Retail Evolves to a Hybrid Model as Stores Continue to Close

Record store closings, retail bankruptcies and shuttered shopping malls are all causing Wall Street, retailers, and armchair know-it-alls to look for someone or something to blame, and more often than not, they point their finger and say, “It’s the Internet’s fault!” That is however, a simplistic view. Ecommerce is growing, but it still accounts for only 8.5 percent of all US retail sales.

The Internet is not to blame. Rather, it’s the retailers themselves, who are slow to adapt to new models and a new set of consumer expectations.

Fears over Amazon taking over retail are unfounded. Twenty percent of grocery shopping will be through some form of ecommerce by 2025, according to a Nielsen study. But while that translates to a $100 billion opportunity in less than ten years, we have to look at what will be enabling that growth. “It’s not going to be Amazon groceries online,” said Ric Noreen, Managing Partner of Waypoint Strategic Solutions. “I don’t think the pure plays are going to have the wherewithal to build an infrastructure and create the shopping experience that consumers want.”

Amazon itself has given a clue as to what the future of retail will be, with its acquisition of Whole Foods – and that will be a hybrid brick-and-mortar/online combination. We’re already seeing it take shape, with things like Chicago-based Mariano’s offering Instacart grocery delivery, and Kroger’s ClickList online ordering system. These systems simply allow consumers to shop online and then drive to the store, park in a designated area, and then a clerk brings out the order. It is much more efficient than some grocers which have a delivery system, which requires a fleet investment and often dual inventories.

Ric describes Mariano’s model: “They’ve created a standalone staging area with refrigerated, freezer, and dry storage, with a staff that is available 18 hours a day. You go online to do your shopping, get a broad array of choices, and the inventory is pulled from the store so we’re not talking about a duplicate supply chain. It’s staged from each one of the three temperature conditions, and you only need to give the store a 30 minute notice for your pickup. The inventory is pulled off the holding shelves, packed in appropriate temperature controlled containers, you pull into a parking space designated for Clicklist and the groceries are run out. You’re back home in five minutes.”

Initial indications point to success. The model makes better use of store inventory, avoids duplicate inventories, and consumer convenience is high. “It’s an interesting model and one that in various forms other retailers are adapting across the country,” said Ric. “That’s a hopeful sign that retail is evolving in that regard.”

The hybrid model, while still new in the US, has already caught on in Europe, where one in seven consumers have utilized some form of click and collect, and in France, about one-fourth of grocery shoppers are using it.

“The world does not need another 45,000 square foot grocery store,” said Ric. “We’re over-stored at this point. Expansion will come from varying formats to match what retailers now know about their shoppers, because of the digital interactions they have.”

The key to retail growth is not in constantly opening new brick-and-mortar stores, but in adapting those brick-and-mortar stores into a hybrid model that allows for both hands-on shopping and click-and-collect and other ecommerce models.