Patterns of Occupancy and Digital Integration Are Changing the Role of the Store

Digital transformation is now a worldwide phenomenon, and it's one that's having a global effect on store networks as customer expectations change and the underlying technology matures. In the UK for example, the percentage of internet sales has almost doubled since 2013, going from 10% to 18% in aggregate (and more, in some sectors).

The shift to eCommerce has led to a dramatic rise in physical store closures, with even household names like Marks and Spencer, Debenhams, and Mothercare feeling the pinch. With convenience and a world of choice merely a click away, and direct-to-consumer brands capable of delivering products to the customer within hours, retailers are having to rethink the part that physical outlets play in promoting their survival in this new economic reality.

New Patterns of Occupancy

The 2020 outlook for Bed Bath & Beyond, a US retailer specializing in bath mats, bedsheets, potholders, and other household accessories, gives a telling object lesson. The brand's physical stores are enormous, with some occupying more than 80,000 square feet and displaying around 300,000 items from floor to ceiling.

Bed Bath & Beyond intends to turn 40 of those stores into big empty boxes by March 2020, together with the closure of 20 more outlets from other chains that the brand owns, such as buybuy BABY and Cost Plus World Market.

Company executives say the goal is to strike a better balance between the retailer's brick-and-mortar trade and its digital presence. These moves are symptomatic of a general need for retailers to redefine the role of physical stores in line with digital economics and the digital consumer.

Store performance has traditionally relied on local supply and demand, local catchment areas, and micro-location factors such as unit size or position on the high street. But an analysis by L.E.K. Consulting of the recent store closure programs announced by three major retailers suggests that the relationship between these factors has changed, and that new factors are coming into play.

Criteria such as brand, range, customer experience, and price are gaining in importance. And retailers can no longer define the value of an individual store solely on the profit it generates from within its catchment area. In the age of eCommerce, a physical store plays a part in promoting a brand and boosting its total revenue, through both physical and digital means.

Changing Roles for the Store

With many brands maintaining a presence and inventory that spans both physical and digital channels, the remit of the retail store is expanding. While customers enjoy the convenience of online shopping, the in-store experience can give them value in ways that the internet cannot.

Opportunities to physically sample and get a feel for the items they're weighing up, click and collect schemes, product returns, and direct consultation with human assistants are just some of the value propositions that stores can now provide.

Integrating physical with digital can enable brands to extend a consistent, high-quality experience to consumers across all channels. For instance, the Chinese online retailer Alibaba has opened over 60 stores under the Freshippo brand name, where customers can use an app to scan products, get information about specific items, and pay for their merchandise. The stores also serve as logistics hubs where consumers can enjoy delivery in one hour or less, regardless of whether their order is placed in-store or through the app.

The closure of big box outlets is also giving some retailers opportunities to capitalize on new uses for recently vacated sites, while others are optimizing the usage of existing space for innovative purposes.

Savvy real estate managers are reaping dividends from new occupancy in old department store and shopping mall venues through lifestyle and experiential tenants such as fitness centers, specialist restaurants, and multimedia installations.

Progressive retailers are revitalizing their locations with specialty kiosks or "stores within stores", which allow external partnerships with high-end product suppliers, restaurant owners, and other brands that shake up the mix and provide consumers with an enriched experience in-store. The staging of events, behind-the-scenes tours, or interactive demonstrations are other experiential options that can repurpose physical stores and give customers an engaging reason to visit the site again.

Rethinking the Store Is Key to Survival

As customer expectations and digital technology continue to transform the landscape, physical stores will have to play a role for retailers in engaging new customers, collecting data, building relationships, and acting as fulfillment centers, delivery points, and service providers.

Stores can't do all of this in their traditional form, and retailers will need to adapt and amend their locations to bring them in line with these objectives. The integration of physical and digital will breed new business models, which in turn will require new metrics, Key Performance Indicators, and ways of measuring the store's contribution to the brand.

New roles for the physical store, integrating physical with digital, and the in-store experience are all set to be hot topics at eTail Europe 2020, which takes place from 23 - 24 June, 2020, at the Queen Elizabeth II Conference Centre, London.

Download the agenda today for more information and insights.

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