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Will Physical Stores Survive the Retail Revolution?

Walmart, Amazon to Determine Industry's Future

Feb 27, 2015 1:02 PM   By Jeff Miller
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RAPAPORT...  Harvard Business School faculty members Rajiv Lal and José Alvarez, along with former school research associate Dan Greenberg, published Retail Revolution: Will Your Brick-and-Mortar Store Survive, a book that suggested how U.S. brick-and-mortar stores must reinvent themselves to survive.

"Based on our extensive research, there is an urgent need for rethinking the stores and taking immediate action, without which many chains will quickly enter zombie territory," said Lal, who is the Stanley Roth Sr. professor of retailing at Harvard Business School.

While the authors agree that no single solution fits all retailers, they believe the direction of the U.S. marketplace will be determined by Walmart and, with entirely different outcomes depending upon which company succeeds at driving future trends.

The authors predicted the end is near for a "one-stop-shop" format; there will be even more detailed price transparency, which will ultimately drive prices lower, and disruptive times ahead will impact the one-size-fits-all retail store format.  They also rejected  retail as a monolithic industry by introducing  a framework that brick-and-mortar retailers should use to determine their future strategy in the face of ecommerce threats.

In the evolution of U.S. retail, the authors portend that if Amazon wins the battle over Walmart, the future focus of all retail sales will be driven by consumer convenience. Shoppers will rarely leave their home or office to visit stores and so much volume will be sucked out of brick-and-mortar that large numbers of retail operations will simply collapse, the authors noted.  But this scenario is most detrimental to low-income consumers, they contended.

Should a price-focused Walmart theme emerge to lead the future of retail, however, the authors posit that Walmart will use its supermarkets and dollar stores as ecommerce pickup points, leading retailers to  cluster their stores around these collection points to benefit from cross-traffic. In other words, after years of competing with Walmart, retailers may find the behemoth to be a savior.

Nonetheless, the book identified three challenges that ecommerce poses for brick-and-mortar retailers: such as fundamental shifts in core categories to digital content and distribution; clear advantages in cost, inventory and selection; and  the need to find ways to build more store defenses and leverage online activities to drive more traffic to brick-and-mortar operations.

Physical stores present three possible options in the future retail landscape, according to the authors. Retailers can "wind down" operations as part of  a process that rationalizes the store base to maximize profit, or "shrink and transform the box" to reduce the cost of large stores and focus on the unique value of a brand.  A third solution,  "enhance the value of the box,"  provides in-store services and education, merchandise private-label products, bundles products for use in do-it-yourself projects and utilizing online tools to direct traffic to the more experiential brick-and-mortar channel, according to the authors' advice.

As two of those solutions involve scaling back a vast number of physical stores, the authors concluded that such a shift in the retail landscape will have enormous consequences  for the U.S. economy. As a less labor-intensive online marketplace grows, overall retail employment will decrease, which, as it accounts for  11 percent of all jobs, narrows the path to career opportunities for a large group of U.S. workers.

In addition, increased numbers of blighted, empty stores and a shrinking property tax base for municipalities would further strain government budgets. The authors also stated that with an increased ecommerce market share, driven in large part by the emergence of  millennials, there is a potential negative impact on  the gross domestic product (GDP),  27 percent of which is driven by retail sales.

The book's second author, Alvarez, is a senior lecturer of business administration at Harvard Business School and  previously served as the president and CEO of Stop & Shop/Giant-Landover, a subsidiary of Royal Ahold. The author other, Greenberg, is a 2012 graduate of Harvard Business School and was previously  a consultant at The Lucas Group, where he advised retailers, wholesalers and distributors on new market development, growth strategies and supply chain optimization.


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Tags: book, consulting, ecommerce, Harvard business school, Jeff Miller, marketplace, retail
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