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Clicks vs Bricks

01 Nov 2016

Gabe Lengua of PKF O’Connor Davies looks at the options available to retailers in the US market

In recent years, and especially this past year, we have seen the consumer purchase more goods online and less at department stores.  Sales at non-store retailers (i.e. Amazon) rose over 10% in the first half of 2016 versus a year earlier.  Meanwhile, department store sales fell approximately 4% through the first six months of the year, their weakest showing since the financial crisis.  The disparity between store and non-store sales was the greatest in 16 years, according to the Commerce Department.  So how should retailers deal with this trend?

Let’s first discuss what retailers are up against.  Overall growth in the US is tepid, at best.  As measured by growth, this has been the worst economic recovery after a recession since WW II.  Also, since 2000, there has been a notable shift in US spending away from goods and toward services.  And while the consumer is still spending, items such as health care and student debt are taking up a larger piece of the pie, leaving less for discretionary spending.  Add to that a more discerning buyer and the shift to online purchases, and there are a number of challenges to deal with.

Adapting to change in any industry is one of the keys to success.  Wal-Mart just completed its $3.3 billion acquisition of Jet.com.  This will expand their online presence, broaden the assortment of products and offer a simpler shopping experience.  Others are dealing with the online trend as well.  Macy’s recently announced that it would close 100 stores and focus more on e-commerce.  Coach and Michael Kors are reducing how much they will sell to department stores and Kohl’s plans to test smaller store formats.  These are all sound ways to deal with the current environment.

But does this mean the end of the brick and mortar store?  I can remember back in 2000 having many conversations with smart people who said in ten years Amazon would put Wal-Mart out of business.  Well, it’s been 16 years and while Wal-Mart has its challenges, it is certainly still in business.  The point is people tend to overreact to trends.  There is still a place for the brick and mortar store but retailers need to be smart about it.  They need to make visiting an experience – fancy displays, excellent personal service and a more interactive experience will get people away from their computers and out to the stores.  If you build it (smartly) – they will come.

For more information on how PKF O’Connor Davies can add value through the retail insight, please contact Gabe at glengua@pkfod.com

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