Retail is a big business in America. In 2013 American consumers spent $3.2 billion shopping, 9% of which was online. With the Internet having become such a huge part of our lives and culture, it makes sense that retailers which want to survive the next 20 years will need to have an e-commerce strategy. Despite the growing number of big-box retailers throughout the country, the days of customers searching for a parking space and cramming into department stores are over.
First Comes Online Shopping
Online shopping is the most obvious competitor to the big-box stores. Today Amazon.com Inc. (AMZN) is the biggest retailer in America, having overtaken Wal-Mart Stores Inc. (WMT) in the summer of 2015. Amazon has changed the way we shop for everything from books to groceries and there’s no going back to the days when people would window shop for hours at the mall on the weekends. (For related reading, see: Six Habits That Will Make You Broke.)
Walmart and other big-box stores are already moving towards having a strong e-commerce website which allows customers to access goods 24 hours a day, 7 days a week (what retailer doesn’t love always being open and not having to increase staffing costs to do it?). Walmart intends to use its physical infrastructure to improve its delivery methods and strengthen its online shopping experience. This is done not out of altruism, but to regain customers from its rival Amazon.
Amazon has done a fantastic job of showing Americans that they can conveniently shop for anything at any time and it’s now up to the big-box stores to follow suit or go out of business. Best Buy Co. Inc. (BBY) and Target Corp. (TGT) both have websites and a wide network of stores but have not been able to leverage either one as well as Amazon and Walmart, much to the detriment of their customers and shareholders.
Low Inventory Storefronts
In the future, a giant store filled with merchandise for sale will be rare. Instead, shops will have low inventory, perhaps a few pieces of each product and a dramatically reduced selection of color options. A shopper will enter the shop, try on a few items and then browse through the options available on in-store computers. In the odd event that the customer wants to buy something for immediate use, the product can be brought to her from the storage room (depending on available inventory).
Generally though, people don’t buy things to use immediately. Instead, people buy things to bring home, try on, wash and wear in the future. When we buy gifts for people, it’s ahead of the event and no one likes to carry bags of clothes or pricey electronics. The future of retailing is in shipping—not to the hundreds of big-box stores throughout the country, but to individual addresses.
In the future, that customer that tried on a shirt she liked or a dress she wants to wear to a party next week will buy it in-store to be delivered that day, the next day or in a few days—similar to the options that Amazon currently provides. She can buy whatever she likes in-store, use whichever method of payment she prefers and doesn’t need to carry everything home. (For more, see: Target Vs. Walmart: Who's Winning the Big Box War?)
New Storefronts Equal Huge Savings
The low inventory storefronts would mean huge savings for retailers. Stores which have strong shipping infrastructure in place would see the biggest immediate advantages.
For starters, shipping costs from warehouse to stores would go down as less product is shipped, and supply chain management issues would be reduced as the inventory would be held at a central location rather than at multiple locations. Staffing costs would also decrease as there would be no need to have employees arranging the tens of thousands of items in a big-box store. Rent costs would be reduced as the inventory levels would be dramatically reduced as would the need for pricey retail square footage. Finally, shrinkage would be reduced as there’d be almost no excess inventory on the sales floor. All of this would come at the cost of higher shipping costs to individual addresses.
Reduced Expenses Mean More Competition
With the significantly less costs of running a low-inventory storefront instead of a big-box store, there would be greater competition and, theoretically, lower prices. As the new wave of shopping takes hold, smaller retailers will see the benefits to offering more products and having them shipped directly from their warehouse or drop-shipped from their supplier. Rather than having a mall with two or three big-box stores, a few dozen medium-sized stores and 10 kiosks, imagine a mall that’s predominantly kiosk-based with a few larger stores. (For more, see: Top Investment Ideas for Malls of the Future.)
The Bottom Line
This future of retail makes sense for both retailers and consumers. Consumers get more choices and lower prices at the cost of having their items shipped to them later. Retail outlets save money on staffing costs and by shipping directly to the customers. By fully integrating the Internet with big-box stores, our days of wandering through the aisles looking for a salesperson to help you will be a thing of the past.