What Is Driving Challenges in Brick-and-Mortar Retail?

Content Manager

In recent weeks and months, major retailers have been filing for bankruptcy, closing stores and slashing jobs. These are companies that many thought had staying power, having had a physical presence long before the ecommerce boom was a blip on the radar.

How badly has ecommerce made a dent in store sales? Are people just not shopping in malls and stores like they used to? What is happening here? Ecommerce represents an estimated 10%-12% of retail sales, but that ratio is bound to change as online sales growth continues to outstrip stores.

This week we heard Aeropostale filed for bankruptcy and is closing 113 stores.

Last week, Sports Authority announced it was calling it quits, and not come out of bankruptcy and sell off all of its holdings.

Last month, Vestis Retail Group announced it was shutting down all 47 Sports Chalet stores, after owning it for two years. Vestis Retail Group also owns Eastern Mountain Sports, PacSun and Bob’s Stores.

Also last month, Nordstrom announced it would slash 350-400 corporate and regional support jobs.  And world-renowned luxury tableware, engagement jewelry and wedding registry resource Michael C. Fina transitioned to an online-only retailer, shuttering its 500 Park Ave. location.

In January, Macy’s announced a “major restructuring” with thousands of jobs slashed. In February, Kohl’s announced it had plans to close 18 underperforming stores. Kohl’s is now testing smaller format stores, two off-aisle test stores and 12 outlet stores.

Some key factors we should look at:

  • The Amazon effect: It offers lower prices than most retailers, and Prime membership promises two-day delivery for “free” – with its $99 a year subscription – among many other perks (videos, music, cloud photo storage, etc.). If customers can’t find what they’re looking for from a major retailer, they’re headed to Amazon. Or increasingly, their product search begins there.
  • Omnichannel: With so many ways for people to shop, the need for a large physical footprint is decreasing. Retailers are paying attention these days to how people are shopping and pivoting to adjust to the new reality. Consumers shop from the comfort of their homes, cars, or pretty much anywhere on their mobile devices.
  • Shrinking store sales: Quarterly reports show same-store sales flat to down, while ecommerce is often growing 25%-30% a year. Ecommerce has moved from a marginal percentage 5-10 years ago to a meaningful 10%-12% of retail, resulting in less store traffic and more locations closing. If it continues to grow at this pace, especially when millennials turn 30 and have cash to spend, it could easily reach 25%-45% of retail sales, changing everything for companies heavy on brick-and-mortar assets.
  • It’s the economy: Are people even shopping as much these days? Or are they more likely saving for big-ticket items like homes and cars, or saving and paying down debt? I know as a millennial, many of my peers are focused on buying homes and saving for their children’s future, and not as keen as they once were on going to the nearest mall.

Daniela Forte is Multichannel Merchant’s Associate Editor

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