The next generation of stores

The retail sector in Australia continues to reverberate with profit downgrades and restructuring including DJ’s and Solomon Lew’s Premier Retail Group last week.

However, the steps being taken by all major retailers send a clear message that things are changing for the better. Retailers are shaking out poor performing stores and categories and embracing online as another part of their offering.

Almost all key department stores in the world use online as a time saving service for their store shoppers. Shoppers can order online and collect in-store to save time. Or use the online store as an extended home delivery or gift giving service.

House of Fraser and Nordstrom really don’t mind how you shop their business – just as long as you do.

But over in pure online land, Amazon is making some interesting statements and investments in bricks and mortar, but not in the high street.

Online land isn’t very big in relation to store shopping. In the US, online retailing, even with the massive growth we have seen, still only accounts for 6.3% of total retail sales. It’s still tiny in the overall picture.

However, Amazon is investing huge amounts of money – $900 million in 2011 alone – expanding its geographical footprint into the UK, creating new jobs on the way, but more importantly on commissioning two huge warehouse projects.

The first warehouse project will be created using servers and clouds for receiving and analysing huge amounts of shopper data.

The second warehouse project will be built using concrete and steel and will be used for receiving and despatching the increasing number of products they are selling online.

It is quite telling that this significant investment generated only a slight decline in profit, due to the fact that Amazon has achieved such strong revenue and profit base after a decade of brand building, which created a benchmark in online shopping.

It’s important to understand why Amazon, like all major retailers, is investing so much money on infrastructure to support the growth of online sales. According to a report from the research arm of US investment bank PiperJaffray, online sales will grow to be 30% of the total US retail market within the next decade.

I’ll just pause and think about the impact that would have on us all.

If PiperJaffray is correct, by 2021 one third of all items we currently buy in a store will be purchased via the internet. In light of that prediction, you can clearly understand why Amazon is making these investments in data and product warehousing.

So, what will this enormous predicted shift to online mean for retail stores? Do we really believe that there will be one third less shops in the high street? Or one third fewer malls in the ‘burbs? Personally, I don’t.

I do however believe that the stores will be smaller, less cluttered, carry less stock, but offer more choice, and be a more vibrant showcase of how products, taste, feel, smell, sound and work.

Today there is so much space taken up with stock rooms, yet not enough space to showcase wide ranges of items. And we shoppers do love choice, service and a great price.

By 2015, the mix of a new generation of innovative and entertaining store formats, supported by eponymous online choice and productivity, will deliver yet another steep change in our shopping lives.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.