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As E-Commerce Grows, Retailers Rethink Their Approach

  • By Madeline Cannon
  • Published: 12/2/2019

Retail

At the AFP 2019 Retail Industry Roundtable, sponsored by Fifth Third Bank, treasury professionals lamented the steady decline that traditional brick-and-mortar retail is experiencing.

With the rise of online titans like Amazon and Alibaba, merchants have found it increasingly difficult to gauge customer behavior and devise new ways of keeping people coming to their stores. Customers aren’t behaving in reliable ways anymore because retail, as we know it, is dead.

One practitioner mused over a recent survey that said 70% of millennials prefer shopping in stores, while Generation Z is at 77%. Most of the practitioners scoffed at this survey, and rightfully so. Customers aren’t going to the empty mall for one store and they’re not driving to an outlet 30 minutes away. So, it begs the question—is it worth even having brick-and-mortar stores at all?

CHANGING BEHAVIORS

Retailers are struggling to adjust to this new paradigm. Previously, there wasn’t much of a need to feel threatened by the digital world. When e-commerce came about in the 2000s, it was infantile. eBay was not going to replace JCPenney. But the digital world we live in today is an entirely different beast than the one 10 years ago.

Traditional retail has been passed over in favor of online marketplaces. Reuters reported that Alibaba just set a record of $38 billion in online sales during their November Singles’ Day shopping event. Retail has tried to compete against these behemoths, but has faced many challenges, some in the form of regulators. In 2016, the Federal Trade Commission (FTC) rejected Staples’ acquisition of Office Depot over antitrust concerns, despite Staples’ argument that Amazon would provide substantial competition. Meanwhile, regulators have so far been reluctant to crack down on big tech. The lack of understanding the federal government has shown will continue to be an impediment for retailers who wish to compete against growing online monopolies.

Online markets that offer everything in one place have become the bane of retail’s existence. One practitioner at the roundtable noted that even if a customer visits a brick-and-mortar store and finds the item they’re looking for, it’s still no guarantee of a sale. “They go back to the e-commerce sites and find a cheaper version or the best price that they can find,” he said.

The plurality of online retail sites today has fundamentally changed the way consumers behave. Concepts like brand loyalty no longer hold and consumer expectations have shifted. For example, with the arrival of two-day shipping, Amazon has shifted consumer shopping expectations to expect fast and cheap delivery. It’s the easiest and quickest option for the consumer to choose, “I'm guilty of that myself; I just don't have time to get to the stores,” said one retail treasury professional.

TARIFF TURMOIL

Retail faces another current temporal hurdle—tariffs. Since consumers can go online and find better deals somewhere else, the cost of tariffs has primarily fallen on retailers. “It’s a pricing nightmare,” said one attendee. “If we change our pricing, people will go to different stores. They don't care.”

To work around the tariffs, some retailers have been buying in bulk. One practitioner shared how his business buys $20-$30 million in bulk and then stores it in its U.S. warehouses. And while that solution works for his company, he acknowledged that it isn’t applicable for all. You need to have product that can be stored for long periods of time, as well as the space to store said product. Buying in bulk also poses the risk of not being able to move enough of your product over time, leaving the retailer in a deficit. 

OFFERING SOMETHING NEW

With so much disruption, retailers have been taking on new approaches to gain customers back. The general consensus of the merchants in attendance was that brick and mortar stores need to offer something different than what they can find online. “You need to do things in the store to make it more of a destination,” said one attendee.

Jewelry and tire retailers at the roundtable explained that their stores are working on offering buy-online/pick-up-in-store options, in hopes of mimicking the fluid experience of online shopping. Their marketing has shifted as well; advertising is constructed around the experience rather than the product, since the product can be swapped out with a cheaper version from somewhere else. The jewelry retailer described the process as becoming more “touchy-feely” with the customer.

And yet, with so many new plans for attracting customers, the merchants still harbored doubt. “Is it worth it? I don't know,” said one attendee.

ADAPT, OR ELSE

Common treasury problems such as fraud and the ills of armored carrier services will continue to persist on the backburner, but retail faces a far greater and immediate threat—extinction. No number of gimmicks will change the fact that your product can be bought somewhere else cheaper and more conveniently, and it will be received quicker.

Retail treasurers need to rethink what shopping truly is and what will it be in the future. If they continue to envision the practice as something familiar and unchanging, instead of treating it as something that is constantly evolving, then they are not likely to survive this increasingly competitive environment.

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