Stores Are Not Dead — But Location Matters More Than Size
Retail giants have been having a tough time. But as Trimfit CEO Ryan Craver notes, a physical place is a necessity if your business is going to make money. Plus, even Amazon isn’t perfect.
Over the past year, the nearly 100-year-old kids’ apparel brand Trimfit has been refining its online and offline marketing strategies.
Trimfit’s CEO Ryan Craver, a retail and digital veteran who also heads up Emerging Brands, License and Digital Strategy for Trimfit’s parent Lamour Group’s global brand roster, has been crafting that strategy amid a great deal of upheaval in the retail space at large.
Craver, who serves an advisor to proximity platform Rover and location marketing startup Retale, has been examining the evolution of the physical store since he was SVP, Chief of Staff for the Department Store Group at Hudson’s Bay. He also worked in analytics at Accenture, where he managed insights for brands such as Virgin Media and Best Buy.
Although Trimfit doesn’t have its own stores, it sells through both major retailers like Macy’s, Kohl’s, and Costco and via e-commerce players like Amazon. And that gives Craver a broad perspective on what’s driving omnichannel and what’s ailing retailers.
GeoMarketing: Does selling through Amazon require a different strategy versus selling Trimfit and Lamour’s products through brick-and-mortar outlets?
Ryan Craver: It’s different in that [Amazon] is the number one store that everybody knows, regardless of their impact in sales. Amazon is incredibly accessible to price compare with. Amazon essentially sets the market. If a brand lists a product at $25 on Amazon, when in reality the manufacturer’s suggested retail price is $33, and Bloomingdale’s is selling it for $33, market expectations are at least $25. Everyone looks to Amazon as the price setter and baseline.
So it’s the “showrooming” phenomenon, where someone looks at a pricetag in a store then opens his or her phone and compares it on Amazon?
Absolutely. All brands must be cognizant of pricing in the digital world as we are currently selling to the most informed customer ever. If you look at retail in general, other than etailers, the only ones that are truly doing well are home improvement retailers like Home Depot, warehouses like Costco, discounters like TJX. Burlington Stores recently announced their numbers — and they were phenomenal.
Meanwhile, the generally dismal performance of department store chains like Macy’s, Nordstrom, Kohl’s, and Sears Holdings during Q1 have led to speculation that there is a more general problem facing retail brick-and-mortar businesses. The unusually warm weather in much of the country was seen as to blame. Was that it or is something else going on?
The weather was a cause, to some extent. If you think about how slowly the major retailers move to reset the stores, they can’t be as dynamic as the weather.
Setting the floors each season is a shot in the dark. If we have a too cold or a long winter, resetting for spring might come too soon. It’s this continuous bullwhip effect based on a hope that weather matches to product on the floor.
In addition to winter, retailers are struggling for three main reasons:
- stores are most profitable but sales in stores are currently down. So they’re paying more to get the profit from the dot.com, and that hurts on their earnings
- wallet share is being consumed by higher health costs, big ticket items like autos and home improvement. Any growth is going to etailers like Amazon with 50-60 million 2 day free shipping Prime households, discounters like TJX and fashion houses like Uniqlo, H&M
- finally, individual brands are increasingly direct to consumer or have their own stores like Under Armour.
What’s happened with Under Armour?
Under Armour didn’t have plans for several hundred stores two years ago. They have 144 today and are opening 200 in 2016. Now you can buy Under Armour from Nordstrom, Under Armour, TJX, Amazon, etc. There are just so many different points of distribution.
Same thing with Michael Kors. It was hot for so long. It continued to be hot. They loosened how much product they gave to the department stores, and they got to the point of too many points of distribution. Attainable fashion became attained. There’s only so much growth.
Amazon seems like a difficult venue to shop for clothes — the items are not displayed very well, and obviously, you can’t try anything on. What has the company done right in the retail space?
I hear that a lot. Comments like: “Amazon does a very poor job of curation of what you’re actually looking for. The search results are poor.”
Yes, there is an endless amount of product. Yes, their third-party sellers only add to this problem. I will say that their search results and refinement is improving and the data they require of brands and sellers will only improve over time.
The personalization on the back-end is actually quite strong; they’ll follow up with you six months later on something that you searched that they realized that you never actually came back to buy. The downside is Amazon might actually give you too many options. The endless scroll isn’t for everybody. The endless options on one product page isn’t for everybody, either.
But for the large majority of consumers, they’ve taken the friction out of online shopping, and they believe the more options they present, the higher likelihood you’re going to press “Yes” — especially if you’re a Prime member. So it works for many people.
Amazon is nailing the repeatable consumables model and will be a winner in groceries next. Their goal is “thoughtless commerce” and they bring that in the physical world with Amazon Dash and in the online world with one-touch purchase. Look for further refining and testing as they shift with the customer.
It’s often noted that 90 percent of all shopping transactions happens in a physical store and just 10 percent involves e-commerce, though that’s growing more rapidly. And while much of the rise of e-commerce reflects Amazon’s strength, it also involves the traditional store brands as well. Doesn’t that suggest that the state of physical retail is actually in an overwhelmingly dominant position?
If you look at that 90 percent, a lot of that 90 percent is in the high transactional items that you buy — such as groceries.
I don’t want to call it the inflection point, but we now have groceries, and some of the higher transactional items coming online. And people are starting to become comfortable with making those purchases through an app.
We’re going to see a true inflection point. I don’t know if that happens in 6 months, a year, or two years. But we tend to move in masses. And all of a sudden, it becomes the way things are.
What do you think the divide will ultimately be between online and offline purchases?
Most of the projections and forecasts are probably under-reporting on how quickly it’s going to move. When it does move, it’s going to move relatively quickly.
Do I think it’s going to be a complete shift of 80-20? No. Do I think it’s probably going to be a world of 60-40? Potentially.
I also believe that we’re under-reporting that retail sales number, because “buy online, curbside pickup,” or “buy online, pick up in store,” is currently recorded as a [physical] retail. That’s not a true retail number.
My old boss, [Hudson’s Bay CEO] Jerry Storch, speaking at Shoptalk, he said bluntly, “Store sales aren’t dead.”
I agree 100 percent, stores are not dead. However, the way this country is “store’d” today isn’t sustainable given the significant shift happening. Store boxes and leases are in some cases currently worth more than the profit they can generate as a retailer. We’re going to have to shrink how big the stores are. We’re going to have to shrink how much is in the stores. It’s going to happen, it’s going to be uncomfortable but ultimately required to bring the industry back to a healthy spot.
Are all areas of brick-and-mortar going to have to shrink their “big boxes?” Or are you thinking of all physical brands?
Look at it this way: think about airlines like American Airlines or United Airlines. They’ve been operating forever, and if they didn’t go through Chapter 11 bankruptcy, they would have never cleaned their books, eliminated under-performing assets, renegotiated labor contracts, etc.
The large retailers all have a lot of assets that are old, that are going to need “cleaning.” The upstarts who started small, specialty size stores have smaller more productive bases, they’re a lot more flexible. They have high returns. Compare that to retailers that have been operating for decades with loads of legacy cost and vast real estate portfolios in an environment when sales are less profitable and growing negatively. Not sustainable, not comfortable but ultimately healthy for the industry.
What are the prospects of online-only brands that have been making the shift to “offline,” brick-and-mortar?
All e-tail has to go retail, no matter what — if they want to make money. If they do it the Bonobos route, where they opened their own stores, but also go wholesale through an entity like Nordstrom, that’s a true omnichannel brand. It’s also required to expand as a brand in my opinion.
It’s very expensive for brands to operate as online-only. Take Trimfit.com as an example. We have to “buy” traffic, convert a sale, pay for free shipping, hope for no return and provide a high quality product with an attractable discount. Thankfully we sell to major retailers and have the cash flow to support the .com but very difficult to sustain just through online. Not to mention, stores, product in stores is a great form of marketing.