Is this article, we attempt to answer the question “Is Retail Dying?”, by looking at it from different angles and using official data to support our answer.
We first look at the industry as whole, and then get deeper into the importance and appeal of brick & mortar retail to the industry, product manufacturers and customers.
So, let’s get started.
Retail Sales Are Still Growing
Except for recessions and exceptional times like covid 19, total retail sales in the U.S. have consistently been growing over the last 20+ years. The latest results for Q3 2023 came at $1825.3 billion, a 2.3% increase from the same period the year before.
So the retail industry overall is growing and not facing slowdown in terms of total sales. Of course customers will always have the need to shop, so sales will always be there. The question is which channel they will use to fulfill those shopping needs, online or offline.
Which takes us to the next point…
Ecommerce Vs. Brick & Mortar Retail Contribution
Despite the growth of ecommerce contribution to total retail sales over the last 10 years, and the leap it took in 2020, this growth seems to have stagnated at around 15% for the last 3 years. The latest figure for Q3 2023 came at 14.9%.
This has driven a lot of pure play ecommerce businesses and DTC brands to revise their strategies, after initially assuming that ecommerce was taking over brick & mortar retailing for good. Some even labeled it as the “Retail Apocalypse”. But with the slowdown in growth, they started rethinking their strategies. Some DTC brands started wholesaling to brick & mortar retailers and others considered opening their own brick & mortar stores to be able to move more products.
Retail Stores Are The Main Distribution Channel for Consumer Products
Due to the data we shared above, and the fact that brick & mortar retailing represents almost 85% of total retail sales, brick & mortar stores are considered to be the main distribution channel for product manufacturers.
This, again, shows the importance of retail stores, both for the consumers, who still prefer to shop offline, and for the brands that want to be close to those consumers to be able to move their products fast.
It also gives retail owners a bargaining power, that they can use while negotiating with their suppliers, based on the fact that they control a strong distribution channel.
Read Also: Bargaining Power of Suppliers and Bargaining Power of Buyers
Physical Presence Is a Competitive Advantage
Retailers who have both online and offline channels, have a competitive advantage over pure play ecommerce stores. That’s because research has shown that consumers prefer to shop with brands that have physical presence, even if they’re shopping online.
This is for many different reasons, including trust, brand recognition, and the convenience of exchanging or returning products at the nearest store.
Top U.S. Private Companies Include Many Brick & Mortar Retailers
We’ve recently analyzed the list published by Forbes for America’s Largest Private Companies, and found that among those largest companies are a lot of brick & mortar retailers, particularly food markets, grocery and convenience stores such as Publix, H-E-B & Love’s travel stops.
This again proves the potential of such businesses to grow and expand across the country, and even internationally.
It wasn’t a surprise for us, as we’ve always known from our own experience that brick & mortar retailing is in fact profitable, if the business owner knows how to make the numbers work, by optimizing their assortment and inventory levels to achieve high returns.
It’s also a scalable business, as once the formula works at one location, it can be replicated across more locations; and the more the business achieves economies of scale through more locations, the higher bargaining power it has over product suppliers, service vendors and landlords, and consequently the higher margins it can retain from the value chain.
On the value chain of manufactured products, distribution plays a key role. Retail is the final step in the distribution of merchandise, and the channel that controls the relationship with the consumers. So the more a retailer has a strong hold over distribution, such as by having more brick & mortar locations, or by having an entire ecosystem that locks customers into it as Amazon has done, the higher bargaining power it will have over the other links on the chain.
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Conclusion
Based on all the above mentioned arguments & industry data, it’s safe to say that retail is not dying, and that brick & mortar retail is still the most preferred sales and distribution channel for brands and for customers.
Retailers who succeed in providing an omnichannel experience, by combining online & offline retailing, gain a competitive advantage, due to controlling more distribution channels.
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More Resources
- Retail Industry Overview
- Why Are Retail Store Closing?
- Retail Margins By Category
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