While everyone is looking at the soaring rate at which online sales continue to climb, retail brokerage JLL is taking a deeper dive to try to unearth the truths and trends about consumer intent and retail’s future.
In the firm’s “Bagged or Boxed?” report, it looks at how consumers decide how they’ll shop and how those decisions are likely to affect specific categories going forward.
“Shoppers each have a unique value system for determining how they buy and where they shop,” said Naveen Jaggi, president of JLL. “We found that shoppers are motivated to go either in-store or hop online based on how much time they have, if they need to touch the goods and how much money are they willing to spend. The varying degrees of these values against different product types will determine how resistant they are to consolidation and migration online.”
Shoppers’ Choice: Online vs In-Store
With everything from pickup towers to curbside deliveries, retailers are racing to find ways to make shopping more convenient in deference to time-strapped consumers. But the ways in which shoppers try to save time may vary. For some, ordering online is the ultimate convenience, while others may want to head to a store where the curated assortment focuses them and allows them to purchase quicker than the seemingly endless scroll online.
Another differentiator determining whether shoppers will visit a site over a shop is a tactile one. For instance, three quarters of shoppers are happy to order books and electronics online because they’re commodities that aren’t as personalized as apparel, which requires them to get the right fit and feel. When consumers do head to stores, more than 50 percent say its because they need to handle the products or try them out. Forty-one percent don’t trust the descriptions and images online and want to see the goods for themselves.
As retailers already know, price shopping is all too easy online. That’s one reason why consumers opt for the Web over stores but for some, it’s just for the price comparisons not the purchases. For those shoppers—which account for 25 percent of consumers—the price of shipping often tips the scales in favor of a trip to the store.
Retailers’ Future: Online vs In-Store
With each type of purchase, consumers must balance their time, money and need to experience their purchases against one another, meaning types of stores and services will migrate online more fully than others. For instance, price and experiences are expected to keep off-price retail firmly in the brick-and-mortar category. Add to that the fact that these stores skew heavily to two categories consumers say they prefer to shop online.
“E-commerce penetration is a negligible 1.0 percent in this retail category, while same-store sales growth in 2016 was 3.4 percent,” JLL reports.
Dollar stores is another category that’s firmly rooted in the physical space, the report said. The reason is simple: matching the low costs online is almost impossible, though newer entrants like Hollar and Brandless are giving it a try.
On the other end of the spectrum, you have commodities that are all but disappearing from physical stores. Office supply stores are contracting because the product isn’t differentiated and there’s no experience or discounts to speak of. Similarly, electronics stores that were content to simply be traditional store fronts like HH Gregg and RadioShack have shuttered, as shoppers have moved to e-commerce or retailers that provide an added value in the form of experiences or education.
“Same-store sales in the category fell 5.9 percent in 2016, while e-commerce penetration is 9.5 percent.” JLL said. “Best Buy is a standout in this category; the retailer has restructured its stores by offering a high-touch educational experience along with an effective buy online, pick up in-store program.”
Ah, but what about the middle? Those guys for whom consumers shop in-store and online, depending on their mood, what they’re looking for or how urgent their need?
For them, it’s a more challenging environment.
“In the next three years, the retail categories to watch are the ones caught in the middle between having a physical space and shifting to e-commerce,” concluded James Cook, director of retail research at JLL, adding they’ll need to “elevate their customer experiences in-store while also building a robust online strategy.”
One of the main categories stuck in the middle is apparel. With 76 percent of consumers reporting they still prefer to buy clothes in store, it’s not likely physical locations will shutter altogether, but just looking at the number of bankruptcies in this space recently underscores that there are clearly too many stores out there. The trend in department store spending illustrates this perfectly: same store sales fell by 4.5% in 2016, while e-commerce picked up by 13.3%.
But while the number of stores for larger chains shrink, new retailers that cut their teeth online are flocking into physical spaces looking for greater customer engagement.
“As omni-channel strategies become more sophisticated and effective, the function of stores will shift from simply enabling transactions, to actively marketing the brand and interacting with consumers in ways that simply cannot be replicated online,” JLL said.