The non-stop buzz about the exponential growth of online sales (as well as a general fascination with the platform itself) has made it seem like online was the only place to be if you wanted to drive retail sales. 

The reality is somewhat different.

Despite claims by so-called marketing gurus and the media that physical retail is a dying format, a new group of experts is telling a different story.

 

Retail “right-sizing”

Many industry experts are now recognizing that physical retail’s poor performance isn’t because online retail has taken away their market, but because many brands and retailers have over expanded in the past. 

“People are talking about demise of bricks and mortar retailers and how so many shops are closing down, especially in the U.S. Realistically, those retailers have way too many stores,” said Dr. Mirko Wormuth, founder and CEO of Twice, a mainland China accessories brand and retailer, as well as founder of retail consultancy Omni Channel China.

 “I don’t think offline retail is going to disappear, but I do think there is going to be a downsizing in terms of number of stores.  Most retailers have far too many outlets,” he said.

“Two decades ago the industry was talking about how the U.S. market was ‘over stored’.  That was well before online shopping, “said Jane Singer, Director & Head of Market Intelligence at Inside Fashion.  “It makes sense for retailers to now re-evaluate their store portfolio. Closing stores is not necessarily a sign that a retailer is failing.  It can also be that management is making some pro-active decision and taking tighter control over their business.”

“Basically, the market has to re-balance itself and get back to equilibrium. We are now seeing many brands closing large concept stores and opening smaller urban stores,” said Esme Pau, Head of Asia Research at Fung Global Retail & Technology.

“Consumers also want to see more niche brands that offer unique merchandise,” said Ms. Singer.

 

Reinventing Retail

“Reinventing retail is about bringing consumers back to the center of retailing,” said Ms. Pau.

“When consumers walk into a store, they want to get to the merchandise they are looking for directly. They also want to be able to check out quickly,” Ms. Pau told Inside Fashion, discussing the importance of better customer service.

 

Online Moves Offline

As the growth of online sales starts to slow down, many online players are beginning to build an offline presence.

“You can only reach a certain level of conversion online, and the cost of digital marketing is getting higher and higher,” Ms. Pau told Inside Fashion, “If you look at the growth rate of China e-commerce market, it has been slowing down since 2015.”

Not surprisingly, online heavyweights including Amazon, Alibaba and JD.com are making significant investments in offline retail.

To test the offline market a growing number of online retailers (and some offline retailers) are experimenting with ‘pop up’ shops, those short term retail leases that can run for anywhere from a week to several months.

“We’re seeing many pure online brands go offline by opening pop-ups. The pop-up shop model not only gives them an opportunity to test the market, they are also able to gather data or pre-launch a product,” said Pushpendra Sharma, Founder & CEO at SpacesGenie.com.  The Singapore-based company provides online listings of short-term space available for pop-up shops or other uses.

“If brands and retailers want to own the relationship with their customers, they need to go offline, meet with consumers and engage with them,” said Ms. Pau. “When consumers buy online, the retention rate is very low.”

“Compared with online, offline retail has many more touch points. If you make the effort to engage with your consumers offline, you can learn a lot about them and what they want,” said Mr. Sharma. This ‘soft data’ can be as important, and in many cases more relevant, than ‘big data.’

“The ‘sweet spot’ for pop up is usually 3 to 6 months. During this period, retailers will have the ability to generate enough market data to understand what’s working for them,” said Mr. Sharma.