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.

Read More »

Artificial Intelligence Will Soon Shop For You, But Is That A Good Thing? – Renée Richardson Gosline

MIT Sloan Prof. Renée Richardson Gosline

From WBUR’s Cognoscenti

We’ve all had bad department store shopping experiences. The aggressively cheerful salesperson. The unforgiving glare of the dressing room. The overstuffed racks of garments where none of the sizes fit, and the ones that do, don’t come in your favorite color.

The advent of online shopping has helped consumers gain more control over their shopping experiences. But digital purchases are often a gamble, too. You scroll through endless webpages to find the perfect boots only to discover your size is on back order for two months. And the items you purchase frequently disappoint: The jacket that looked so elegant on the website’s model looks awkward on your frame.

Retail prognosticators claim that artificial intelligence and other new technologies will offer shoppers salvation. In the not-so-distant future, armies of robots using retina recognition software (à la “Minority Report”) will tailor their sales pitches to your preferences and price point. Voice-activated assistants and digital mannequins will help you to find just the right fit. Shopping from home will be a breeze too: Virtual reality headsets will allow you to “try on” clothes and sample items ranging from a tube of lipstick to a tennis racket. Two-day shipping? How antiquated. In the future, your package will arrive via drones in less than two hours. It may sound like science fiction but, in fact, many stores are testing these innovations and have plans to roll them out to customers.

Read More »

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?

Read More »

Shopping online probably won’t save you money — Alberto Cavallo

MIT Sloan Asst. Prof. Alberto Cavallo

MIT Sloan Assistant Professor Alberto Cavallo

From MarketWatch

If you’re a bargain hunter, it’s common to spend time researching prices before making purchases. After all, you wouldn’t want to buy a washing machine at your local Lowes store only to find a lower price offered on Lowes.com. However, I found in a recent study that retailers’ offline and online prices are the same more than 70% of the time.

That’s good news for consumers, who don’t need to worry about price comparisons when deciding whether to use a retailer’s website or visit a local store. They can choose instead based on other factors like convenience and product availability.

This finding is important for economists too. Online prices are increasingly being used in measurement and research applications, including studies of pricing behaviors, price stickiness, international relative prices, and exchange-rate dynamics. Many national statistical offices are even considering the use of online data in official consumer price Indexes.

Read More »

Using optimization to improve bundle recommendations and pricing – Georgia Perakis

MIT Sloan Prof. Georgia Perakis

MIT Sloan Professor Georgia Perakis

From The Huffington Post

When you shop online, it is common for retailers to offer additional items in a bundle to try to increase sales. For instance, if you are buying towels, the seller may offer matching washcloths. Or if you are buying an airline ticket, you may be asked if you also want to purchase inflight Wifi and premium seating. If this “bundle” is appealing to you in terms of the items offered and the price, you might be motivated to buy it all. If not, the items or services are left on the table, eventually getting marked down even more.

With the online market projected to grow 57% from 2013 to 2018, retailers have the potential to significantly increase their profits through bundling. This strategy can be beneficial for customers too if they are presented with desirable items they otherwise may have missed — and at better prices. The key is creating an attractive enough bundle to incentivize the buyer to click “add to cart.”

Read More »