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.

Meanwhile, online sales have soared in recent years, and this past shopping season was no different. Amazon, perhaps the most prominent digital version of the all-purpose department store, reported it shipped more than one billion items during the past holiday season, making the season the company’s best ever. Nevertheless, online e-commerce in 2016 was still less than 10 percent of all retail.

Reasons for retail closures are, however, complex and can’t be entirely blamed on online competition. Thirty years ago, many retailers rushed to open new stores to take advantage of easy money and consumer-buying sprees. That created overbuilding and a bubble not unlike that of the housing bubble. Overstorage and an influx of off-price chains, as well as the burgeoning online shopping space, led many retailers to be laser focused on price rather than their repertoire of instruments for delivering customer value. Then came the 2008 financial crisis, along with heightened customer anxiety.

Moreover, brick and mortar retailers viewed online shopping with irritation, hoping if they didn’t deal with it, it would go away. They were not only late to the game, but they dealt with the rise of online retail in exactly the wrong way. They cut the very things that contributed to the customer’s store experience, such as instant gratification and the human touch. They went headlong into the arena of price discounts, which eroded their ability to invest in their core competence.

This last holiday season, for example, many brick and mortar retailers slashed prices, assuming that deals — and only deals — could lure back shoppers. Research suggests this may reflect perception, not reality. A recent study by MIT researchers looked at whether buying online versus offline is always cheaper. The answer is no. The website Clark also looked at prices on key items at T.J. Maxx and Amazon and found T.J. Maxx’s prices were often substantially lower than those of the online superstore.

Read the full post at The Hill.

Sharmila C Chatterjee is a Senior Lecturer in Marketing and the Academic Head for the Enterprise Management Track at the MIT Sloan School of Management.

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