Message to retailers: Become tech brands

Physical retail outlets aren't going extinct, but they will have to adopt new technologies to make their stores a must-visit in a hyper-competitive environment, say experts.

A Sears men's department. (Image via the retailer's media page).
A Sears men's department. (Image via the retailer's media page).

With sales sagging and layoffs and store closures dominating the headlines, classic brick-and-mortar retailers such as Sears, Macy’s and Gap must take a page from automotive brands and turn themselves into technology innovators, say retail communications pros.

Experts are pessimistic about how the public views traditional retail outlets. They say these legacy brands are seen by most consumers as slow-moving corporations being outpaced by more agile and forward-thinking digital-native retailers and online auction sites, subscription-box services, and specialty stores.

"Most big retailers are going through a ton of hurt and transition as they try to manage a reduction to a smaller fleet of stores and invest in a lot more digital interaction. It hasn't been easy for them to keep up," says Jim Okamura, managing partner of Okamura Consulting, whose clients have included Neiman Marcus, Crate and Barrel, and Gap.

Many department and large-format retailers experienced a difficult holiday quarter, despite an overall increase in holiday spending versus a year before. The National Retail Federation reported a 4% boost in retail sales in November and December versus 2015 to $658.3 billion, exceeding its forecast of 3.6%. However, that number includes $122.9 billion in online sales, which were up 12.5% over the prior year.

Yet the sales increase only tells part of the story. Macy’s, a 100-year-old department store, has said it plans to close about 100 of its 870 stores this year. Sears upped the number of closures scheduled for early 2017 to 150. Even Target reported disappointing results on the brick-and-mortar side over the holiday period.

In contrast, online players achieved stronger numbers. EBay, for example, reported a 3.1% rise in revenue in the fourth quarter. According to a third-party firm, Amazon, which does not disclose sales data, dominated holiday sales thanks to a flurry of late online gift buying.

The store closings and staff cuts depict "a bleak outlook" for the future of legacy retailers, says Okamura. Yet he believes they can point to the future.

"They can say, ‘Look, we’re going through some changes, we know you’ve changed, and so we’re changing to better serve you and are investing in mobile and digital tools,’" says Okamura. "They need to state that and reinforce that to consumers."

In its store-closing announcement, Macy’s noted that the locations being shut down are cash-flow-positive, but it is reducing its retail footprint to make other investments. 

"We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand," said Macy’s president Jeff Gennette in a statement issued at the time. "We decided to close a larger number stores proactively so we can invest in a winning customer experience on our most productive and highest-potential locations, as well as invest in growth sooner and more aggressively in digital and mobile."

Experts say retailers need to talk about their embrace of technology. The adoption of a stronger digital and mobile identity is imperative, not just because that's how more consumers are shopping. Many coveted and emerging fashion brands want to be associated with retailers with strong social presences, says Ali Grant, founder of Be Social, which represents beauty, lifestyle, and fashion brands.

"Social and influencer-driven e-retailers such as Revolve attract brand interest in part because of their digital popularity. Revolve has close to 1.5 million followers on Instagram alone," she says. "Being a brand in their portfolio not only equates to sales, but visibility and positive alignment."

Grant points to Nordstrom as a retail brand that has effectively used digital to bring customers inside its doors, saying it "does a tremendous job of driving people in-store and to ecommerce with an approach that includes both active social media marketing and influencer relations."

In-store experience
The NRF’s Big Show in New York this month included an expanded exhibit devoted to the future of retailing called "Innovation Lab." This year, it featured in-store robots called Shelfie and Tally that can manage stock, freeing up salespeople to focus on customer service, as well as 3D printers that visualize a home’s design. The event also featured augmented and virtual reality showrooms that allowed consumers to view and interact with products that can be difficult or expensive to stock.

In a speech at the trade show, NRF president and CEO Matthew Shay said retailers need to keep pace by integrating technologies and customer preferences into their shopping experience, saying, "We’re already experiencing the impact of heightened consumer expectations." He noted that consumers want products quickly, adding, "New solutions and supply-chain efficiencies are starting to make same-day delivery a reality."

"[The event] was pretty overwhelming—aisles and aisle of innovative technologies specifically for retail," says Jennifer Teitler, EVP at M Booth, whose retail clients include Godiva and JC Penney. "The larger traditional retailers had a wait-and-see approach to how tech might affect the industry, but the future is now. We’ve passed the tipping point. They aren’t trends anymore; they are absolutely the way these companies have to evolve."

She advises retailers to make changes instead of talking about them.

"The industry needs more action and less talk," says Teitler. "And just by default, consumers will start to change their perception of the brand based on their actions around evolving their customer service experience and in-store experience."

She adds that technology can transform in-store experiences. However, she dispels the idea that brick and mortar is dead, noting that Amazon has opened physical bookstores and even tested grocery stores because it sees the value of physical locations.

"But how Amazon is bringing its experience to life in the store is completely different than the experience of walking into a traditional department store with merchandise," she explains. "As big retail brands reduce their number of stores, they also have to think about the evolution of the store experience. It may be, for instance, an editing down of endless [stock keeping units], instead providing the consumer with the retailer’s point of view through limited merchandise and showrooms."

Brian Murphy, VP at Coyne PR, which works with Toys "R" Us, compares the challenge facing retailers to that burdening the movie theater business. In response to home-entertainment systems, more screens, and on-demand viewing platforms such as Netflix and Hulu, theater chains have added 3D and 4D theatres, VIP theatres with waiter service, and IMAX screens.

"Retailers need to make the traditional footprint more of a destination, so that people want to go because, for instance, it has a cool showroom or some other difference they can't get from the online experience," he says. "The store is not going to go away, but they’re going to have to give consumers a reason to come to their place of business beyond just the merchandise."

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