The local and national retail industry faces many headwinds, but reports of its death have been greatly exaggerated.
In spite of the frequently dismal headlines about legacy retailer bankruptcies and store closures, a wide variety of West Michigan-based retail industry stakeholders note the sector is just continuing to evolve as it reacts to technological disruption.
“There’s a thought that retail in the brick-and-mortar world is dead and I don’t think it is at all,” said Sean Welsh, West Michigan regional president for PNC Bank. “I think the retailers have to be focused on showing up in a way that delivers the product, the price and the experience to the consumer.”
That focus on product, price and experience fits the strategy executives have used to grow Gazelle Sports Inc., a Kalamazoo-based specialty sporting goods retailer with additional stores in Grand Rapids, Holland, Northville and Birmingham.
By focusing on delivering an experience that taps into the fitness lifestyle within its brick-and-mortar locations –– and by bolstering its emphasis on e-commerce –– the company grew revenues 8 percent last year after several relatively flat years, said Gazelle Sports co-owner Chris Lampen-Crowell.
“I think for the local retailers, you just have to go all in with customer experience and customer service,” said Lampen-Crowell. “You’re looking for that customer segment that values that. We continue to emphasize that and continue to have great relationships in the community with our medical professionals, coaches and gym instructors that send people to us. Having that kind of relationship-based sales and service, it’s still valuable.”
At the same time, Lampen-Crowell said stores must go beyond relying on a positive brick-and-mortar experience, often by expanding sales opportunities to a digital format for customers who want the same experience even if they can’t make it into one of the physical stores.
“On the balance side is the convenience for the customer with online opportunities,” Lampen-Crowell said. “Everybody in retail is looking at that customer and saying, ‘I help her when she shops in the store, but how can I help her when she doesn’t have time … and just needs to get something online?’ We’ve been able to do both, but it’s not an easy step to take for a lot of local small retailers.”
While niche retailers have tapped into lifestyle trends and focused on the shopping experience to find opportunities in the turbulent industry, many big-box retailers have floundered in developing a strategy that bridges brick-and-mortar stores and e-commerce.
Retailers have announced more than 3,300 store closures nationwide this year, while only 1,700 stores have opened, according to New York City-based Coreright Research. That follows nearly 7,000 store closings last year.
Despite those store closings, retailers’ demand for workers remains strong. In November 2017, job postings around the country hit a two-decade high with nearly 853,000 open positions in the middle of the holiday shopping season, according to data from the Bureau of Labor Statistics interpreted by the Federal Reserve Bank of St. Louis. By February of this year, that number had dropped down to 708,000 open positions.
While those jobs openings might contrast with the apocalyptic retail narrative, smaller retailers remain at a competitive disadvantage compared to larger players like Target and Walmart that are voluntarily raising their minimum wages. That competition, coupled with an already tight labor market, creates unique challenges for local and regional players, said Matthew Mason, a managing director focused on distressed real estate assets in the Detroit office of turnaround firm Conway MacKenzie Inc.
“I think when you get into retail jobs, which often are hourly-based, a bit more transient employees, it’s harder to compete with those other jobs because everyone is competing for the same talent,” Mason said. “There’s more open positions than there are workers available, so the workers go to what they view as the best opportunity for them. That makes it very difficult for small business owners to compete with the higher wages.”
Lampen-Crowell with Gazelle Sports agrees, noting that while finding skilled workers can be difficult, his company has consistently raised wages and maintained a 20-percent profit-sharing program, all of which has helped the retailer retain its workforce.
“It’s an increasing challenge, but we’re fortunate that we’re a values-based company. The people that choose to work for us are engaged in that healthy lifestyle that we’re supporting,” Lampen-Crowell said.
Workforce issues abound in the state’s retail industry, and its an issue the sector’s trade group seeks to address, according to Meegan Holland, vice president of marketing and communications at the Michigan Retailers Association.
“When we talk about job openings in retail, a lot of people think about sales associates, cashiers,” Holland said, adding that the MRA and partner organizations are working to create workforce development initiatives specific to retail, similar to those found in skilled trades such as manufacturing or construction.
“Truthfully, a lot of retail jobs involve technology like other professions,” Holland said. “You need to know how to work a point-of-sale system. It’s hard to find employees with that experience.”
Despite some of these struggles that Michigan retailers face, recent figures from the MRA show the industry remains on solid footing in the state. In late April, the MRA released its monthly Michigan Retail Index survey for the month of March, which showed that 60 percent of respondents reported sales increases over the previous month, while 30 percent reported declines and 10 percent experienced no change in sales.
The MRA results show a seasonally adjusted performance index of 64.3, nearly 20 points higher than the previous month and about seven points higher than March of last year.
“It’s good to see that consumer confidence won out over Michigan’s unseasonable weather in March,” James P. Hallan, president and CEO of the Michigan Retailers Association, said in a statement.
Nationally, consumer confidence actually declined slightly in March, according to The Conference Board Inc., a business research organization and subsidiary of Nielsen.
After hitting an 18-year high in February, the monthly Consumer Confidence Index dipped 2.3 points to 127.7, according to the report.
FACING THE GIANTS
But even with strong consumer confidence and a relatively healthy economy buoying retailers, many still face vast disruption from burgeoning technologies.
Welsh of PNC Bank noted that his industry has undergone significant changes in its brick-and-mortar presence as more banking can be done digitally, while also acknowledging that the need for physical branches still remains strong, albeit in a vastly different manner.
While banking customers can largely manage their accounts from smartphones on a day-to-day basis, they still visit branches for help with financial advisory services and routine data protection, Welsh said.
“Those conversations happen in our branches,” he said. “I always tell our people that our branches have gone from being transaction centers to being conversation centers.”
Meanwhile, retailers continue to compete — and in some cases partner — with one of the industry’s greatest disruptors: Amazon.com Inc.
In mid April, the Seattle-based online retailer for the first time released some key metrics, including that the company’s Prime membership service has more than 100 million subscribers globally who pay a $99 annual fee.
The subscription service offers a variety of benefits to members like free, two-day shipping and streaming music and video options.
Lampen-Crowell noted Gazelle Sports sells some of its brands as a third-party seller on the Amazon platform, which he notes has been both a blessing and a curse.
“I think most retailers have to weigh where can they be relevant in today’s market, and being relevant means probably being involved with Amazon even though it’s a slippery slope,” he said.
Ultimately, Amazon’s dominance of the online retail market means the company gets to dictate a lot of the terms, which in turn makes retailers like Gazelle Sports more mindful of how they handle their business with the digital giant.
“Their business strategy is to dominate the marketplace and control that data so that customer data continues to be their customer data,” Lampen-Crowell said. “For us, it’s sales we wouldn’t (otherwise) have, so there’s opportunity. We’re making sure that we stay within a cost structure that makes sense to us in terms of our margins. It’s important to look at that very sharply because Amazon is taking a piece of every one of those sales.”