When 90 percent of U.S. retail sales are still in bricks and mortar stores, why is it some shops can attract millennials but others only attract dust?
- Off-price U.S. retailers continue to open stores, with TJX Companies maintaining a 4.1 percent same store sales average.
- U.S. retailers with business models difficult to replicate online, such as cosmetics, appeal to millennials who value the shopping experience.
- The closure trend for department stores continues, although two chains are expanding thanks to their focus on athleisure.
At a time when many U.S. retail is struggling — and some retailers, including Toys ‘R’ Us, have been closing their doors — others continue to grow, expand and open new stores across the country.
In particular, discount chains are thriving. Since the recession, consumers have been conditioned to only open their wallets and shop if they are offered a discount.
Today, consumers are accustomed to buying designer clothing for less. The value proposition has become critical and therefore such off-price retailers as TJX Companies and Ross Stores continue to open outlets.
Since the last recession, TJX Companies has maintained a 4.1 percent same store sales (SSS) seven-year average.
This is above the three percent SSS mark representing healthy U.S. retail sales and suggests comparatives are robust. What’s more, the retailer has been opening an average of ten stores per quarter over this seven-year period.
U.S. retail shopping experience
Some retailers have unique business models that are very difficult to replicate online, such as cosmetics and off-price retailers.
These successful retailers appeal to millennials, which is key because they make up the biggest portion of the U.S. consumer population.
Millennials also prefer experiences over things, and beauty retailers such as Sephora and Ulta Beauty offer consumers a shopping experience where they can try, play with makeup before purchasing it, and even return used merchandise.
At some Sephoras you can get your eyebrows shaped and at Ulta Beauty you can get a haircut done in the store. Although you can book a beauty treatment online, you can’t get the service done online.
Ulta Beauty’s SSS has been declining because of difficult comparisons, but still remains considerably above the three percent healthy mark, suggesting SSS are robust. Accordingly, the retailer continues to expand its footprint.
Social media strategy
Savvy retailers know that social media has also changed the ways consumers shop.
They visit and follow various influencers and brands on platforms such as Instagram for beauty inspiration and makeup tips, or on how to style their hair by themselves.
Consumers feel inspired in a visual way, and are getting a sense of necessity.
Thanks to advancements in technology and smartphones, they expect instant gratification.
This has boosted sales at various sectors including the home improvement category.
Now consumers want to have an experience, build things on their own and follow Do-it-Yourself (DIY) blogs.
Shoppers still want to go to The Home Depot because they also want advice from a professional. The Home Depot also offers in-store family experiences, and has recently partnered up with Pinterest for consumers to use the Shop the Look Tool.
Social media, experiences and the improvement in the housing department have propelled Lowe’s and Home Depot to continue to expand their footprint.
Millennials are often cost-conscious and generally less inclined to shop at the same stores that their parents once did — such as department stores.
The promotions might do a good job of attracting shoppers looking for lower prices, but the brands that department stores sell don’t.
As a result, malls have fallen out of favor, and the big department stores that anchor malls continue to close their doors.
Looking at the data over the past ten years, it is evident that the bulk of department stores are closing stores. Sears has closed over 1,500 stores in the last decade.
JW Nordstrom and Kohl’s are the only two that continue to expand.
What’s more, both of these retailers are predicted to post double digit earnings growth this year. The two department stores have better brands than their peers.
They carry on-trend merchandise and are definitely capitalizing on the hot health trend by offering athleisure products by popular brands such as Adidas and Nike.
Since the recession, Lululemon has been outperforming the apparel industry.
What’s interesting is that about 70 percent of its revenue is generated within stores, not online. Lululemon attracts in-store sales through their concept and strong sense of community.
Upon entering the stores, shoppers enter a community where free yoga classes are offered in an environment that embraces wellbeing.
However, the competition isn’t standing still.
Gap’s Athleta is known for opening stores in the vicinity of Lululemon, making it easier to steal some of Lululemon’s core consumer — especially when offering lower prices, and similar store structure with free yoga classes.
This is interesting because with the exception of Athleta and Old Navy, Gap and its Banana Republic division continue to close stores.
This underlines the strength of the athleisure trend and off-price strategy.
Online vs. bricks and mortar
Traditional retailers have been struggling in the past decade.
Shoppers have shifted their spending to online retailers, local and organic business and groceries, and have chosen value/lower price points over brand loyalty.
Besides preferring experiences over things, millennials are also very tech focused; mobile phones are important to them, underlining the importance of retailers investing in e-commerce and omni-channel initiatives.
This investment is a significant expense for retailers. As a result of all this, mall traffic and sales have declined, causing margins and profits to fall.
There has been a lot of talk about online retailing stealing bricks and mortar business. However, over 90 percent of total U.S. retail sales still happen at physical stores.
Online giant Amazon knows this, and acquired natural and organic food supermarket WholeFoods. The online retailer also extended its physical presence by opening an Amazon Books store in New York, where shoppers can discover new and highly-rated books.