The Retail Store of the Future

NEW YORK ( MainStreet) -- The Internet killed the music business, ruined the newspaper industry and has effectively brought the publishing world to its knees, and for years there has been speculation it would do the same to bricks-and-mortar retail stores, as consumers began to flock online for their shopping needs.

These fears reached a fever pitch in recent months as such major retailers as Blockbuster and Borders, once thought to be powerhouses in the industry, have been forced into bankruptcy largely due to competition they faced from online services including Netflix and Amazon. But even with these setbacks, rumors of the death of the bricks-and-mortar store may be vastly overstated.

Apple Store
Apple is an example of retailer that has made its stores more of a destination and less of an errand -- a model experts say more bricks-and-mortar retailers should copy to compete with online sales.

"Way back when the Internet first started up, lots of people were calling me asking what we will do with all the empty retail stores," said Mike Gatti, executive director of the Retail Advertising and Marketing Association, a division of the National Retail Federation. More than a decade since the first major retailers set up shop online, bricks-and-mortar stores are still here, and many continue to thrive.

That doesn't mean it's business as usual. Each year, more and more consumers venture online to do their shopping, lured by websites and smartphone apps that make it easier than ever before to spot deals, compare prices, research products and ultimately make a purchase while on the go or from the comfort of their own home. Last year online sales increased by nearly 10% from 2009, far outpacing the retail industry's overall growth.

Just because more people shop online, though, doesn't mean they'll stop shopping at stores completely. Indeed, for most retail sectors, a physical store can serve a fundamentally different function, giving consumers the ability to see, taste and touch the products in a way that is impossible online. The challenge for retailers in the future, industry analysts say, will be to figure out a way to play up the strengths of the bricks-and-mortar store while incorporating new technology into the experience.

"Everyone is saying the store is dead, but I say long live the store," said Lisa Gomez, a senior manager who studies the retail section at Deloitte, a consulting firm. "The physical store is going to remain central to the shopping experience, but the walls are coming down. Customers are going to want an updated, unique experience in stores, and retailers will need to figure out what exactly they want and how to give it to them."

Already, big and small retailers in the U.S. and abroad are beginning to adapt to changing consumer demands by adopting new technologies to make their stores stand out in the face of online competition.

Many stores such as Staples ( SPLS) and JCPenney ( JCP) have introduced Internet-enabled kiosks to help consumers research products, and Kraft ( KFT) is working on a special kiosk that actually offers customers suggestions about what they should make for their next meal.

Barnes & Noble ( BKS), now the last of the major bookstore chains, has tried to embrace the online world by putting Wi-Fi in all of its stores and encouraging customers with e-readers to sample digital books in the store. And Disney ( DIS), perhaps the most ambitious of all, is overhauling its stores to incorporate interactive video screens and ways to let consumers pay simply by swiping their mobile phone at the register.

"I didn't want to build a store for 2011, I wanted to build a store for 2015 and beyond," said Jim Fielding, president of Disney Stores Worldwide. "The pace of technology changes is speeding up, and we wanted to have a bricks-and-mortar store that embraced how consumers are going to shop in the future."

As striking as these changes may be, they are only the beginning. For physical retail stores to succeed in the future, many will need to undergo a fundamental makeover not just in the technology that they use but in their overall customer service strategy.

The end of 'one size fits all'
The two big words in retail's future will likely be "customer customization." Retailers must begin to tailor products to the demands of individual customers in the same way popular e-commerce sites such as Amazon target customers based on purchase history.

"The 'one size fits all' approach won't work anymore," Deloitte's Gomez said. "Retailers need to determine what will create value for the specific customer."

While bricks-and-mortar stores may not be able to do this quite as easily as a website, they nonetheless have several tools at their disposal. Nigel Fenwick, the vice president and principal analyst at Forrester Research, points to the example of Tesco, a major shopping chain in Europe similar to Wal-Mart that has begun to use loyalty cards to track customers' shopping histories to recommend related products and services.

At the same time, retailers can take advantage of social networks to get a more accurate sense of overall customer feedback and even respond to individual customer demands.

"Retailers are getting closer and closer to one-to-one marketing because of social media," Gatti said. And the closer they get to this reality, the better stores will be able to give each consumer what they really want and keep customers coming back for more.

Smaller, more efficient stores
As stores get better at matching the products they offer to the products their consumers actually want, it will eventually allow many retailers to reduce the size of their stores while remaining equally or even more productive and profitable than with a larger space.

"As stores begin to customize products more, the supply chain will get tighter and quicker, which means they won't need as much inventory or square footage to store that inventory," Gomez said.

At first blush, the idea of shrinking stores may seem like the ultimate sign they are in a weaker position, but experts say bigger isn't always better. A smaller store may not only function more efficiently, but be more attractive to customers.

"For a long time, stores kept getting bigger and bigger, thinking that more products meant more satisfied customers, but the problem is that stores became so big, they were actually hard to navigate," said Raymond Burke, professor of marketing and chairman of Indiana University's Center for Education and Research in Retailing.

In fact, this year, Wal-Mart ( WMT) and Target ( TGT) plan to introduce dozens of smaller stores in cities around the country, customizing the products offered to fit the communities. And if recent history is any judge, once Wal-Mart does something, other retailers tend to follow.

Turning shopping into an event
In the coming decade, the struggle -- and the opportunity -- for many retailers will be to find ways to emphasize the differences between the bricks-and-mortar experience and the online experience.

"Retail is becoming less about stacking boxes high and selling items at the right price and more about building an engaging experience for the customer," said Fenwick, the Forrester analyst. "The store has to add some value to the customer's overall purchase, whether it be through in-store entertainment options or interactions with the staff."

Fenwick points to retailers such as Disney and Apple ( AAPL) that have fashioned their stores to allow consumers to entertain themselves with products, see films and attend events in screening rooms and have access to a knowledgeable staff. If you want to get expertise on an Apple product, you have little choice but to go to the Genius Bar in the store; the Internet just won't cut it. This makes the store itself more of a destination and less of an errand.

Retailers don't necessarily need to invest mountains of money into new technology to turn their stores into a destination. Burke highlights the example of Gallery Furniture, a store based in Houston, that has attracted customers by offering free food, jewelry exhibits, movie screenings and more.

"People will drive for miles to get there because it's a fun place, and the store's inventory turns over much quicker than a typical furniture store," Burke said.

Customer service goes 24/7

It's always been the case that a store can live or die by the quality of its customer service, but the rise of e-commerce options has changed the consumer's expectation of what good service is.

"The expectation of the consumer today is they can buy the product they want at the time they want it and get the information they need whenever they need it," Burke said.

No, that doesn't mean retailers must stay in their shops 24 hours a day, but it does require stores to start thinking outside the box. For starters, more retailers may begin to follow the example of such companies as Best Buy ( BBY), which has launched a special Twitter account called the Twelpforce to answer customer questions and resolve complaints at all hours of the day.

Then there's the example of Ralph Lauren, which has come up with an innovative way to meet customer demands even after store hours. In 2007, the company debuted a touch-screen window at one of its London locations so consumers can literally window shop by browsing through products displayed on the screen and reserving items they want. In this way, customers can keep shopping even after the store's staff has gone home.

One German company is working on a way to make the interactive shop window a feature that can be used at other stores as well.

Focusing more on exclusivity
Ultimately, even if retailers make their bricks-and-mortar stores into exciting destinations and provide quality customer service, all this guarantees is that customers will choose to stop by the store to waste a few minutes before going elsewhere. To get customers to buy in the store rather than look for the same product elsewhere online, stores may need to begin offering items unique to the physical store.

"More than ever before, stores, and the products they sell, must offer consumers a status story," said Henry Mason, head of research and analysis at, a firm that analyzes global consumer trends. This could mean private-label options that aren't available elsewhere, or a jazzed-up version of an existing online product that can only be found in the store. In this way, retailers not only provide an added incentive for consumers to make their way to the store, but any consumer who buys these products becomes a walking advertisement for the bricks-and-mortar store.

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