <br><br>Yea, I know. Many will be aghast or offended that I would look local and purchase on-line. Well, let the store keep their costs in order and offer things at a reasonable price and I will pay a reasonable markup for getting the item immediately but I will not allow gouging. <br><br>Funny and silly how some will go to one brick and mortar store to look at items but purchase from a different brick and mortar store because of a better price at the second store but the same person could be aghast that someone would look at items at a brick and mortar but purchase from an on-line alternative that had a better price. (I digress though.)<br><br>My last laptop I purchased on-line. My last desktop I purchased on-line. I purchase many things on-line but some things I need to try on first.<br><br>I think that the 'Clicks' will change things like Wal-Mart changed things. Stores that have a high overhead (can't control costs) or stores that have nothing unique to offer will sputter and other stores with control on their cost will survive. Alternative stores will be a check and balance on cost control, just like it always has been.
    John238
  • RE: In the battle of clicks versus bricks, retail must transform or die

    I certaintly hope we are creative in using the expansive hugh retail malls for seniors living spaces. All the current malls can be converted into doctors and dental offices and inside these new revamped living pods with living quarters on all corners of the current malls will be restaurants, clinics, bakeries, shoe repair, laundry services, hair salons, therapy stations, barber shops, etc...you get the picture. Should be exciting to see the planned developments take place. Kind of feels like what America was like just after WWII. Change, who knew?
    pinehurstontheshore
  • The reason Kmart is doing bad is not because of Online vs Brick

    Since Kmart brought sears no stores have been remodel. Every time I go in the shelves are half full. No one know when things are coming in.<br><br>Before blaming online sales why don't they improve their stock of items and the stores themselves? Look at Walmart they are always stock and the stores remain updated.<br><br>Most kmarts in my area havn't been updated since they were build in the late 80's
    Randalllind