Op-ed: Rethinking Retail
Words Addy Smith
Wednesday, September 29th, 2010 at 9:59 pm
Author’s Note: This article was written to coincide with the DNC’s Street Retail Survey, which closes Thursday, September 30. Hurry up and share your input.
More important than naming new stores I’d like to see Downtown, it’s vital for regional leaders and the public to understand that retail is in the midst of a radical transformation,
the kind that happens at best every few decades due to larger, macroeconomic trends.
The truth is I don’t know what I want, because I haven’t seen it yet.
Look, a strip mall.
Starting in the 1920s, our systems of transportation shifted. It’s easy to forget that the now-maligned strip mall was, at one time, a novel solution to the automobile and the suburbs it enabled. Before the car, the strip mall was less than impractical–it was unthinkable. As we’ve made other shifts in the ensuing decades, our consumption patterns have changed in major ways.
If you’re asked in 2010 to name five stores that belong on the ground floor of an office tower, chances are “Starbucks” will be among your answers. Starbucks are now so ubiquitous they’ve become passé; but do you remember when your first Starbucks popped up? It was a game-changer, an experience unto itself. That first time in the double doors, past the loungers and up to the mood-lit barista bar… wow. You said to yourself, “I might like to just sit here for a while. I’ll even pay six bucks for the privilege.”
Starbucks was at the forefront of a consumer shift that continues today: away from commodities (“I got a cup of coffee”) and toward experiential uses (“So I was sitting in Starbucks, and…”). Regardless of whether you think their coffee tastes like scorched soccer balls, Starbucks undeniably marked the return of experience-driven “third places”–social gathering places, neither work nor home–that have become increasingly important in our modern lives.
The great question is: what does the next Starbucks-like shift in retail look like?
The answer has already begun taking shape. Despite vast differences, one can look around Granby Street, MacArthur Center or Waterside and find one glaring commonality: a scaling back of the retail environments we’ve become accustomed to. The good news for these places is that they may one day be full again, just not with the uses we currently imagine. Let’s take MacArthur Center for a moment: per square foot, what store would you guess is pulling in the most bank? (Hint: it’s Starbucks all over again – only this time around, it’s called the Apple Store*. Experience trumps commodity.)
The good old mall... What will become of thee?
Why is all this happening? Put simply, it’s because we’ve found a cheaper and more convenient way to get commodities: the Internet. Sorry to be simplistic, but that WWW thing is a a disruptive technology, a game changer only beginning to hit retail in the way we’ll eventually remember. And what will replace it? That question is not fully answered yet, but my hunch is even more toward experiential (particularly shared-experiential and novel-experiential) uses.
The traditional retail winners will be those stores that embrace a blended experience of in-store and online, experience and commodity. Traditional retail isn’t dead or dying–but it is, quickly, morphing into something else. Best Buy lives strong because it is more than a retail outlet: it is a distribution channel and a point-of-sale for transactions that have already taken place via electronic means (or, a deal-closing, touch-and-feel experience that lends credibility to the online sale). You might look at the televisions in-store, but you buy one online… only to have it delivered from the local store.
What this blended-retail approach means for a place like Michael’s, selling specialty arts-and-crafts, is stepping up the in-store touch-and-feel with workshops and craft clubs. Otherwise, my wife will buy the first bag of beads at the store and then, having scanned the barcode with her iPhone, order the next 5 online from a wholesaler. Waste Management’s new Bagster system is another kind of blended sale: you buy the dumpster-sized bag at Home Depot, fill it, and then go online to arrange a pick-up. The best retailers are using the power of the Internet to improve their products and services.
Red Box: A hint of the future of retail.
It’s a very good thing that traditional retail isn’t dead, especially for the hundreds of millions of consumers who haven’t embraced the digital age and mobile living. It may surprise some people to learn that as of July, only 60 million iPhones had been sold (worldwide) and less than 60% of U.S. homes have Internet access. That leaves a whole big bunch of hungry masses yearning to be free, still living with pay-go cell phones and US mail. They very much still need traditional retail.
Neither is the convenience store, selling cigarettes and Red Bull at 2 am, going away–in fact, it might be on the tipping point of a major comeback. Note Walmart’s–and now Target’s–recent, aggressive moves into smaller, neighborhood-scale urban stores. What will be interesting is to see to what extent those businesses are supplemented by automated product delivery systems like RedBox. Now that The Google Age has begun, will it ever again make sense to dispense candy bars, media or pharmaceuticals the “old-fashioned” way?
In his 2005 book The World Is Flat, Thomas Friedman asked us to think about every single job in America from the perspective that if a job function can be outsourced, it likely will be outsourced (or at least tried). Let’s apply the same logic here. To envision the future of shopping, think about any retail function that can be automated or done off-site. Now, think a little harder.
What remain–experiences, not commodities–are the building blocks of a new retail environment. That’s what it will be like.
To complete the Downtown Norfolk Council’s retail survey, click here.
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ABOUT THE WRITER
Addy Smith is a first-time writer, long-time fan of AltDaily. When he’s not building tree houses, light houses or dog houses, his sharp cravats are commanding attention at a pretty cool little company that gives him money just for being himself. His work takes him all over this great country of ours, and occasionally around the world, in search of better mousetraps. A graduate of William & Mary, Addy has lived in Norfolk 5 years. He is against stone throwing, regardless of housing situation.
Other posts by Addy Smith.
Other posts by Addy Smith.
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I like this story. The only way Barnes & Noble has stayed alive is by going hard online vs. Amazon. Their brick and mortar stores provide the experience, giving people a more comfortable and familiar way to browse titles and read books. Their online store provides the depth of catalog, easy ordering, a memory of your past purchases, reader reviews and all the other advantages of the interwebs. The two entities, physical and virtual, complement each other and create a B&N experience greater than the sum of the parts. Of course, Apple does this too. It’s hard to conceive of a retail business these days that doesn’t need a virtual counterpart in order to succeed.
I’m guessing that in the near future the big online retailers that have stayed out of the physical world will start invading the malls, if only to help themselves create a more lasting “user experience.” We’ll probably see mall stores for Zappos, Bluefly, Microsoft, even Amazon, where people can go to experience these retailers in realspace. And that will be a good thing. The challenge will be for smaller local businesses to find a way to balance realspace and virtualspace storefronts, to keep competitive with the giants.
@BC: Great comments, and I hope at the least you’ll copy and paste them to DNC’s retail survey: (http://www.downtownnorfolk.org/html/retailsurvey/dncstreetretail10.htm).
Online retail moving to realspace, what a hat trick that will be. With the synergies B&N has created online and in-store, it’s almost improbable that Amazon wouldn’t try for a physical experience of some kind as its virtual market dominance dw-indles.
FWIW, the company who own B&N and Borders are considering bankrupting the B&N brick-and-mortar operations, and consolidating everything under the B&N name at Borders’ locations.
Too much commercial real estate future liability. It’s what helped kill Circuit City, and why Blockbuster filed for Chapter 11 last week.
I didn’t know that about B&N/Borders, thanks for sharing. After rolling over the college bookstore market I can’t imagine them getting out of retail entirely, but consolidating stores makes a lot of sense. And what will become of the redundant, vacant big boxes?
I originally had a few paragraphs about Netflix/Blockbuster that I cut, I’m glad you bring up BB’s bankruptcy. They’re a good example of where the blended approach failed because they were market followers the entire time. NetFlix stayed ahead of BB with its own blended approach of real+virtual that cuts traditional retail out entirely. Still, NetFlix doesn’t work for a lot of folks. I wonder whether NetFlix will adopt a RedBox model to supplement its other businesses, and if it might just buy BB’s kiosk business rather than building from scratch.
B&N’s school takeover probably isn’t enough to sustain losses at the big box properties. Yes, they make a tidy profit on textbook sales, but….. Undergraduate numbers are likely to decrease here next few years. Damned population trends.
Redbox is a Coinstar operation. I really don’t have a good handle on how well they’re doing. I’m a little hesitant to use them, because I worry about an unsecured vending machine with a card swiper. Probably a silly worry, but it’s there, nonetheless.
I refuse to do business with Netflix. They’re Wall Street darlings because of their subscription model. I don’t watch enough movies to justify it. Skittish investors, who care little about anything other than steady revenue, look at outstanding obligations for retail space, and run away as fast as possible. It’s dumb, but it’s the product of investment managers who have clients nearing retirement, and used to nearly 20% returns y-o-y. There isn’t a supply shortage in oil now. Gold hasn’t become scarce….who do you think is running those prices up?
Netflix are also bigtime popup ad purveyors, despite the fact that most other web advertisers moved on long ago.
I’d just assume pay even less for something I download from iTunes or Amazon. If it’s something I want to keep, I’ll buy it from Amazon.
* The Apple Store comment needs attribution – I’ve lost my source on this. Until attributed please take this “truthy” fact at face value, but with a grain of salt.
@fbSean: Thanks for your comment, though I reached a different finding from the BLS report you linked to.
What role do you see costs and government regulation having on the future of retail, specifically the trend toward blended (online and off) and automated retail? Two examples I’ve heard discussed and would love your opinion on:
1) Online retailers have challenged states on collection of state sales tax. The so-called “Amazon Bill” passed Virginia’s Senate this year but stalled in the tax-averse House of Delegates. Where do you stand on online retailers being taxed with the same methods of brick-and-mortar stores?
2) Current government regulation is a major barrier to entry for automated pharmaceutical dispensaries (now being tested in Ontario and Illinois, among other places). Is this a case of taking the handcuffs off private enterprise, and does that trump potential health risks?
I’ve had a game changing idea for brick and mortar retail stores for a while. I’m sure others have had the same idea, but if I could actually fund implementing it, it would shake things up a bit.
I enjoyed the article, and when I filled out the DNC survey all I could think is, I wouldn’t mind a couple of chain fast food places in downtown Norfolk, and I really don’t care about any retail. I’m just too much of an oddball when it comes to shopping. I don’t shop aimlessly, I’m always after something. And if it’s expensive, I go to craigslist or ebay first.
Yea, you heard me. Bring a five guys and a Chic-fil-a and a taco bell to Granby street.
Also, when I was looking for commercial retail space, and I was running across all the greedy people asking very high rates for these empty stores, I just couldn’t figure it out. I don’t know why any store would bother with a brick and mortar venue. The costs for the real estate are so high, and the audience is so limited, it just doesn’t seem to make a lot of sense. I remember thinking “why on earth at these people paying this rate for floor space, and why aren’t they operating out of a warehouse with a website.”
I think this is sort of coming around, as we will see the values of CRE drop.
Ethan,
Your comment about all the “greedy people asking very high rates for these empty boxes” is somewhat unwarranted.
Sure the rates of 2005 – 2006 are a thing of the past, but that is not how those rates, be them “market rate” or not, are formed.
They are definitely not arbitrary, but pro forma’d to the bank/lender as a prerequisite for the lender to loan the money to develop the center or the building.
The same holds true for the spaces in historic buildings on Granby Street.
Even If you actually knew the slim profit margin (if any) existed with many of these projects, you might ask, why re-develop it at all?
Well its based upon a certain passion to restore historical structures, I guess, as well as trying to recreate a street that had all but died before 10 years ago.
But definitely not “greedy.”