As online continues to increase its share of total global retail sales each year, the conventional bricks and mortar shop is under growing pressure to transform its business model.
The watershed moment for retail will be when online shopping distribution and delivery systems become more efficient, according to Enda Luddy, the managing director of commercial estate agency CBRE. “Then, stores keeping high-volume inventory will no longer be cost effective,” he said. “And, with cheaper space and distribution costs online, [web] retailers will be able to sell their goods at significant discount, drawing more and more consumption of these goods online and away from traditional bricks and mortar.”
This will not mean the end of physical retail units, however. “We know that consumers will still want to see, feel and get some of their goods and services instantly,” said Luddy. “Plus, as consumers, we will continue increasingly to see our shopping experience as a social activity. It’s a destination venue versus shopping for our basic needs, which can now be met via online and click-and-collect facilities.”
Doug Stephens, the founder of Toronto-based advisory firm Retail Prophet, also feels stores will be increasingly focused on providing experiences rather than just shifting products. In Dublin to address the recent Retail Ireland Summit 2015, Stephens told The Sunday Times that the shop of the future would be more about creating an experiential space than being a hub for distribution.
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“They’re going to be much more geared to customers trying products, experiencing services and really connecting with the brands,” he said. “In a more experiential environment, it may not be about seeing all the clothing and all the products, but more about going through experiences to determine better what you should buy.
“If I’m going in to buy a washing machine, you don’t have to show me 100 washing machines to prove that you sell washing machines. What would be helpful is giving me a genuine, authentic experience that really helps me determine what is the best machine for me to help me make a more intelligent decision. That’s what’s really missing from retail in so many places.
“And I feel most times when I shop online like I’m making a more informed decision than I’m making in most stores.”
The shop of the future is also more likely to be in an urban centre than a suburban retail park, said Stephens. “Retailers in general are going to have to look at smaller, urban formats. I’ve been saying for a long time now that the suburb and big-box is really on its last legs. It’s a model that’s not sustainable for a few reasons.”
Consumers can now go to sites such as Amazon to see a big selection of products rather than having to visit large stores in person. “In a pre-internet world, big-box made a lot of sense because the customer didn’t have this universe of selection at their disposal,” said Stephens.
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“We’re driving a lot less and we’re going to continue to do so as the population ages,” he added. “So the idea of driving to some dusty suburb somewhere and loading up with all kinds of things and driving home is really going to start to become boring.”
Irish retail parks have benefited from a growth in demand for space in recent months. Stephens believes this is likely to change over time. “It’s already [hit] North America in a massive way. For example, Walmart stores that used to be 200,000 sq ft on average are now trying to shrink down to 5,000 sq ft-15,000 sq ft.”
Is this the death of Ikea?
The Retail Ireland director Thomas Burke believes there will continue to be demand for a mix of large and smaller format stores. “It will depend on the strand of retail you’re in,” he said. “Some stores will naturally need a bit more space than others. Apple is a classic example of where you can display a fairly wide range of products in a relatively small space. That doesn’t work for different electrical stores that will need more space even just to showcase, never mind in terms of having stock.”
He does agree that shops of the future will become increasingly experience-focused destinations. “A number of them have already embraced that future model and are making an attempt to stand out from the crowd,” he said.
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An example was Arnotts’ introduction of the “Make My Magnum” stand at its Henry Street store over the summer, where customers were invited to create their own ice creams. “That sort of thing is diversifying away from the traditional retail approach,” Burke said. “It’s bringing people in, giving them something different and hoping they’ll stay a bit longer in the store than they previously might have. The intention is that they may buy something or spend a bit more than they intended to do otherwise.”
The bookseller Eason has created special zones within its shops to appeal to children and young adults. “We identified huge opportunity within kids’ books and have developed sections within our stores catering for parents and children coming in and created a very welcoming environment for them,” said Brendan Corbett, the group head of marketing at Eason.
To attract young adults, the company has leveraged the popularity of recent titles such as The Hunger Games and Divergent. “The books are at the core of everything we do, but there are other opportunities with product extensions,” said Corbett. “As the book becomes the movie, there are many other products that the audience wants — the key ring, the poster, the making of the movie book — and we’ve brought all of those together in a separate zone in the store called Department 51.
“Where we have brightness and nice, soft colours in the kids section, we have black fittings, dark lights and the tagline ‘You might never leave’ in the young adults section, and that audience has really taken to it.”
Shopping centres are also set for big changes, said Luddy. “Increasingly, we will gravitate to a location where we can access all the services and goods we need at the one time and in the one location,” he said.
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Luddy believes typical shopping centre occupiers of the not-too-distant future will include 3D printing stores; mega leisure centres; DNA testing clinics; botox clinics; computer chip-enabled clothing kiosks with in-store touchscreens; golf driving ranges; CoderDojo and KidZania-type outlets; virtual car showrooms; computer games educational centres; cosmetic surgery clinics; online universities; and garda stations.
To increase footfall, retailers and centres should develop services and apps that add real value to consumers, such as car parking with electric charging hubs, and iBeacon campaigns for direct and targeted one-to-one messaging.
Under-utilised spaces within shopping centres, meanwhile, will be developed to attract experience seekers through, for example, cycle tracks on the roof, climbing walls on the external walls, aquariums, indoor ski slopes or skating rinks.
The aim of all these measures, said Luddy, will be “to make the individual connected consumer feel personally spoken to or catered for in order to drive much higher engagement, loyalty and ultimately purchases”.