The Reinvention of Retail: Brick and Mortar will Be Cool Again

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by Gym Tan, Head of China Business Development, The Gymboree Corporation   

We’ve all seen the headlines: “Retail Woes Deepen,” “Department stores are dying,” “Online shopping taking over physical stores,” and so on. The reality is that many brands are indeed closing hundreds of stores. Yet, on the flip side, some retailers are growing—Zara has a 10 percent comparable store growth—and fashion start ups are securing millions in funding.

 

Let’s just note that overall retail spending is still growing steadily. Customers are still spending—just not as much on apparel as before. There’s the recent shift into cosmetics, skincare, home decor, health regimes and fitness gadgets, as well as a recent boom in experiential spending on restaurants, food and travel. With the rise of e-commerce, the oversupply of malls and stores, the lack of differentiated product and constant discounting, shopping for apparel has become unappealing and often, a complete let-down.

 

Apparel will Change the Game

Companies and brands that consistently put out appealing, fresh product with a unique point of view and a clear price and target customer are the ones that will continue to do well. On the fast fashion front, Zara, H&M and Uniqlo continue to evolve, grow and reap profits by putting out new, of-the-moment apparel that delights their customer. These companies constantly innovate and push the envelope—doing crossovers and collaborations with outside designers and creating new visuals. They consolidate locations, keeping only the best performing stores and shuttering others. Like Uniqlo, the strategy for some are to open even bigger locations to better showcase and differentiate their multiple categories of product and collaborations. In addition, they are quick to market, putting out new products in 4-8 weeks as compared to the norm of 3-6 months. They also manage inventory exceptionally well and generally sell out of product (at Zara, on average, it takes just 26 days for the majority of styles to sell out).

 

Companies and brands that consistently put out appealing, fresh product with a unique point of view and a clear price and target customer are the ones that will continue to do well.

 

At the premium and luxury level, where brands tend to stick to their heritage, partnerships and acquisitions are a way to differentiate and add newness without alienating core customers. This ultimately can create powerful apparel groups. In Europe, LVMH, just bought into Dior, adding its amazing heritage and value to its current stable of 70 brands across different sectors. In the US, premium brands with cash are also buying, partnering or licensing complementary brands, giving them access to new customers alongside new expertise. PVH, who already own big guns like Tommy Hilfiger and Calvin Klein, just acquired True & Co, a direct-to -consumer lingerie retailer. This will likely bring much new digital and marketing expertise to their legacy underwear businesses. Most recently, Coach in buying Kate Spade, will benefit from access to a younger, more global mass market, adding a quirky whimsical aesthetic that complements their choice of Selena Gomez as their latest ambassador. Even Wal-Mart is looking at startups—the multinational retailing corporation just acquired ModCloth and is looking to do the same with Bonobos.

 

The Rise of the E-tailer

The single largest force changing the face of retail is the rise of e-commerce. Since eBay started in 1995 and Amazon.com launched in 2001, hundreds of e-tailers and platforms have emerged, forcing brick and mortar retailers across all sectors to scramble and craft their online experiences with uneven success.

 

In just the last few years, different forms of e-tailing have evolved. Companies like Stitch Fix use fit and clothing algorithms plus stylists (real humans) to create personalized clothing ‘fixes’ for customers who get up to 25% off any and all items they keep from their box of 5 unique pieces. In just 6 years, Stitch Fix has grown into a $730 million business.

 

Another e-tailer, Le Tote, offers subscription dressing at $39 per month for a rental box. Wear what you like and send it back when you’re done. They are a $100 million business and growing.

 

The reverse is also happening. Online retailers are now looking at opening physical stores to provide the feel, touch and fit of items, allowing shoppers to interact more intimately with the brands. Amazon, Warby Parker, Bonobos and AHA Front are all opening physical stores.

 

Brick and Mortar’s Comeback

My take is that retail, specifically brick and mortar stores, will be cool again! Retailers are survivors and we’re going to see a ton of innovation, particularly from apparel retailers. Online apparel sales are growing at the fastest rate ever, but offline retail still drives the majority of total apparel sales. Brick and mortar stores are not going away. And neither are their shoppers.

 

Physical stores will become a combination of showroom, gallery, concierge service and logistics and distribution centers.

 

Physical stores will become a combination of showroom, gallery, concierge service and logistics and distribution centers. Experiential retail will seamlessly cross over from offline to online and back as retailers embrace both channels—allowing us to buy online, pick up at store and use loyalty points through another partner. We can expect to learn how their wool is sourced, possibly meet the artisans who stitch the garments and even participate in their social and environmental initiatives. Stores will have amazing visual showcases, live-streaming their various collaborations across categories and continents. There will be interactive fitting rooms where we’ll find all colors and sizes offered, reviews and access to user blogs and even see various ways an item can be styled for different occasions, all at the swipe of a screen. Check out and returns will be a breeze. There will be robust loyalty programs across affiliated partnerships all working seamlessly to bring us back. We’ll walk in and relish being in stores again. I can’t wait. Watch this space.

 

Please note: This article contains the sole views and opinions of Gym Tan and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security.

 

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