ANALYSIS: Apparel retailers balance bricks and clicks
Consumers have increasingly begun embracing the ease and convenience of making purchases online
Where once retailers invested in e-commerce as an extension of their physical stores, an acceleration in shopping online means they are now seeking a sustainable balance between the two - in addition to adapting their supply chains in order not to lose out.
Consumers are increasingly embracing the ease and convenience of making purchases online.
According to data from analytics firm RetailNext, US store traffic dropped in the first five months of this year, compared to last. In May and June in particular, foot traffic fell 8% and 10.8%, respectively.
And mobile shopping is one medium that is helping to accelerate this trend. M-commerce sales worldwide were estimated to have topped EUR100bn (US$133.4m) last year, yStats.com revealed, as the increasing penetration of smartphones and tablet computers fuels its spread.
Euromonitor retail analyst Mylan Nguyen tells just-style that shopping online offers a number of advantages.
"It allows consumers to find the best price, to shop at any time and from anywhere and to buy brands that are not available in their local market."
Maxim Group analyst Rick Snyder also believes that as mall and store traffic continues to fall, retailers will increasingly be forced to exploit new distribution channels to reach consumers.
"We expect this shift in distribution channels to result in a massive rationalisation of brick and mortar stores," he noted.
And indeed, this appears to already be happening for many apparel retailers who are finding they cannot afford the real estate and personnel costs that go along with supporting hundreds of unprofitable locations.
US clothing and footwear business Wolverine Worldwide last month revealed plans to close around 140 stores as part of a strategic realignment designed to improve its bottom line.
The company said it was "paramount" it evolves to meet and exceed the demands of the new consumer.
"Consumers have embraced the ease and convenience of online shopping, a trend that has only accelerated for the last several quarters," said Wolverine CEO Blake Krueger. "Today's consumers demand a sophisticated omni-channel shopping experience and have the available technology to make informed shopping and purchasing decisions."
Abercrombie & Fitch also announced plans to shut as many as 70 stores in the US this year as their leases expire, and a total of 180 stores by 2015.
Additionally, Aeropostale is the in the midst of closing 40 to 50 stores this year, and plans to shutter some 175 stores in total over the next few years.
And earlier this year, struggling retailer JC Penney said it would close 33 underperforming stores across the country as part of a turnaround plan.
Retailers are also facing competition from the rapid rise of pure online players like Amazon, America's largest e-commerce operation, which has turned the entire retail industry on its head.
Finding the right balance
As digital commerce continues to grow, many companies are setting objectives aimed at re-balancing sales between bricks and clicks.
Snyder believes the retailers with omni-channel capability are the ones gaining market share.
"Initiatives, such as ship from store, buy online, and pick up in-store are making these retailers a more attractive option for consumers. Offering consumers the choice of shopping online or in-store will likely limit traffic declines by allowing consumers a choice among distribution channels."
Indeed, big-box players like Wal-Mart are successfully evolving their businesses to embrace this new reality of multi-channel retail. Around 50% of orders placed on Walmart.com are picked up in a store.
"The most successful apparel retailers are also making investments in mobile commerce platforms to cater to the shopping habits of millennial consumers and capture market share," Snyder says. "Gap, Kohl's, Nordstrom and Urban Outfitters are several companies that have made smart investments in this area."
Back in 2011, apparel giant Gap announced plans to shutter 21% of its US store base. Since then it has transformed the business, and as it completes its downsizing process, store operations are only likely to become even more efficient and its margins greater.
Supply chain needs
Gap, in particular, has remained committed to continuous investment in its digital and omni-channel capabilities.
This has included ship from store, find in store, reserve in store, and order in store, designed to drive customer engagement and loyalty, as well as gain new customers.
But like Gap, many retailers have had to adapt their supply chains in order to deliver on these evolving consumer demands and reduce the risk of losing sales.
As Sonia Syngal, EVP of global supply chain at Gap said in April: "World class supply chains are no longer just execution engines. Today's best-in-class supply chains drive real value through flexibility and speed in order to respond to customer demand."
The company has set its sights on growing operating margin beyond 13%, and key to this is building a more responsive supply chain.
Euromonitor's Nguyen tells just-style: "In order to sustain an online offer, fashion retailers have to adapt their logistics and supply chain capabilities as the range of products available online tend to be larger than in store.
"Fashion retailers also increase their warehouses and develop their supply chain as a way to reach new markets where they are not present yet. Delivery is key to consumers so it is important for fashion retailers to have a supply chain that offers access to a wide range of delivery options, including click-and-collect in stores."
A number of pure-players, however, such as Nasty Gal and Bonobos, are still opening physical stores, highlighting the fact that stores also serve as important marketing platforms, enabling consumers to fully immerse themselves in a brand in a way that is not possible online, he explains.
"While online apparel sales are seeing much stronger growth than apparel stores, fashion retailers understand the importance of offering bricks and mortar stores to consumers. Stores are therefore far from closing down completely as the attraction of going shopping offline still exists: consumers can experience instant gratification of immediate purchase, they can see and try the products before buying and avoid paying for shipping."
Euromonitor expects to see the total number of apparel and footwear stores globally to increase over the 2013-2018 period, with all regions forecast to see growth except Australasia.
"In-store and online shopping are complementary and the importance of an omni-channel presence to bridge both worlds will continue to grow."
Indeed, new research backs up the theory that physical stores remain key to omnichannel retailing.
Consulting firm AT Kearney, surveyed 2,500 US shoppers about their shopping preferences and behaviours for its Omnichannel Shopping Preferences Study 'On Solid Ground: Brick-and-Mortar Is the Foundation of Omnichannel Retailing'.
The study found that stores play a crucial role in online purchases, as two-thirds of customers purchasing online use a physical store before or after the transaction. The store makes a significant contribution to converting the sale, even though the transaction is eventually registered online.
Shelley Kohan, VP of Consulting, RetailNext, shares this view, suggesting shops will remain at the heart of retail for the foreseeable future.
"Online shopping will never fully replace brick and mortar. People crave social interaction and instant gratification and the big screen of a physical store delivers, regardless of channel surfing."
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