“The digital tide is hitting all of us, profoundly transforming our everyday lives, and dramatically transforming the way consumers behave and think about brands,” said Nathalie Remy, partner, McKinsey & Co.
In her talk, entitled, “Are fashion stores out of fashion....Or a competitive weapon in the digital age?” Remy spoke about the changing retail landscape. “Even though digital market share is still below 10 percent in most countries, it is gaining ground rapidly,” she said. She cited that 50 percent of French apparel buyers made at least one purchase online in the last six months, and digital apparel sales have multipled tenfold in China in the last two years.
Remy sees two fundamental trends that have put a burden on the future of brick-and-mortar stores. One is that consumer shopping behaviors are changing, and consequently, a great store experience is changing too. Second, “the economics of apparel stores” have been deteriorating for the last few years, “and will most likely continue to do so,” she said. “The question today is whether fashion stores are at risk of becoming completely out of fashion one day,” she said. She believes that the winning fashion players will be those that are capable of reinventing their physical stores and can transform them into competitive weapons.
McKinsey analyzed the purchase decisions of almost 20,000 consumers across three continents and found that their decision-making process is not linear, but rather a circular journey. She said brands and consumers are sharing more content these days, resulting in an explosion of the number of touchpoints. In addition, the development of e-stores and m-stores has changed the role of the store, which can sometimes be a showroom, delivery point, or in some cases, not even visited. “So today’s consumers are going through an integrated path to purchase, where physical and digital touchpoints reinforce each other,” she said. Ironically, she said, some people consider the future of offline is online, but they should actually say that the future of online is offline.
There is no question that today’s consumer has become more demanding. “For the ‘available anytime anywhere’ generation, the bar is rising, especially for the ‘real-life’ experience,” she said. Remy polled consumers on the street in the U.S., France and China, and found that they value technology as long as it adds to the experience, “but fundamentally what they want is a better in-store experience.”
“The three best ranked levers are to better leverage technology in your stores, adjust your portfolio of formats to fit your new multichannel strategy and adapt your supply chain accordingly,” said Remy. She said profitability is the biggest challenge facing brick and mortar stores. For example, in France, the industry average sales per square foot has declined 14 percent in six years; in the U.S., the average sales per square foot have dropped 2 percent, and in China, even though physical apparel sales have grown by almost 80 percent, store productivity has declined by 12 percent. Remy predicts store sales productivity will continue to decline. That’s because market growth will remain low in mature countries and will slow down in most emerging markets. Digital sales will continue to increase and may reach 20 percent market share. In addition, there are so many new malls, outlet centers and department stores being built.
She noted physical stores can play different roles in a multichannel strategy from picking up products to selling to brand building. Stores can serve as delivery points as part of a heavily digital focused distribution strategy. This “Click & Collect” option is being offered by a growing number of retailers. Stores can also be leveraged to offer the most complete brand experience, showcase the full product range and build customer relationships, she said. “People visit these stores not so much to buy, but to look for inspiration, have fun and enjoy social interaction,” said Remy.
She concluded that retailers should consider either significantly reducing their existing footprint or relocating some of their stores to higher potential and less expensive areas. She said a key question is to figure out if you would be ready to reduce your footprint by as much as 20 to 30 percent in some areas.