CLICKS TO BRICKS: IS AMAZON’S RETAIL STORE A TIPPING POINT FOR OMNI-CHANNEL RETAILING?
Last October, Amazon grabbed headlines by leasing space in New York City, with reports swirling that it would be the online behemoth’s first retail store as well as a hub for its same day delivery service, giving NYC shoppers instant gratification, an advantage that brick-and-mortar stores still have over e-commerce.
Amazon has denied the rumors, saying the space will be primarily office space. However, Amazon has since dipped its toe into the brick-and-mortar pond with its first-ever brick-and-mortar store, on the campus of Purdue University in Indiana. That's not all -- this March Amazon filed a patent for a new type of retail store, which is similar to the everyday brick-and-mortar stores, but allows shoppers to pick up their goods without having to visit a cashier. As the person exits the store, the Amazon shopper will be identified and automatically charged for the items.
Analysts are praising the move, noting that Amazon can’t stay profitable as a “pure play” online retailer. In his DLD Conference talk on “The Four Horsemen: Amazon/Apple/Facebook/Google,” Trademark Analyst and L2 Founder Scott Galloway details how the only retailers that will survive the coming years will be physical retailers that embrace digital and omni-channel retailing, and online retailers growing a physical presence.
Amazon is just the latest e-retailer to try a pilot location. Online eyeglass retailer Warby Parker opened retail locations and showrooms in 11 cities, men’s footwear brand Jack Erwin opened its first store in TriBeCa, and Microsoft has opened locations throughout the country to showcase its new products. Other online retailers opening stores include Bonobos, Rent the Runway, and Plated.
The flip side of this equation is also occurring, as was the case last August when Nordstrom paid $350 million to acquire online menswear service Trunk Club. The service handpicks menswear to send to customers so they can try on clothes at their leisure in their own home, and decide which pieces to purchase. Nordstrom will fold the service into its operating model, and also build showrooms in select locations. Grocery chain Kroger purchased online healthy-living brand Vitacost.com, and PetSmart acquired Pet360 to diversify its e-commerce presence.
The flurries of other online retailers opening physical locations are likely a result of Apple’s uncanny success with its showrooms -- who wouldn't try to follow in those footsteps? Apple is the king of sales per square foot with $4,650 in sales per square foot in the 2013 fiscal year. It’s apparent that Apple has designed a store that’s totally dedicated to customer service and experience.
That an online giant like Amazon may launch a physical retail footprint cements the fact that omni-channel retailing is here to stay. Amazon is the top e-commerce business in the country, followed by Staples (which already has a large brick-and-mortar footprint). More interestingly, a retail location would prove that the company is wrestling with how to continue brand growth and interact with consumers without a physical location. Shoppers want the ability to buy a product online, pick it up in the store, or have their local store ship it to their house, if they so choose.
Peter Sachse, Macy’s Chief Stores Officer, recently touted the success of this method of shopping. At the 2014 Citi Global Consumer Conference, he stated, “Every one of the 655 moving stores are now fulfillment centers. So we can ship from all the direct-to-consumer warehouses, as well as all the stores. We are in the process of rolling out buy online, pick up in store, and have received just tremendous results.” This type of program is currently in 45 Macy’s stores and has proved popular among consumers, surpassing executives’ expectations.
Buying online and returning in person is also proving a boost to retailers’ bottom lines, with some retailers boasting an 18 percent increase in sales when shoppers return items to a store. According to the recent ICSC report “Shopping Centers: America’s First and Foremost Marketplace,” omni-channel shoppers purchase items three times more than other shoppers and spend an average of three-and-a-half times more than single-channel shoppers.
Clicks to bricks
Here at Kimco we recognize that smaller e-retailers might want to grow their footprint by opening their first brick-and-mortar store, but may not know how to go about it. That’s why we created the Clicks to Bricks program. This program offers qualified online retailers one year of free rent if they open a store in one of our 700+ shopping centers in 39 states.
To help ease the transition into a physical retail location, we connect the retailers with a personal business counselor who will assist in site selection and make sure that they are located in the best shopping center for their business, taking into account tenant mix and surrounding household demographics. The counselor will also advise on how to build out the chosen space to suit the retailer’s business and inventory. After the first year, retailers can choose to exercise a four-year lease extension option.
Overall, while brick-and-mortar retailers and landlords have been wary of letting in e-retailers, it’s becoming apparent that having a physical space benefits shoppers by allowing them to see and interact with products in person. Expanding into physical stores is a strong and strategic way for online retailers to grow their brand. Shopping centers are evolving and we hope our Clicks to Bricks program helps other retailers take the next step into omni-channel retailing.