John Ensminger
Why Digital-First Brands are Turning to Brick & Mortar Stores
Digitally native brands planned to disrupt the retail landscape by selling only through e-commerce. Learn why, despite all the hype, they are now looking to brick & mortar stores to drive growth and profitability.
Will the Apparel Industry Help Save or Continue to Harm the Environment?
The apparel industry is a significant environmental polluter. Some brands are tackling the challenge of recycling used clothing, but the issue might require more draconian steps.
Can New Business Models Help Save the US Retail Marketplace?
Retailers and landlords are scrambling to figure out how to survive as consumers have accelerated the shift to e-commerce. Will they be able to reinvent themselves or become one of the many businesses weakened by the Covid-19 pandemic?
Retailers across the United States are facing mass extinction as a fallout from the Covid-19 pandemic that’s raging across the country. Between 20,000 – 25,000 stores are projected to have closed in 2020, including the who’s who of American retailers (Macy’s, Brooks Brothers, etc.) shuttering their doors as a result of, or to stave off, bankruptcy. Over half of these closures will hit mall-based retailers, putting even greater pressure on many malls across the US. While the pandemic did not cause the decline of many US retailers, it clearly has accelerated the largest restructuring of the US retail landscape since the end of World War II.
- (Source: CoreSight Research, Wall Street Journal)
Retailers, and especially mall-based landlords, have seen the warning signs that the consumer shopping behaviour was changing for the past 5-10 years. But a myriad of factors have hampered their ability to reinvent themselves.
- Over-supply of retail: The US has the highest square footage of retail space per capita worldwide, 40% higher than Canada and two times the space of Australia. The post-WWII flight to the suburbs across the United States fuelled a massive expansion of retail stores, especially at malls where consumers could easily shop multiple stores in one easy location. The mall has been an icon of American culture, where teens would go to hang out with friends, young families would go for the indoor playground and retirees would go to socialize and exercise. The decline of the mall is tearing apart the fabric of many communities across the US.
- Decline in apparel spending: US consumers have been spending less on clothing, as a percentage of their disposable income. For the past 40 years society has become less formal, and younger generations have placed greater emphasis on experiences rather than material goods. The constant pressure to eke out positive comps has led many brands to focus on discounting to drive growth, rather than on differentiation. This shift in mindset opened the door for fast fashion brands like Zara or H&M to enter the market and leverage their supply chain expertise to shift the value equation.
- Apparel Spending, percent of disposable income 1928-2010 (Source: US Dept. of Labor, NPD)
- E-commerce Acceleration: Much has been written about how Amazon has reshaped many different retail industries. E-commerce now represents 37% of all apparel and accessory revenue and, unsurprisingly, was the only bright spot for many retailers who pivoted their business model last spring as stores shut down.
As dire as the US retail marketplace may seem, there are a many brands and retail landlords who are experimenting with different business models to try to meet the changing needs of the US consumer. While it’s unknown if and when consumer shopping behaviour will return to normal, these business models are at least undertaking different strategies rather than embodying the definition of insanity; “doing the same thing over and over again and expecting a different result.”
Landlords Buying Bankrupt Brands
Over 1,000 malls exist throughout the US, spread across major metropolitan areas to smaller rural towns. By some estimates, potentially a third of America’s malls will close their doors, fundamentally impacting numerous communities around the country.
To combat the decline, two leading mall owners, Simon Property Group and Brookfield Properties, have acquired a number of apparel retailers in partnership with Authentic Brands Group. The strategy behind buying fabled yet beleaguered brands like JC Penny, Brooks Brothers and Forever 21 is twofold. First, it enables them to cherry pick the best doors of these brands at a significantly reduced price, most of which will be located in one of their malls. For a mall to remain relevant, it’s needs enough appealing stores to attract consumers and drive foot traffic. If more of their tenants have to close, the mall begins to look and feel like a ghost town, making them even less welcoming for prospective shoppers. This strategy also helps landlords protect their downside risk by keeping occupancy levels (artificially?) high to not trigger an exit clause for existing tenants.
While clearly something was already broken for these brands to fall into Chapter 11, by reducing their debt, lowering fixed costs like rent and skimming off the best locations through the reorganisation process, these brands might just have enough runway to survive. Not every acquisition will be successful. But for a landlord, having a portfolio of brands that they are invested in to succeed will better align their incentives and possibly keep some of their malls from meeting their demise.
Brick & Mortar as an E-Commerce Hub
The onset of Covid-19 forced many retailers to accelerate plans towards a greater omni-channel shopping environment: curbside pick-up, contactless transactions, etc. This has helped to maintain some of their business during the pandemic. Leading retailers have further evolved their brick & mortar doors to serve their own e-commerce business.
Today, over 60% of households in the United States are Amazon Prime members, which gives them access to free shipping and in many locations, 2-day or faster shipping. What would have been considered outrageous just a few years ago has now become the norm for most US consumers. To fight back the Amazon onslaught, larger brick & mortar retailers, like Target, are making significant investments to allow customers to not only pick up same day orders in store but also to use their physical footprint as mini distribution centres. “Having all these nodes and physical retail stores has been their magic pill on how to compete with others like Amazon and pure e-commerce players,” says, Greg Conner, VP of Global Sales at Bastian Solutions. Using stores as their e-commerce hub, Target has been able to fulfil 80% of its total e-commerce volume while also saving money, since stores are 40% cheaper than shipping for a large warehouse. “We already own the building, the lights are on and we have a replenishment process … it’s allowing us to deliver faster for our guests than we could have before,” according to Target spokesperson Jill Lewis.”
- (Source: Multichannel Merchant)
Repurpose Dead Malls to Address Homelessness
Homelessness has become a major issue facing most large cities across the United States. Over 500,000 people were homeless in 2018, a number that will have only climbed as the Covid-19 pandemic accelerated joblessness and food insecurity. [1] A lack of affordable housing, particularly in major metropolitan areas on the East and West Coast, has forced many people to ‘camp’ on sidewalks or in tent cities.
- (Source: Seattle Times)
A mall developer and non-profit in Washington, DC are partnering to repurpose the Alexandria Mall. “It’s a new way of thinking that is bringing together three economic phenomena: the collapse of the brick-and-mortar retail industry, the disappearance of affordable housing in America’s boom towns, and the struggle to reduce homelessness.” It’s too early to tell how successful this venture will be, but it’s a unique example of trying to use an underutilised asset for greater good in the community.
Each of these three new business models will likely not be the saviour for the post-covid retail marketplace in the United States. Yet, they offer a glimmer of hope that new and innovative ideas can help to repurpose many brick & mortar locations and ultimately spur the next generation of economic growth for the country.
About the Author:
With 25+ years in the sports and fashion industry across the United States, Europe and Asia, John Ensminger, has worked with leading brands including Nike, The North Face, K2 Sports and Carhartt to develop breakthrough, actionable strategies that strengthen their brand position and drive growth and profitability. Read more of his work here.
Used Clothing: Changing the Paradigm for Business and the Environment
Leading apparel brands are tackling the challenge of recycling used clothing, helping to solve a major environmental issue while capitalising on a growing business opportunity.
Too often, the argument that companies must do what’s right for the environment has been juxtaposed with the claim that it’s bad for business. As consumers become less willing to accept that tradeoff from brands (see the number of Super Bowl ads for electric vehicles), disruptive brands are driving meaningful change that helps to address a major environmental issue, broaden their brand positioning and, in turn, attract new consumers and business.
In the United States, 26 billion pounds (12B Kg) of clothing are thrown away annually, taking up 5% of the total landfill space. US consumers own an average of 93 pieces of clothing, 70% of which are never or rarely worn. Despite the fact that 90% of textiles could be recycled or reused, only 15% of clothing is actually donated.
- (Source: US Department of Labor)
Fueled by the rise of fast fashion, mass merchants and e-commerce, the consumer is trained to expect the latest trends at a very low price, to be thrown away in 1 or 2 seasons. The 2019 State of Fashion report by McKinsey states, “in the UK, a survey found that one in seven consider it a fashion faux-pas to be photographed in the same outfit twice. Simply put, young people crave newness.” Whereas Americans used to buy fewer, more expensive pieces of clothing, today they are buying many more units at lower prices. The reality is that brands need to sell more units to drive growth, which fuels a large and growing used clothing problem.
Market Shifts From New to Rented & Used Clothing
Traditionally, the used clothing market has largely been an afterthought, relegated to vintage clothing shops or community-oriented outlets like Goodwill or St. Vincent de Paul. However, a growing number of US consumers, especially Millennials, are now buying used clothing for both economic and environmental reasons. The clothing resale and rental market is one of the fastest growing segments and is expected to reach over 13% (US$ 50 billion) of the total US apparel market by 2027, larger than department stores and fast fashion.
- (Source: ThredUp 2018 Resale Report)
A few major apparel brands, such as Patagonia and Eileen Fisher, are making circularity a key business strategy, not only for the benefit of the environment but also for their business. Patagonia’s Worn Wear initiative recycles, resells and repairs used clothing, extending its life and keeping it out of landfills. The Worn Wear repair truck travels across the US, Europe and Japan, fixing tears and holes in used gear while also strengthening the community of loyal, like-minded consumers.
- (Source: Patagonia)
What Can You Do?
Buy Less Clothing
Patagonia famously stated in their Black Friday ad in 2011, “Don’t Buy This Jacket.” They have been on the forefront of urging consumers to “…keep our gear in use longer and cut down on consumption.” A privately held company, with an extremely strong environmental and socially conscious brand position, Patagonia has been able to take non-traditional marketing approaches with little negative impact to their business. At an estimated US$ 1 billion in revenue, one might argue that consumers aren’t heeding their advice to cut down on buying Patagonia gear.
- (Source: Patagonia)
Create Consumer Friendly Resale Shopping Environments
The typical choice for consumers for used clothing have been small vintage stores or second hand warehouse outlets, like a Goodwill store, that are stuffed with racks and racks of merchandising. Neither offer a scalable, nor that friendly of a, shopping experience.
A few brands are starting to actively open their own resale stores to sell used clothing such as Eileen Fisher’s Renew, which has a brick & mortar and online presence. And Nordstrom, a premium department store, just announced last week that they will be opening their own resale store called See You Tomorrow, a sign that ‘traditional’ retailers are seeing the potential of the resale segment.
Another sign that resale is moving into the mainstream, E-Commerce retailer ThredUp, which calls itself the “largest fashion resale marketplace,” has raised over US$ 300 million in funding. The company recently announced partnerships with Macy’s and JC Penny to sell secondhand clothing in a select number of doors.
Choose Natural Fibers
Closed loop apparel recycling, i.e. ensuring that used clothing is reborn as a new piece of clothing, is an extremely complex and costly process for manufacturers. There are some interesting smaller brands such as Reformation, who create about 15% of their clothes out of dead stock, the excess material from the mainstream manufacturing process. Or Cardato in Italy, who recycle wool sweaters into new yarn.
Yet, 60% of all clothing contains polyester, such as the spandex that give your jeans some stretch. Despite the efforts of many firms, clothes with even a modest amount of polyester cannot be recycled into yarn, limiting the potential impact of truly creating a closed loop apparel industry.
While the apparel industry is working to identify new solutions and more brands are taking an active role in creating a closed loop system, consumers can have the most meaningful impact today: buy less stuff from brands that support circularity, choose natural fibers wherever possible, and donate or resell the clothes you’re done with. This will not only be good for the environment but also for your wallet.
About the Author:
With 25+ years in the sports and fashion industry across the United States, Europe and Asia, John Ensminger, has worked with leading brands including Nike, The North Face, K2 Sports and Carhartt to develop breakthrough, actionable strategies that strengthen their brand position and drive growth and profitability. Read his posts here or connect with him on LinkedIn.
How US Brick & Mortar Stores Can Survive in the Digital Age
Brick and mortar in the digital age: learn how Nike, Recreational Equipment Inc and other leading retailers thrive despite the ongoing retail shakeout in the United States.
Numerous articles over the past few years have discussed the retail apocalypse occurring across the United States. Already this year, almost 8,000 stores have announced that they will be closing their doors with projections to reach 12,000 doors by year end. This will amount to the single largest net loss of retail stores over the past eight years.
- (Source: CoreSight)
Despite many prognosticators promoting the end of the brick and mortar store, there are multiple examples of brands who are leveraging their physical and digital footprints to establish deeper, more meaningful relationships with their customers. However, before we dive into the future, it’s important to examine the key lessons from the past.
Oversupply + Little Differentiation = ‘Sea of Sameness’
Moving back to the United States after living in Europe for a few years, I was struck by how similar each shopping center looked, no matter what part of the country I was in. The sheer size of the US, access to cheap capital, and a heavy reliance on the automobile fueled a massive expansion of retail stores. Retailers could largely drive annual revenue increases by simply opening up more and more doors. As of 2015, there was five times more total retail space per capita than in France or the UK but only 50% higher sales per capita.
- (Chart: Chilton Capital Management)
The rise of e-commerce, which has reached 35% of all US apparel sales last year, has only accelerated the inevitable demise of many venerable retailers such as Kmart, Toys’R’Us and Payless Shoe Source. An increasing number of doors were competing for the same customers with nearly the same product offering and in-store experience. This resulted in a ‘sea of sameness’.
The Future of Brick and Mortar in the Digital Age
Rather than viewing their stores as a dinosaur, successful retailers are transforming their physical locations to create a deeper, more tactile experience than online-only shopping can. Since omnichannel customers purchase twice as often and spend more than single-channel customers, retailers will need to adopt three basics principles to ultimately survive in the US marketplace.
Create Digitally Connected Journeys
US retailers are investing millions of dollars annually to enable greater omnichannel integration, yet there remains a long way to go. According to L2’s recent omnichannel report, just over 25% of US retailers offer BOPIS (Buy online, pick up in store) and just over one-third provide ship from store capability.
Nike’s new Innovation House in Shanghai and New York, for example, has heavily embedded digital in-store technology to provide consumers greater choice and ease in their shopping journey. Using the Nike app, consumers are able to ‘Shop the Look’, which places a mannequin’s entire outfit in a virtual shopping cart. ‘Scan to Try’ allows the consumer to send items to a fitting room of the their choice. ‘Instant Checkout’ speeds up the payment process by allowing consumers to skip the line and buy their items through the Nike app.
- (Photo: Nike)
Evolve from Selling Products to Selling Experiences
It’s not just millennials who are placing greater emphasis on experiences. Research shows that almost 75% of all Americans surveyed prioritise experience over products or things. While this might threaten many traditional retailers, some brands are expanding their offering to meet consumers where they are and, ultimately, create a deeper relationship.
Recreational Equipment Inc (REI), the largest outdoor retailer and cooperative in the US, is aggressively expanding its rental offering and used gear options. Knowing that consumers may feel intimidated about venturing into the outdoors, REI “sees the expanded rental and used gear program as keeping us moving towards a sustainable and accessible outdoor future by offering a new model of access to great outdoor gear and apparel,” says Ben Steele, Chief Customer Officer at REI.
Each rental occasion also offers REI two additional consumer touchpoints, one upon pick-up and another when returning the gear. And each touchpoint gives REI the opportunity to not only sell additional products but also share its knowledge and passion for the outdoors.
- (Source: REI)
Evolve the Sales Associate to a Service Partner
In an age where consumers have so many choices to spend their hard-earned money, the days of the inattentive or pushy salesperson are coming to an end. Despite consumers’ reliance on smartphones through their shopping journey, there remains a need and a potential source of differentiation for stores to provide the compelling service.
In Nike’s Innovation House, the new Expert Studio is Nike’s first dedicated floor to provide member-only experiences such as one-to-one appointments, access to exclusive products and the option to create personalised products in the Nike By You Studio. Most luxury brands already offer an elevated level of service due to their high price points. Nike is providing a similar high-touch consumer experience, and with the Nike app a segmented product strategy and in-store experience to keep the most valuable customers in the Nike DTC ecosystem.
Not all brands in the crowded and competitive US marketplace will be able to make this transition and ultimately not all will survive. While some past market leaders, like Sears and Toys’R’Us, have not been able to pivot their business model, this does not mean that brick and mortar retail is dead in the US. Strengthening omnichannel integration and creating experiences that are meaningful to their most valuable customers are critical steps for all retailers to consider as they try to thrive in a very competitive and tumultuous marketplace in the United States.
About the Author:
With 25+ years in the sports and fashion industry across the United States, Europe and Asia, John Ensminger, has worked with leading brands including Nike, The North Face, K2 Sports and Carhartt to develop breakthrough, actionable strategies that strengthen their brand position and drive growth and profitability. Read his posts here or connect with him on LinkedIn to further discuss brick and mortar in the digital age.
