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Declining Store Traffic Growing Concern for US Retailers

Retail CEOs have been blaming sales shortfalls in recent months on declines in store foot traffic, with some even claiming that consumers, increasingly distracted by the 24/7 lure of online shopping, are starting to avoid the mall entirely.

Is the decline in traffic really happening? Yes, according to San Jose, CA-based analytics firm RetailNext. Its data measuring the behavior of hundreds of millions of shoppers show that in each of the first five months of this retail fiscal year, store traffic has, in fact, dropped compared to the same month in 2013. In May and June, foot traffic in U.S. stores dropped 8 percent and 10.8%, respectively.

Chitra Balasubramanian, head of the firm’s Insights practice, said that despite the drop in brick-and-mortar traffic, they’ve seen some positive trends in spending. “Sales per shopper has actually gone up,” she said, referring to the average transaction size increase of 5.5% that the firm measured in June. Balasubramanian attributed this stronger purchase behavior to the fact that shoppers are tending to “pre-shop” online before they ever leave home, making their actual store trip more productive.

As to whether the Internet has attracted vast numbers of shoppers away from the mall, Andres Mendoza-Pena, a principal at consulting firm AT Kearney, feels that it is an exaggeration to say that there is a major shift underway toward online stores as the shopping channel of choice: “When you look at total retail sales,” said Pena, “Approximately ten percent is made online. Of that ten percent, half is accounted for by multichannel retailers [those with physical and online stores]. So online-only players account for just 5 percent of sales.”

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Mike Moriarty, a partner in AT Kearney’s Consumer Industries and Retail Practice, added: “The Internet does not do anything to reduce consumer demand–in fact, to the extent it increases social cohesion among friends and family it probably increases consumer demand…but not palpably. The internet makes things easier, like having a light bulb in the room.  Consumers have always been discerning and demanding, from the swankiest boutique in Paris to the slouchiest wet market in Marrakesh. And retailers have always listened and responded.  The internet is a new, sharp tool. For both sides.”

The AT Kearney believes that although actual traffic does go up and down, it might be for reasons other than lack of interest in shopping. People are shopping less frequently because they’re too busy with increasing family and work commitments, or they’re trying to cut down trips to stores because of steep gas prices. However, when they do shop, they do their discovery online and then go to the mall to buy.

Moriarty feels that there has been too much focus on foot traffic at the expense of productivity. “Traffic really isn’t the issue, and retailers understand this.  Traffic is nice if you want busy, but Harrod’s knows you only really need 100 shoppers a day, not the other 123,456,789 people who traipse through the place and ruin the carpet.

“While traffic has been all over the place, sales per square foot at premium shopping malls have been increasing consistently every year for the last 20 years.  The best malls and the best free standing stores continue to exceed the market’s expectations for productivity.”

Is store traffic as important today as in years past? According to Pena: “Traffic was a key metric 20 years ago when everything happened within the 4 walls of the store. It is time to start changing the way retailers assess the value of stores by looking at the total sales and performance in a store’s market to understand the omni-channel performance.”

Moriarty pointed out that some innovative men’s apparel retailers are re-creating their stores as “guideposts” where men can go and check their size and see the goods, but then go home and order stuff online. Sort of the happy side to show-rooming.”

And those higher-spending consumers are not making up for the no-shows, as evidenced RetailNext’s report that retail sales have declined in each of the past five months compared to the same month in 2013.

However, Balasubramanian points out, “Traffic equals opportunity. Retailers should take advantage of store visits with loyalty programs, heightened customer service, and a great in-store experience to create a long-lasting relationship with that customer to ensure repeat visits.”