2015-12-17-Bain-Digical®_retail_and_why_stores_matter_14页_706kb

BAIN RETAIL HOLIDAY NEWSLETTER Summary

Core Content

This document provides insights into the evolving role of physical stores in the context of the growing e-commerce market, focusing on the holiday shopping season. It highlights the continued importance of stores despite the rise of online sales, and explores how successful retailers are integrating digital and physical experiences to enhance customer engagement and drive better economics.

Main Points

• Store Sales Still Dominate: Although e-commerce is growing, 90% of retail sales still occur in physical stores. This is especially true during the holiday season.
• Holiday Shopping Behavior: Shoppers are making progress on their holiday shopping, with most completing 20% of their purchases in the two weeks following Black Friday. "Online fanatics" lead with over 30% of purchases completed online, while "sticklers for stores" and "omnichannel shoppers" also increase store visits as the holiday approaches.
• Store Traffic and Conversion: Store traffic increases significantly during the holidays, with a 30% lift in November and December compared to the rest of the year. Conversion rates in stores are much higher than online (25%–45% vs. 2%–5%), and stores trigger more impulse purchases.
• Store Closures and Performance: Closing underperforming stores is a risky strategy. Bain's analysis shows that large-scale closures often lead to declining sales and brand erosion. Retailers like Gap and others have closed stores in an attempt to cut costs, but this has not led to sustained growth.
• Malls Are Recovering: Despite challenges, mall performance has improved, with increased sales productivity and occupancy rates. Younger shoppers are still frequent visitors to shopping centers, including malls, strip centers, and outlet stores.
• Physical Stores as a Growth Platform: For retailers in less digitally penetrated sectors, physical stores remain a crucial platform for growth and innovation. Examples include Warby Parker and Bonobos, which have seen positive effects from their offline presence on online sales.
• Stores as a Marketing and Return Vehicle: Physical stores serve as a marketing tool for e-commerce, keeping brands top of mind and acting as return centers. Closing stores can negatively impact online sales and customer loyalty.
• The Future of Retail: The role of stores is evolving, and the best retailers are transforming them into "Digical" spaces that combine the strengths of both digital and physical. This involves new technologies, personalized experiences, and omnichannel integration.

Key Insights

• E-commerce Growth is Slowing: E-commerce growth rates in the US are projected to decrease from 15% annually to 10% over the next five years, and further to 5% by 2030.
• Digital Saturation Varies by Category: Apparel and other categories have lower e-commerce penetration, making physical stores more critical. In contrast, categories like computers are already highly digital.
• Stores Enhance Customer Experience: Physical stores provide sensory experiences, instant gratification, and a sense of trust that online platforms often lack.
• Omnichannel Strategies are Winning: Retailers that blend online and offline experiences—through technologies like in-store beacons, interactive mirrors, and curbside pickup—are more successful.
• Metrics Need to Evolve: Traditional metrics that focus on store or e-commerce performance in isolation are no longer effective. Retailers should focus on catchment productivity and customer engagement across channels.
• Innovation is Key: Retailers must innovate and experiment continuously, using agile teams and technology to create new, differentiated experiences.

Key Figures and Data

• November 2015 Sales Growth: Combined in-store and e-commerce sales grew by 3%, with e-commerce up 16%.
• Cyber Monday Revenue: Reached $3 billion, with mobile sales contributing over 50% of the total.
• Store Conversion Rates: 25%–45% vs. 2%–5% for online.
• Foot Traffic Lift: 30% increase in November and December vs. 20% increase in sales.
• Mall Occupancy: Reached 94% in Q4 2013 and has remained stable since.
• Customer Defection Risk: Closing stores can lead to customer defection and a 20% drop in e-commerce sales.
• Online Penetration by 2030: Expected to flatten at around 20%, compared to 10% today.

Outlook for Retailers

• Three Retailer Types:
  1. Mature retailers in highly penetrated online businesses.
  2. Mature retailers in less digitally penetrated sectors.
  3. Early-stage retailers.
• Winning Strategy: Retailers in less digital sectors must keep stores relevant, build digital capabilities, and modernize systems to support future growth.
• BothBrain® Innovation: Combining creative thinking with commercial principles to deliver unique, customer-centric experiences.

Conclusion

Physical stores remain a vital component of the retail ecosystem, especially during the holiday season. While e-commerce is growing, its rate is slowing, and stores continue to provide unique value through sensory experiences, trust, and logistical support. The future of retail lies in the integration of digital and physical, with stores evolving into more than just places to buy—into hubs of inspiration, engagement, and omnichannel interaction.