We have a system. It works.
Every weekend there is a guy on the corner of our busiest intersection enthusiastically waving a sign that reads, “Store Closing: Everything Must Go.” It has become a neighborhood joke because the store uses this as a marketing ploy. It never actually closes. But it advertises every weekend like this to create urgency.
Only this time it’s different. On this particular weekend, a dozen people are waving the same kinds of signs. And an entire block on the right-hand side of the road has these signs on their storefronts.
These stores are actually closing.
It’s a common sight across the United States, with some even writing the obituary for retail in 2017. The Atlantic is going as far as to call it an apocalypse.
Need proof? The Limited started 2017 by closing all 250 of its stores (though its name was a dead giveaway it wouldn’t last forever). Recently, popular Michael Kors announced it will close 100 to 125 stores over the next two years. Macy’s (68), Sears (150), and JC Penney (138) also are all closing a large number of stores. Wet Seal went bankrupt. American Apparel won’t be made great again. Even CVS will close 70 locations in 2017.
So can we conclude that retail is dead? Far from it. It’s evolving. Wayfair’s sales were up over 50% last year at $3.4 billion. People don’t suddenly want less stuff. The tipping point between physical and online retailing has been reached.
Let’s take a quick look at how we got here: From the 1950s to the early 1990s, people went to department stores and large malls for the convenience of having everything in one place. The store owners knew you by name and could recommend items because they knew you. Slowly that convenience and personalization eroded as the system got bigger. Big-box retail became endless aisles of items, priced as low as possible with very little customer experience.
The internet, based on the Amazon model, began to fill the void of personalization. Data and algorithms remembered your purchases and made recommendations. Early adopters began growing the online retail industry. But through the 2000s it didn’t grow as much as analysts might have expected.
That’s because changing people’s shopping habits and their cultural norms takes time. Shopping is/was a communal experience for many, a habit built in since they were young. The mall wasn’t just a place to buy, but a destination filled with happy memories.
Now, 20-plus years into online shopping, we have entire generations who didn’t grow up with a need to shop in large groups. Their purchasing decisions are made solely on convenience and personalization.
“There has been so much fragmentation in retail that the sheer volume and diversity of choices has become overwhelming for the average consumer. This state of affairs has created an emerging need for the retailer as curator,” said Katia Beauchamp, co-founder and CEO of Birchbox.
She went on to tell me her predictions for the future of retail based on data collection and passive feedback.
“The consumers of tomorrow will be giving retailers a great deal of information about their preferences and needs. In return, retailers will be able to offer consumers an intimate, tailored experience that they don’t have to self-navigate,” Beauchamp said. “Because consumers will be giving constant passive feedback about their preferences, this will be true even for ‘non-passion’ categories. Massive businesses will be created to serve these passive consumers.”
Beauchamp is right. According to a new Accenture study, one in three U.S. consumers would use a “surprise me" delivery subscription for fashion, such as Stitch Fix, where an expert personally selects items they might like based on previous purchases. Thirty-six percent say they’d use a rental subscription for clothing, doing so for a special occasion and returning it after the event instead of purchasing it outright.
Most thriving businesses of the 2010s have used low overhead, data-driven social advertising, and the sharing economy to grow. Curation is a model that will grow heavily as the decade closes.
Josh Kent, CEO of SunFrog, built a $100 million business in three years by creating an 80,000-person global affiliate network. In plain speak, he allowed 80,000 people to create online clothing shops with zero overhead. His company fits the entrepreneurs of today.
“Why take unnecessary risk?” Kent told me. “The entrepreneurs of yesterday would have bootstrapped and slowly built a large retail footprint. But that takes time, investment, infrastructure. This generation grew up seeing people become billionaires seemingly overnight. They value speed, getting to market, and know that they have options that carry zero risk where they can reach global customers rather than just those that live in their geographical footprint.”
Kent makes a compelling case about why entrepreneurs are not creating new brick-and-mortar giants. The juice isn’t worth the squeeze.
For those retail giants that still exist, let me reiterate: Retail isn’t dead. NYC’s STORY, which built a brick and mortar that changes tenants every six weeks like art exhibits, might be leading a new retail revolution based on a sense of urgency. People still want and need things. There is still a way to use technology, in-store experience, and personalization to deliver a positive alternative to online retail, which is not without flaws. Have you ever tried to return a rug you bought online? I have.
But I’ll save that story for part two.