Rash of Retail Closings should spur Brand Manufacturers to Action

A few months ago I did some research on how retail was faring given current eCommerce pressures.  What it revealed was not that astonishing to those of us that live in the eCommerce world, but the rate of change in the brick-and-mortar world was a bit surprising.  It appeared that retail outlets had begun planning to close locations at an alarming rate across many retails sectors including clothing, entertainment, grocery, large retail and others.

The picture became a little clearer when I consolidated the data on retail closings into the graph below:

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What was interesting is that retail categories that had historically been strongest in the brick-and-mortar space were facing some of the largest number of closings, specifically, clothing and entertainment. As I dug into more of why this was happening, it became apparent that the impacts of economic pressures added to the changes in retail buying behavior caused by eCommerce were largely to blame for this trend.

When the news broke in early February that Sears, Target, JC Penney, and Macy’s were closing retail locations, it was a big story. Sears is closing their flagship store in Chicago, for Pete’s sake.  Additionally, Radio Shack announced this week that they would close 500 stores in the very near future.  Because of all this activity, now more than ever, it’s important to consider for any company competing for consumer dollars.

For starters, this doesn’t just affect retailers. This trend changes the entire landscape for anyone interesting in getting goods into the hands of consumers.  Beyond retailers, this includes brand manufacturers and anyone else competing to get eyes on their products. As the brick and mortar retail footprint declines, there is a two-pronged affect on those dependent on that channel: 1) More competition to get shelf space in the limited retail space available, and 2) Less retail space attracts less people.

If you’re a brand manufacturer that is affected by this trend, there are several steps you can take.  If your business hasn’t been focused on this, it’s high time you got started by examining your eCommerce strategy.  In the meantime, here are some ideas to consider for competing in this quickly morphing retail climate:

  • Consider Going Direct To Consumer (DTC): Traditionally, brand manufacturers have been met with the threat of retaliation when talking about direct to consumer activity.  Now that the decline of retail outlets has met the increase in eCommerce, this is less of a threat to brands than it has been historically.
  • Employ Marketplace solutions: eBay and Amazon both offer marketplace solutions and are a cost effective way to test the waters. Consider placing DTC-only products or refurbished products in an online marketplace to gauge the consumers desire to purchase direct from the manufacturer. By the way, research also shows that 60% of consumers begin their purchase cycle at a manufacturers site. Why not capture that activity?
  • Pay attention to User Experience: Just because a brand manufacturer’s potential brick and mortar retail representation is in decline doesn’t mean that the shopping experience is any less important. In fact, it is probably more important as there are fewer opportunities to get consumers focused on your product. For brand manufacturers this means understanding consumer interaction at a different level — specifically online — and how to best represent your product and convert consumer activity to completed sales.

Whatever path is chosen, I would caution about going too big too soon in the DTC market. There are many things to consider that most brand manufacturers may not have on the radar.  Success here is not as simple as putting up a web site or participating in a marketplace. There are business processes and technology changes that may be necessary for most manufacturers:

  • Customer Service: This model moves from supporting a smaller number of large buyers to the converse. Do you have bandwidth and expertise to handle this?
  • Fulfillment: Similar to the above, you would be making more shipments with less items per shipment. Is your order management system suited for this? Is there an order management system? Do you have enough resources to handle the shipping demands?
  • Marketing: Once you begin DTC activities you will begin to collect valuable customer information. How will you market differently now that you have a direct relationship with the consumer? Are you prepared to respond to their demand for more products and heightened customer service? Can you react to social media such as Twitter and Pinterest when things go a little sideways? How can you reach consumers where they “live” — on mobile? Are there resources available in your company with this expertise?
  • Partnering:  I think we’ll also see retailers move to showrooming to take advantage of less square footage and still represent a lot of products. Get creative with retailers and show them how you can help benefit them when a consumer enters their store. Perhaps providing information on consumers that buy direct could benefit a retailer.

There are many ways to enter the DTC market and I’m a firm believer that this should be part of a strategy that includes organization impact assessments for any DTC effort. When thinking about how to counter the affect of diminishing brick-and-mortar stores, think beyond online presence and examine company capabilities and process to you’ll know where to invest to make the journey successful.

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