Changes in shoppers’ consumer behaviour are driving a shift from the dominance of traditional bricks and mortar retail stores of the West.
In the UK, a number of traditional stalwarts of High Street retailing are facing bankruptcy.
Meanwhile, in the US, the traditional American Mall is taking on a whole new identity, pivoting to focus less on providing a place to purchase physical products to becoming an experiential hub where consumers buy the latest experience.
These experiential hubs are starting to form out of the ashes of failed traditional retailers. Kimco Realty, owners of some vacated Toys “R” Us premises, have reported on new experiential tenants moving into the vacated space. CEO Conor Flynn told the Wall Street Journal, “In addition to the thriving categories of off-price, health and wellness, speciality grocer, home improvement, furniture, arts and crafts, and entertainment, we have started to see new demand coming from co-working facilities, hospitality groups and medical facilities.”
US retail think tank, Coresight Research, claims that more than 1000 US departments stores will close between 2018 and 2023. These closures represent a fifth of the total department store footprint.
Coresight predicts that store consolidation, increasing e-commerce, the growth of new models like rental and subscriptions (as an alternative to purchasing), and a shift to services will be the major contributing factors to the traditional malls’ new commercial identity.
So what does this shift in consumer behaviour mean for the future of bricks and mortar retail? Is the West destined to follow the East and replicate the behemoth online mall and personalised logistics and warehousing structure of China?
For many years, leaders in the technology, retail, and e-commerce sectors have claimed that China is ten years ahead in terms of its development of on-line shopping and distribution. If retailers glance through the looking glass to China’s impressive e-commerce logistics network, there may be some clues about the West’s future.
Alibaba operates China’s largest e-commerce platforms, with more than half a billion shoppers purchasing via online malls. What’s interesting about Alibaba is that it’s created a ‘best of both worlds’ retail model in China, merging traditional bricks and mortar stores with a seamless online experience – it’s complete digitisation of commerce.
They call this model ‘New Retail’ – merging the best of online and in-store experiences – and one of its flagship experiences include China’s smartphone-powered supermarket, Hema. At Hema, every store doubles as a distribution centre. As reported on Alizila.com, “For those who live within three kilometres of the market, Hema’s ability to deliver in as fast as 30 minutes is its best asset. Each store serves as its own warehouse and logistics center that collects, fulfills and delivers customer orders as fast as they come in, online or offline.”
In contrast to the labour-intensive warehousing solutions of the West, the Alibaba Group in China have built smart warehouses throughout the country to fill orders placed on their Tmall site. These warehouses are reliant, not on humans, but on robotics to fulfil orders. The first of these robotic-driven warehouses opened in 2017 and has since been hailed as a great example of logistics efficiency.
Is this robotic fulfilment the future of warehousing and logistics in the West? Alibaba has committed US$15bn by 2022 to expand its global logistics network, with the smart warehouse model at the forefront. In May 2018, they opened a facility in Belgium, and have since established US warehousing in Los Angeles, New York, San Francisco, Canada and more. This new model could very well be coming to a mall near you.