Back in 2020, RSR published a blog in our Retail Paradox Weekly about the future of the store; the impetus behind that piece was a panel discussion that I was part of at the time about whether buy-online-pickup-instore was a “thing” or not (we all know how that worked out!). But the topic of the future of the store had been on everyone’s minds for some time. Looking back to the 2015-16 timeframe, popular media was pushing the notion of a “retail apocalypse”, that the store was dead. The residual effect of that fear is evidenced even now. For example, many in the investment community still consider it to be more or less a zero sum proposition, i.e., that increases in sales attributed to Ecommerce are offset by decreases in store sales.

By 2019, RSR was able to see that retailers had gotten past their panic:

“Over the past three years, the mass media has been filled with stories that presume the store is dead. Certainly, the closing of large chains like Payless Shoes and the continued decline of department stores contributes to this perception. Yet the vast majority of retailers plan to either open more stores or stand pat with their existing store mix. That doesn’t mean retailers are blind to the need for change. Consumer tastes have changed, and stores have to change with it. Hence, retailers look for new formats that are more suited to local tastes… BOPIS will likely be considered as retailers work on their “new formats” – along with creating more curated and relevant assortments in the front of the store retailers must improve the efficiency of picking and packing orders – especially in the small footprint stores that appear to be the way of the future.” (The Store In 2019: Fulfilling Orders And Serving Customers, RSR Benchmark Study, July 2019).

The COVID lockdowns in 2020 and all the subsequent turmoil put the kibosh on the whole topic, at least for a while. Sure, shopping malls have been terribly impacted by social lockdowns and the financial beating that a lot of their tenants have gone through. And we’ve all seen the dramatic increases in online sales over the last two years. While the year 2020 ended with a 3% decline in total worldwide retail sales at $23.4 trillion, 2021 is looking brighter. For example, in the United States the National Retail Federation (NRF) observed that for the first nine months of the year, sales were calculated to be up 14.5% over the same period in 2020. The NRF has revised its 2021 forecast that retail sales should grow between 10.5 and 13.5 percent over 2020, to between $4.44 trillion and $4.56 trillion.

But in that 2020 blog, we observed that:

The events of 2020 have underlined an important realization – that the store has to be adaptive to stay in sync with how consumers discover, select, pay for, and take possession of products their lifestyle needs. In the ‘next normal’, store modernization isn’t a once-in-a-generation event – it’s an ongoing process, as fundamental to retail as demand forecasting or assortment planning. There is no one-size-fits-all anymore.

The pandemic has served as an accelerant for a lot of overdue changes in retail. But one leftover from the pre-pandemic days is starting to re-emerge, and that is, what exactly is the future of the stores?

According to Macy’s CEO Jeff Gennette, the best choice for retailers like Macy’s into the new era of retail to compete with digital natives like Amazon is to rethink stores in a digital-first context. In response to questions from the investment community on an August 19 conference call about spinning off the company’s Ecommerce operations into a separate company (theoretically to increase shareholder value, never mind employees or customers!), Gennette stated that “a comprehensive retail ecosystem with physical stores in the best malls and the most productive off-mall locations integrated with the best-in-class e-commerce offering is a powerful combination and is moving us forward as a strong, digitally-led omnichannel business.”

We couldn’t agree more, but the key to getting that right involves retailers’ Ecommerce strategies. Our recent benchmarks give us some strong indications that the industry is headed towards what we’re calling Ecommerce v.3.

What is that? Well, Ecommerce version 1 (circa 2000), was envisioned as a standalone digital store. Version 2 (circa 2012-present) was digital commerce (both Ecomm and Mobile) integrated to store systems, principally for customer order creation and fulfillment. Version 3 will be Ecommerce functionality as integral to the store experience, i.e., giving consumers the same digital capabilities (search, product content, reviews, etc.) that they use to build their digital shopping cart, to build their physical shopping cart as they make their way through the store.

Stay tuned for more on that subject – but as we all shake off the effects of the long pandemic, the industry has to get back to a core issue – what to do with all that physical retail space? Our contention has been and still is that stores are the strategic weapon for retailers to use to fend off pressures from the big Ecomm players – but only if the role of the store is reimagined in the context of the customers’ digitally enabled shopping journey.