Why it’s not the end of America’s brick and mortar retail stores–Sharmila C. Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

From The Hill

Even in a digital age, brick and mortar retailers have distinct advantages over e-commerce. But the other day, I watched as two stores totally blew those advantages. In a bookstore, the customer waiting in line before me asked for a particular book, only to be told it was out of stock. “We can order it for you,” the customer was told. But she shook her head. “I have books on order. I wanted something to read now.” The second came as I returned an item to a large department store chain, a routine matter — or so I thought. Thirty frustrating minutes later, after being shuttled between employees like a ping-pong ball, I left, wondering why something so simple had taken so long.

Both these incidents demonstrate how the woes facing brick and mortar retailers go far beyond price competition from online shopping. The bookstore I visited had missed its advantage of instant gratification. The department store lost its advantage of convenience and the human touch. An impersonal trip to the post office to mail a return was better by comparison.

My shopping experience underscores three primary factors that underlie the plight of current brick and mortar retailers: retreat from core competence, failure to view online counterparts through a complementary lens, and loss of focus on customer experience. Unfortunately, the results of these missteps are apparent.

Distressed retailers are closing stores at a record pace. According to the Wall Street Journal, more than 2,800 retail locations have closed just this year, including hundreds of locations being shut down by national chains such as Payless ShoeSource and RadioShack. The outlook for major department stores is grim. Macy’s said it will close 68 of its 870 stores nationwide, affecting 10,000 employees, citing changing consumer behavior. Sears Holding Corp. will close 108 Kmarts.

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How traditional retailers could lure you back this holiday season – Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

From Fortune

It’s beginning to look a lot like Christmas everywhere you go. Take a look in the five-and-ten—and while you’re at it, look at all the other store windows advertising spectacular sales, holiday discounts, and clearance extravaganzas. The markdowns are as widespread as they are substantial. This year on Black Friday, for instance, the average advertised discount across 17 major retail categories was 45%, according to the price-tracking firm Market Track.

As ecommerce continues to eat away at traditional retail, brick-and-mortar stores seem to believe that the best way to compete is to slash their prices. This tactic might be understandable if, say, the country were in a deep recession. But GDP has been growing for eight consecutive yearsthe unemployment rate is at a 17-year low, wage growth is strengthening, and the stock market is in the middle of a nine-year bull run.

In this economy, it is not necessary for retailers to pander to bargain hunters—nor is it wise. Sure, some holiday shoppers may be lured to the shops in search of a great deal, but if that’s what they’re looking for, they can easily go online. Brick-and-mortar stores cannot match the price-comparing capabilities the Internet offers.

Instead of competing on price, stores should invest to entice customers. By focusing on their core competencies—one-on-one, human-to-human customer service, sensory-stimulating in-store experiences, and promise of instant gratification—traditional stores have an opportunity to excel where websites falter.

There’s good news and bad news for retailers this year. On a positive note, consumer confidence is strong and customers are feeling flush. According to data from the National Retail Federation, sales for November and December are expected to clock in at about $682 billion, which would make 2017 the strongest holiday season since 2014. But on the flip side, department stores as a shopping destination placed a distant third behind the Internet and mass merchants, according to Deloitte’s annual holiday retail survey.

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The best retailers combine bricks and clicks — Richard Schmalensee

MIT Sloan Professor Richard Schmalensee

MIT Sloan Professor Richard Schmalensee

From Harvard Business Review

Retail profits are plummeting. Stores are closing. Malls are emptying. The depressing stories just keep coming. Reading the Macy’s, Nordstrom, and Target earnings announcements is about as uplifting as a tour of an intensive care unit. The Internet is apparently taking down yet another industry. Brick and mortar stores seem to be going the way of the yellow pages. Sure enough, the Census Bureau just released data showing that online retail sales surged 15.2 percent between the first quarter of 2015 and the first quarter of 2016.

But before you dump all of your retail stocks, there are more facts you should consider. Looking only at that 15.2 percent “surge” would be misleading. It was an increase was on a small base of 6.9 percent. Even when a tiny number grows by a large percentage terms, it is often still tiny.

More than 20 years after the internet was opened to commerce, the Census Bureau tells us that brick and mortar sales accounted for 92.3 percent of retail sales in the first quarter of 2016. Their data show that only 0.8 percent of retail sales shifted from offline to online between the beginning of 2015 and 2016.

So, despite all the talk about drone deliveries to your doorstep, all the retail execs expressing angst over consumers going online, and even a Presidential candidate exclaiming that Amazon has a “huge antitrust problem,” the Census data suggest that physical retail is thriving. Of course, the shuttered stores, depressed execs, and tanking stocks suggest otherwise. What’s the real story?

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