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Physical Stores: Albatross or Asset?

In an era when e-commerce is cannibalizing sales and all of the development energy seems to be going toward cool tools like AI, machine learning and VR, where does that leave physical stores?

Among the chatter about online conversions, improved search and mobile everything at the ShopTalk retail conference this week, a few retailers spoke about brick-and-mortar. And not as an afterthought or an albatross like many other panelists (either explicitly or implicitly) but as assets.

While there’s no doubt that the country is overstored—there are more than 12 malls per million Americans—that doesn’t mean physical retail stores are slated for extinction. It does mean, however, that evolution is inevitable and necessary.

More is more

Without change, these locations will become an expense. With that in mind, Kohl’s, Target, Hudson’s Bay Company and West Elm are finding new ways to mine value out of brick-and-mortar.

Both Target and Kohl’s say having lots of stores gives them a big advantage.

Both are investing in the space, hoping to transform them into destinations that are relevant to the way consumers shop today.

“In this new era of retail, stores need to be multidimensional showrooms. They need to be destinations for services, and more and more we’re positioning our stores to function as guest-facing hubs in a smart network,” Brian Cornell, Target chairman and CEO, said, describing the retail embodiment of a Swiss Army knife. “Think of stores in the future as a hyper-local, shoppable distribution center.”

For Kohl’s, it’s all about providing convenience, a word typically associated with online sales.

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“We have a lot of stores so I won’t deny the fact that it’s the hand we have to play. But it’s a pretty amazing asset at the same time,” said Kevin Mansell, chairman, CEO and president of Kohl’s. “We have 70 million customers and the vast majority shop in our stores.”

Kohl’s’ 1,200 store fleet means 85 percent of Americans live within 15 miles of the store. And Target operates 1,800 stores, putting it within 4 miles of 50 percent of Americans.

Proximity is important because even as shoppers turn to the web, they still rely on physical stores—and in some cases, the store is a critical part of the online success.

Both retailers say e-commerce order fulfillment in stores is up, totaling a third of transactions in Kohl’s and reaching 80 percent in Target during the holidays. That’s not including returns, which are also a leading reason why online shoppers find themselves in store.

To keep that omnichannel connection, Kohl’s is equipping sales associates with better tools to ship orders quickly and facilitate buy online, pick up in store.

“Order pick up reduces fulfillment costs and drives incremental trips,” Cornell said, noting other advantages of the store as a fulfillment center. “It means we can ship orders twice as fast as we can from traditional [distribution centers]. And cutting hundreds of miles out of the operation dramatically reduces our costs. It also means the inventory across the network is all for sale. Not just what’s sitting in our warehouse.”

Target has been tinkering with its next generation store prototype for a year, and it is ready to roll it out in Houston, Texas.

“Think about separate entrances—one that leads with inspiration in our home and apparel category and one that’s all about ease by food and beverage, order pickup and essentials right there,” he described. “Expect lots of flexibility, open sight lines, discovery moments throughout the store.”

Bridging the gap

Discovery and service are two things often missing in the online experience.

Hudson’s Bay Company has realized that the store is more than just the four walls. It’s the people that make the connection and facilitate relationships and trust through service.

“As brick and mortar retailers, one of the biggest assets is a store associate that knows the brands, knows the trends, that lives every day by providing style advice and providing personalized services to the customers,” said Anu Penmetcha, vice president of omnichannel and chief of staff digital at Hudson’s Bay Company.

Online, on the other hand, shoppers are basically left to their own devices (literally). And even as machine learning and AI promise personalized experiences, there’s no topping the human interaction.

With this realization, the company now allows shoppers to connect directly with store associates from their local Saks Fifth Avenue and Lord & Taylor stores online to request shopping help and advice. Each participating associate manages their own digital storefront, which they can use to provide information like trends. Consumers receive personal—not personalized—attention. The associates get credit for these online purchases, which they love. And HBC, as a whole, benefits too.

“We love it because we’ve taken our highest traffic channel, which is digital, and married that with our highest converted channel, which is our store associate,” Penmetcha said.

Dreaming big

From using the four walls more effectively to thinking completely outside the retail box, West Elm has plans to launch additional physical locations but they won’t be stores—at least not in the traditional sense.

Taking the consolidation of overstored chains as a cautionary tale, the home furnishings retailer is cautious about opening new doors but it will expand operations with a chain of boutique hotels next year.

“We’re looking for new channels to engage customers,” said Peter Fowler, vice president of hospitality and workspace at West Elm. “We have a really strong social platform but to create something that’s a 360 degree, 24-hour experience for someone is something that’s pretty incredible.”

These new locations are places where fans can indulge in the company’s aesthetic, and West Elm can expand the brand to new potential converts. Each location will be specialized to its locale, the first of which is slated for Detroit. And yes, a lot of what guests encounter will be for sale.

“We are looking for a much more broad approach to what we can do with customers,” Fowler explained. “It’s not just about selling. It’s now a lifestyle aspect to what we’re doing.”