Friday, August 29, 2008

The Changing Role of Stores

Contrary to conventional wisdom, the rise of e-commerce and our heightened sensitivity to junk mail have not meant catalogs’ demise. In fact, in a new study issued yesterday, The Direct Marketing Association reports that for multichannel marketers, “the paper catalog is still the largest revenue generator among all channels with an average of nearly 50 percent of sales in both 2007 and 2008, although web sales continue to grow.”

Here’s the big news the press release forgot to mention – stores now generate less than half of all multichannel retailer sales – and if catalogs’ share of sales is holding steady and the web’s share is increasing, then store sales represent a decreasing share of total sales. Wow!

When I was running the catalog and web channels for Illuminations, I wanted the company to change its view of its channels. I recommended we use the stores to bring the brand to life, and that we rely on the direct channels to drive profitable volume. Unfortunately, my CEO was a die-hard store guy. Wally viewed the catalog as a marketing expense for driving store sales. Today, the data suggest that stores are increasingly a marketing expense as same-store sales decline while year-over-year online sales grow.

Take Gap, for instance. The San Diego Union Tribune reported last month that Gap had an 11 percent decline in same-store sales in the first quarter of this year, but a 21 percent increase in online sales. Victoria's Secret has seen the same trend. Its catalog and Internet sales were up 11 percent in the first quarter while same-store sales declined 8 percent. JC Penney, too. The retailer had an 8.7 percent increase in Internet sales in the first quarter of this year, in contrast to a 7.4 percent decrease in sales at stores open at least a year.

So, what does that mean about the retail experience? Expect more retailers to offer the option to buy online and pick up in the store to get you to go to the store in the first place. And expect more dramatic and engaging in-store experiences - like REI's climbing wall - as retailers work harder to make the trip worth your while and maybe get you to pick up an extra item, like a carabiner, while you’re there.

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