closing retail, going e-tail

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Those four words go a long way to summing up a tumultuous week in retail, when Borders collapsed in the US, quickly followed by Borders/Angus & Robertson in Australia. Online retail is not the only culprit of course (much has been made of REDgroup’s management in the case of Borders/A&R), but it is one of the key forces that is causing significant shifts in the retail landscape.

We now live not so much in a global village, but a global shopping mall that is open 24 hours a day, 7 days a week. As a physical merchant today you not only compete with the store down the street, but the online site in San Francisco, or Stockholm, or Singapore. And if they offer a wider range, better bang for the Aussie buck, free shipping and no tax, then you’ve got a very serious competitor indeed.

What will happen when the dust settles? I received a thought-provoking contribution from an Inside Retailing reader this week who believes that the space allocation and financial metrics of bricks and mortar retail in this country will have to change. “We deal with several international retailers and in discussions about Australia, real estate costs are a recurrent theme. Given that average specialty occupancy costs in Regional shopping malls are around 18-20% of sales, traditional retailers in Aus have an instant 10-15% disadvantage before you even factor in cheaper shop worker wages, exchange rates and the like…over the longer term, Australia will not require the amount of retail floorspace per capita, and sales per square metre will grow more slowly as online continues to erode traditional retail.”

So one view of the future is that bricks and mortar rents will be forced to reduce in the short to medium term, and then space and store networks will shrink in the longer term, with retailers supplementing (or in some cases leading) their physical stores with a strong online presence. Physical retail will continue to be a major force of course, because nothing beats a “real” store to build a brand and generate an experience. And you can’t “touch” products or interact with your customers in quite the same way online.

It’s likely that stores will retract in size across the world. US retail in particular is generally regarded to be heavily over spaced, and the days of the category-killer megastore are numbered, at least within shopping malls. Twenty years ago, Borders in the US was creating havoc with its superstore format.

Customers loved the idea of tens of thousands of titles in one location, and smaller bookstores suffered as the Borders juggernaut rolled across the States. Now it’s ironic that what Borders once did unto others has been done unto them, as a new phase in retail begins.

The lesson is that it’s well worthwhile “going e-tail” before you have to “close retail”.

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