Canada: Lessons From The Consumer Products And Retail Summit: Are Bricks And Mortar Stores Still Relevant?

In follow up to McCarthy Tetrault's 6th Annual Consumer Products and Retail Summit held on February 25, 2016, the Consumer & Retail Advisor Blog editor team is publishing a series of posts elaborating on the top takeaway tips from the Summit.

We begin with a post on lessons learned regarding the ongoing relevance of bricks and mortar stores, courtesy of our guest authors Mirella Pisciuneri and Katherine Forbes from Richter:

In 2015, the retail industry was plagued with bad news and disappointing earnings. Many retailers closed their doors in Canada, including MEXX, Jacob, Target and Future Shop; and others restructured: Tommy Hilfiger, Laura and American Apparel, to name a few. While different factors accounted for these closures, one factor is the current demographic shift, which is affecting all consumer-facing businesses. Several sources indicate that baby boomers, while representing a large share of consumer spending, are shifting their spending priorities toward travel and recreation, and buying less apparel, housewares and furniture1. Millennials are helping drive the shift to online shopping – evidenced by an increase in internet retail sales of 20% during the holiday season (while retail sales saw a 2% increase for the same timeframe)2. Additionally, traffic to stores is decreasing overall3.

Do these factors signal the end of "bricks and mortar" stores?

The short answer is no – yet, the staying power of the traditional store is becoming more and more vulnerable. Even as we are now firmly entrenched in the digital age, there is still a place for bricks and mortar stores; however the traditional model as we typically knew it, is no longer adequate. Retailers need to shift their strategies in order to survive.

To bring customers into their stores, we're now seeing the need for retailers to do more than just stock goods for purchase. Many brands that are thriving in this retail environment are doing so because they are taking an "omni-channel", strategic approach: combining the strengths of e-commerce and traditional stores to create brand loyalty that is necessary for survival. With increased competition and a wide variety of products available online, customers now have many alternatives to meet their shopping needs, yet in many cases, digital still falls short in creating a true customer experience, and this is where physical stores can shine. An innovative and effective approach to integrating the physical presence with online convenience that a number of retailers are testing or providing is providing online shoppers with the option to pick-up their purchases in store shortly after ordering, thus presenting reasons to stay and shop while in-store. Other examples include a menswear store that was originally solely online offers a barber shop in its store to increase return visits; and in the U.S., a surviving Barnes & Noble bookstore near a college campus placed a cosmetic counter at the centre of the store to target the multiple needs of its customers.

From Richter's perspective, it seems that largely, Canadian retailers have been somewhat slow to adapt in this space, but are starting to see the value in doing so. There are a few brands that are executing omni-channel well, strengthening brand presence and awareness – whether online or in-store – and blurring the line between online and traditional stores, giving customers the sense that their favourite brand is more easily accessible. In apparel, Aritzia, Dynamite/Garage and Lululemon have anecdotally generated successful followings as a result of their ability to execute an omni-channel strategy. All have websites and in-store experiences that work seamlessly when it comes to viewing and then purchasing products. For example, Dynamite customers can choose clothing items online then present their mobile devices to a sales associate in store, who then pulls their choices for the customer to try on.

Brands are also going above and beyond in new and unique ways to entice store visitors. As pointed out by Jacques Nantel in a recent article, one retailer recently negotiated with its landlord, the West Edmonton Mall, to allow its customers to test its kayaks in the mall's pool! Other retailers, as he notes, may even offer fridge space in certain dressing rooms to allow customers to test out its winter outerwear onsite. These are unique examples of retailers thinking innovatively; however innovation doesn't have to mean expensive or "out there" initiatives. A much simpler and cost-effective tactic comes from a grocery chain, adding recipes at the front of each aisle to help customers simplify their lives, which in turn, also boosted sales of the featured products, as a result.

These examples run the spectrum from the complex and even revolutionary, to simple yet effective strategies, but all encourage customers into the physical store space. Physical stores help create a presence and tailor more personal shopping experiences for consumers. What's more, physical stores still remain an integral way to showcase products: as much as they are the end point of sale, these stores are also a crucial asset serving as living billboards to attract customers and showcase new products. So to get rid of physical bricks and mortar stores in the immediate future would be shortsighted.

A bright side in this situation is that retailers aren't facing these struggles alone. Also wanting to increase foot traffic, shopping centres are renting spaces to non-traditional tenants such as upscale restaurants, cinemas, ice skating rinks and other diversions.

While online retailing is here to stay, the best option to ensure success as a retailer today is to combine the strengths of online offerings with physical stores, and approach new strategies with open, innovative thinking.

Richter compiles a "Weekly Retail Sales Summary" which provides further insights into the sales and comparative rates of leading retailers. To sign up to receive this newsletter, click here.

Mirella Pisciuneri is a partner with Richter Advisory Group, based in Montreal. Her extensive experience in insolvency and restructuring, litigation support, mergers and acquisitions and analysis of operating performance and benchmarking has helped clients in a variety of different sectors.

Katherine Forbes is a vice president with Richter Advisory Group, based in Toronto. She has been involved in numerous complex engagements in the consumer products, distribution, women's apparel and other retail industries for both private and public companies. She specializes in financial advisory, insolvency consulting, and cash flow forecasting.

Richter is a financial advisory firm with offices in Montreal, Toronto, and Chicago. Founded in 1926, the firm offers a breadth of services including accounting and assurance, tax, and wealth management, as well as organizational restructuring and insolvency, business valuation, corporate finance, litigation support, risk management and forensic accounting.

*Based on takeaway one from Mirella and Katherine's presentation:

E-commerce is here to stay and is key to success, but only as part of a strategy combined with 'bricks & mortar' to create a customer experience


1 This is a conclusion gathered from several sources indicating how BBs account for a large portion of consumers and are shifting their spending habits

2 "Online shopping in Canada jumped 20 percent during holiday period, according to Mastercard survey." The London Free Press, 19 January 2016.

3 Falling traffic to malls, consumer debt fuel retail upheaval: Reitmans." Global News, 2 April 2015.

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