Expert Predictions: The Demise of Bricks and Mortar Retail

By Campbell Phillips | 06 Feb 2013

Last week, renowned venture capitalist Marc Andreessen made a stark prediction about the downfall of bricks and mortar retail. We invited a number of retail experts to offer their thoughts on the matter.

Last week, tech entrepreneur Marc Andreessen predicted that physical retail chains are facing extinction, to be replaced by online retail.

Speaking in an interview with PanoDaily‘s Sarah Lacy, the Netscape Co-Founder and well known venture capitalist made stark comments about the future reality of retail.

“Retail chains are a fundamentally implausible economic structure if there’s a viable alternative,” he said. “You combine the fixed cost of real estate with inventory, and it puts every retailer in a highly leveraged position. Few can survive a decline of 20 percent to 30 percent in revenues. It just doesn’t make any sense for all this stuff to sit on shelves. There is fundamentally a better model.”

In Australia, industry analysts question whether retail is sustainable given the recent challenges faced by many organisations. In response, Melbourne Business School has designed a program that aims to address these specific retail industry-related concerns.

“The traditional bricks and mortar approach is no longer adequate,” says MBS Mt Eliza Associate and Retail Consultant, Beverley Chambers. “Retailers need to let go of an outdated business model. Agility and innovation, particularly in the contect of constant technological changes, is a must.”

It seems the future for bricks and mortar retailers looks bleak. However there surely must be a future for them in omnichannel or multichannel retail strategy, rather than lose out completely to pureplays.

In order to help us answer this problem, we looked to a number of experts for their opinions on the retail of tomorrow.

In today’s connected world, the term ‘omnichannel’ has effectively made itself redundant. In today’s shopping climate, the consumer is digitally connected, empowered and knowledgeable. According to PayPal Australia, consumers are increasingly using their mobiles to shop, with a sharp spike in sales occurring once stores close. 

Increasingly, retailers are seeing the value of the ‘stay and play’ store, where customers can experience a brand through an entertaining and engaging in- store experience. Shopping online and via mobile devices is sharply increasing, and the process is becoming more ubiquitous. The channel through which consumers make a final purchase is irrelevant, and being where your customer is, is a simple matter of customer service. The bricks and mortar store is still an incredibly relevant part of retail. It completes the shopping experience across the five senses, and retail offers spaces for socialisation, entertainment and engagement- all of which bring communities together and create physical destinations for people.

— Russell Zimmerman, Executive Director, ARA

Why not both? Competition in retail is healthy to help set the pace of change and evolution within the retail world for the consumer.  Whether the competition is on the high street or on high-speed broadband or a cross-pollination of the two, the customer will still be part of the shaping of retail going forward.  It is logical that some businesses are more efficient as a ‘pureplay’ over that of an ‘omnichannel’. However, in the near future both are capable of survival. And this is the evolution of retail we are seeing.  Both worlds will continue to collide as we have seen with Shoes of Prey opening a concession with David Jones stores.

What we are definitely starting to see is true retailers increasingly understanding the use of ecommerce as part of their retail solution and customer experience, in and out of the store, online and offline. With brand equity behind bricks and mortar; this is an advantage.  It might not be the winning stake, however an it remains an advantage to leverage customer confidence. 

— Luke Goldsworthy, Managing Director, Playhouse Digital

A lot of innovation today is driven by pureplay retailers. Often however, we see pureplay retailers that have grown fairly large move into creating multichannel experiences through setting up their own brick and mortar stores. At the core of it, there is no other option for large retailers, but to be omnichannel. By virtue of size, the large retailer is going to have customers demanding an omnichannel experience. This is definitely something we are already seeing today, let alone the future.

There’s a lot of talk about pureplay VS omnichannel going on for large retailers. What I find more interesting however, is the case for small-med retailers. SME Retailers make up the bulk of all shopping in any market. And little is being said about the opportunity for omnichannel/multichannel for such retailers. I feel, that technologically, we already have the tools to enable SME retailers to provide a multichannel experience to their customers. And the reality is that consumers are already getting used to being able to shop both online and offline, through their mobile devices and QR codes embedded on the walls of subway stations. I think what we’ll start to see in the future is that the multichannel experience will start to permeate into even the smallest of grocery stores, fruit shops etc. I believe that as technology enables a better experience for both the shopkeeper and the customer, this will become the reality. With tablet technology and good design, we can make running a Point Of Sale, inventory management and sales reporting as intuitive as a two year-old learning to play Angry Birds. This I think is the shift that we’ll see in the coming years.

— Wai Hong Fong, Co-Founder, OZHut

We believe that the future of retail lies in recognising and looking after the different needs of different customers through a strategic and innovative multichannel approach. We refer to this as our ‘every channel offer’.

This means offering customers the opportunity to shop online or through our call centre, which particularly appeals to business customers. It also means offering a great in-store experience for customers who like to touch and see the product or receive  expert advice from our team members.

While the e-commerce side of Officeworks is steadily growing, and now represents approximately 13 percent of our total business, we don’t see online shopping as a change to the way we do business… it’s just another way to shop.

— Mark Ward, Managing Director, Officeworks

I think it’s both. If we look at the US as an example of things to come, you have Amazon as a pure-play feverishly opening distribution centres to try and offer same day shipping. Reasons for this is that Amazon understands that when a large bricks and mortar retailer goes omnichannel – every store becomes a potential distrubtion point opening up all sorts of disruptive models, especially when intertwine with hyper local mobile offerings. That being said, you can’t discount the head start, scale and user entrenchment that the pure plays have. Either way it’s going to make for really interesting times.

— Carl Hartmann, CEO, Temando

The future of retail is omnichannel. Retailers must be wherever their customers need them to be to provide relevant and valuable access. It’s a bigger thought than making sure you’re in every channel. It’s having a really good reason to be there and executing it in a way that solves a problem for your customers. 

— Jodie Fox,  Co-Founder, Shoes of Prey

I believe a fairly even combination of omnichannel and pureplay will form the retail landscape in the future. As seen in America, the likes of Staples, Macy’s and Office Depot are able to leverage an existing offline brand when developing an omnichannel approach,  retaining their dominant offline position whilst fast-tracking their online presence / growth. On the other side, the ability to cost-effectively (relative to the cost of launching a retail play) test, launch and drive foot traffic to a new, pureplay brand has proved successful, with many dominating the online market. It is retailers like Ice, Warby Parker and ASOS, whose brand is their own product, that excites me the most in the future of retail. Online and offline are both important channels and not mutually exclusive, it is hard for one to ignore the other.

— Nick Molnar,  Managing Director, Iceonline

Perhaps oddly for a pureplay retailer, I’d have to say for the most part I think it will be omnichannel. Niche retailers (like my own business) may viably continue as pureplays, but I think as retailers as a whole, we need to be ready to give the customers what they want, when and where they want it. Just as we tease bricks and mortar retailers about their “last century” appoach, requiring customers to come in to store to choose, pay and collect, so to do we online retailers have to appreciate that requiring customers to go online to buy from us and then wait for the product to be delivered, is really just an extension of the same “this is how we do things, and if you want to buy from us, you have to do it our way” attitude.

— Steven Perissinotto, Director, VetshopAustralia

7 Comments

7 thoughts on “Expert Predictions: The Demise of Bricks and Mortar Retail”

  1. Tim Davies says:

    Definitely onmichannel. Online can never fully replace a physical shopping experience. Consider the advantages offline retail has over online…
    – Customer can physical touch and test the product before buying
    – Customer gets the product instantly
    – Customer can use all 5 senses to evaluate the offering (touch, sight, hearing, smell, taste)
    – Sales staff can interact with customer and offer highly personalised responses in real time

    Online shopping offers a different sort of convenience…
    – For those who are time poor who benefit from out-of-hours shopping
    – Where a purchase is not time-critical (it takes time to be delivered)
    – When the customer already knows the specific product they want
    – Where the online price is significantly cheaper than offline (each customer will have a different price threshold)

    The golden rule of retail is “be where the customer is”. Now the same customers are both online and offline, so smart retailers will be in both places too. There is no such thing as channel conflict when a retailer has this attitude – it’s just a case of finding workable solutions which incentivise individual outlets to support the omnichannel strategy.

  2. Chris Morley says:

    Omnichannel and multichannel are all just catch phrases of the retail revolution – traditional retail does have some issues such as real estate, stock on hand, wages, zoning laws that can hinder advancement. And as others have pointed out the pureplay businesses are all desperate to replicate the in-store experiences and offerings that can’t occur online – hence why Amazon may open actual bricks and mortar stores in the future.
    The retail revolution is being driven by the golden rule as Tim mentioned ‘be where the customer is’ – and the customer has more power and ability than ever before – and retailers need to evolve to this ability.
    Marc Anderson painted a bleak picture of the traditional retailers plight and whilst I agree that retailers will look different – they can survive and even thrive! Retail today isn’t the same as it was 20 years ago – I doubt Myer, DJ’s et al will look the same in 20 years time. Traditional retailers have the chance to evolve with the revolution; the French had a pretty brutal way of dealing with those not involved with the revolution – consumers can do the same to businesses who don’t evolve.
    At the end of the day its all retail

  3. Wendy Small says:

    Omnichannel is the new retail model. I think what Marc Andreessen is really trying to say is that the traditional retail model is facing extinction..not the physical stores. There is definately a cost shift in the structure of traditional retail. This has come about beause of new technology. For example the occupancy to sales ratio in Australia is now far too high. Landlords need to realise this and start changing their model also. The seach for “stores” on mobile is still one of the most highly searched items when customers are on the go. Stores will never be extinct in my opinion. Online needs a physical presence and offline needs a online presence. As Nick Molnar from Iceonline states above these are not mutually exclusive channels. However, tradtional retails must review their fixed cost ratio and change their straegies to adapt into a more sustainable model. The current model is simply no longer viable in such a competivie environment.

  4. Luke Fossett says:

    I don’t think it’s a matter of traditional bricks and mortar retail being dead or not, although what I do see is that traditional form of retail being restrictive to the cutting edge ideas we are seeing in Australia. eCommerce gives a start up flexibility when it comes to launching without the overhead costs associated with property and inventory, and allows then to digitally market to their consumers in a way that creates initial demand.

  5. Stuart says:

    Retail will take a while to slow in Australia, retailers still aren’t embracing online – maybe because there’s not the same sort of volume than in the USA. I know plenty of high street retailers that have an online presence that doesn’t even generate the same revenue as 1 store in a busy retail outlet.

  6. Elli says:

    I own a boutique Australian contemporary jewellery store. I have noticed a gradual decline in sales in the past 2 years. 1 year ago I set up a website and online store and though I haven’t had any direct online sales I have noticed a trend of people researching online and then coming into the store to purchase or make further enquiries. I am considering moving from a street store front model with a supplementary website to a website with off-street showroom that is open 3-4 days/week. Wondering if there is any research about how customers feel about shopping in this way. When you have a street front store people feel more comfortable coming in and wandering around without the pressure of buying. They can just have an experience. When you are off the street there may be a pressure to only come in if you want to buy something…any feedback would be great! Thanks for the article, very interesting

    1. Tom says:

      As a successful small ‘pureply’ online retailerI tried this 3-years ago when I opened up an off-street showroom that online shoppers could visit. I found that by and large, they didn’t. And some of those that tried couldn’t find me. I gave up after 2-years (when my rent option came up) and moved to a well located on-street site. The result was an instant improvement in visitors from online and of course an influx of walk-ins. My customers now include people who would ‘never shop online’ as well as those who do. I have found that many people who research online still need to touch, feel and engage. Sales have improved dramatically and proved to me that sticking to just one channel just doesn’t make sense to the small business selling high value goods. I can now complete the buying circle of research, see the product and get the reassurance of personal engagement with the vendor.

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