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Another nail in the coffin of big box stores?

May 10, 2012 by Chris Petersen — Owner, IMS

You don't need to look very far to see another article on the growth of online retailing. The phenomenon of online shopping is truly worldwide. While Amazon grabs the headlines with record profits in the west, Alibaba dominates China. Consumers are voting. The biggest threat to traditional bricks and mortar stores is not the loss of just sales, but the ability to drive future traffic. Two recent tests offer a crystal ball of new challenges traditional big box stores will face in maintaining consumer traffic.

Historical store traffic drivers not working as well today

Retail has historically been linked to the ability to attract consumers to stores. The very essence of "shopping" is based on attracting consumers to come look around stores. Without consumer foot traffic in store, there is no opportunity to use merchandising and staff to convert the consumer visit to a sale.

Traditionally, retailers have used a number of levers to drive store traffic:

• Ads and promotions
• Pricing ... every day and promotional
• Assortment ... broad selection as well as unique items
• Merchandising ... displays

Today, it's virtually impossible for the bricks and mortar stores to win on price. The large e-tailers like Amazon have literally millions of items in stock, as well as unique items, all at attractive prices promoted with bundles. So, if the online service is as good as the Amazon experience, why even get in the car to make the trek a big box store?

Pure e-tailers have been very dependent upon plastic

Western consumers don't give it much thought, but if you want to buy anything on Amazon or eBay it takes "plastic." The most typical online purchase in the US is with a credit card. Even with PayPal, you must have at least a banking account in order to configure an electronic payment.

What if you don't have a credit card? What if your culture doesn't necessarily trust banks ... or consumers prefer to pay in cash? India is one example where a majority of consumers still pay in cash. In my recent visit to the Ukraine, I also found online purchases there are limited because a majority of consumers don't use credit cards. The Ukrainian retailers have in fact turned that to an advantage by using in store financing to drive both consumer traffic and store purchases.

A new Walmart strategy ... C.O.D. for online purchases

Over the years, we have posted a number times about Walmart. While they are the "Whale of Retail" they are not lazy or stupid! Walmart woke up and realized they are in a dog fight with Amazon for core customers. In order to survive, Walmart is aggressively becoming an e-tailer, as well as multi-channel retailer who is creative in how to use online purchases to drive traffic to its stores.

So, how does a big box retailer compete with Amazon? Walmart recently began to offer C.O.D. (Cash on Delivery) for internet purchases. Walmart realized that many of its core consumers are "unbanked", or don't use credit cards. Consider these stats for Walmart consumers:

• The bulk of in store transactions are cash (cash via debit)
• 81% of those without a bank account have internet access
• 66+% of those who are "unbanked" said they would use cash to pay for online purchases if it were available

Go check out Walmart.com. There now is an option to pay by cash at the store. Upon receiving cash payment, the item(s) are shipped. So, here is the big box retailer, Walmart, very creatively using a version of C.O.D. to maintain, and even create store traffic. But, what if other pure e-tailers now start using this strategy ... and take it a step further to enable pickup at sites that are not even a traditional store?

Amazing Amazon ... now testing delivery at 7-11 Stores

If there is one thing constant about retail, it's change. And, the old adage has never been truer: "Even if you are on the right track, you had better keep moving or you'll get run over." Amazon is not only moving, but continues to be a remarkable innovator, as evidenced by their latest test.

Amazon has installed "pickup lockers" in some local 7-11 stores. Why would you go to a 7-11 to pick up their merchandise when you can just conveniently have it shipped to your home? In many cases, you may not know the exact day or time the merchandise will arrive. A locker will keep it safe from the weather and thieves. By using pin numbers transmitted via online your transaction, Amazon not only enables security, it could offer payment by cash at the 7-11 stores just like Walmart.

Think about the implications for big box retailers. By putting different style lockers in a variety of convenient locations, Amazon could enable pickup of different kinds of products that are difficult to ship today, including food and perishables.

If this works at a 7-11, then couldn't it work at a Starbucks, FedEx/Kinkos or a host of local shops? Amazon does need to build stores to offer pickup sites that are closer and more convenient than a big box retailer. And what a boon for the small local shop to have the Amazon traffic!

With localized options will consumers need a big store?

Right now, the crystal ball would suggest that big bricks and mortar stores maybe the dinosaurs that won't survive. They are expensive to operate, and no longer the lowest price. Today, the pure e-tailers now have the competitive advantages to:

• Offer a broader assortment
• Offer almost any niche, specialized product
• Beat bricks and mortar on price
• Offer the convenience of shopping from anywhere 24/7/365
• Offer the ability to pay cash C.O.D.
• Enable local pickup from secure lockers in thousands of locations

The days of consumers making long distance trips to big box stores may be numbered. Let's face it ... online shopping is the low cost, convenient option, and you the consumer are not turning back. The real question is will you make the trip back to the big box store ... and how often?

Think about it ... why drive to the big box store for anything when you can just go down the street to your Amazon locker at your 7-11 and pick up your packages when you get your slushy!

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