In recent months, much has been written and discussed regarding the future of retail — in particular, the “Amazon Effect” — with more consumers opting for online shopping over bricks and mortar locations than ever before. While there is no denying that traditional retail outlets have been falling by the wayside in record numbers, I would argue that the Amazon Effect is overblown; an overreaction in comparison to what is actually occurring in the marketplace. Counterintuitive? Absolutely. Off base? Founded on what we are seeing and working on across the country, absolutely not.
Many retailers, in fact, are thriving and growing by identifying a niche and subscribing to a business and customer model that renders them, in essence, “internet proof.” Such retailers are providing products, services and overall experiences that differ from those that can be obtained online. Case in point: Discounters. Dollar General, for example, is planning to open 900 new stores this year (for the second consecutive year) located largely in rural areas. The retail strategy is clear — provide low-cost offerings to moderate- to lower-income individuals not willing to pay a $99 annual Amazon Prime membership fee and who do their shopping on or immediately after payday. Equally important, the inventory of such discount retailers is ever changing; shoppers repeatedly visit the store in order to see what new offerings are available at any given time. Five Below, ALDI, and Ollie’s Bargain Outlet are also expanding for much the same reason.
Ditto for T.J. Maxx, Marshalls, and Forever 21 in the low-cost apparel sector. Once again, a wide-range of discount clothing options, combined with inventory turns four times faster than department stores, produce repeat traffic. With T.J. Maxx and its brethren, shoppers do not go in with a shopping agenda, they go in for the thrill of the bargain hunt.
Also seeing significant growth in comparable store sales, Amazon be-damned, are the home improvement stores. From nails to windows, Lowe’s, Home Depot and the like continue to attract DIYers for everything under-one-roof along with in-person project design and consulting services. With most consumers recently experiencing more after-tax income in their paychecks and a strong housing market, expect the positive sales growth in the home improvement sector to continue in the near term.
In the food market, old standbys who have been struggling of late are finding, with careful marketing, they can go home again. Applebee’s, originally built on low-cost dining and promotions such as “2 for $20 value meals,” made a $75 million bet on wood-fired grills to boost lagging sales in mid-2016 with the goal of attracting a more youthful and affluent customer. In abandoning its upscale transformation and closing up to 135 stores approximately 12 months later, Applebee’s acknowledged that trying to capture a more upscale market at the expense of the core audience that helped the restaurant chain previously flourish is a task too big and at a cost too great. And so, it is back to basics for the restaurant chain.
This year will be an interesting time for physical store retailers to monitor the wild world of retail and to be ever mindful of consumer preferences and buying patterns in order to stay a step (or three) in front of the big bad “net.”
Matthew Mason, managing director at Conway MacKenzie, has experience with large retail and office assets, including enclosed regional malls, multi-state portfolios, and open-air lifestyle centers throughout the country.
