How does anyone in retail sleep at night? Hundreds of retailers have filed for bankruptcy this year, including Toys “R” Us with over $5 billion USD in debt, making it the third largest retail bankruptcy in history. Some forecast that “Retail is Dead”, and with the collapse of companies like Sears it’s not hard to chime in. But is it true? Walk into an Apple store, the local Starbucks or IKEA and the answer is clearly no. But it’s more complicated than that.
Retail is evolving more quickly than some companies are able (or willing) to adapt, and in the race to a finish line that keeps edging out of sight, many big brands are stumbling off course. Both Toys “R” Us and Sears have more than just internet retailers to blame for their demise.
Toys “R” Us may have been doomed since 2005 when private equity firms loaded the company with debt to take it private, making it financially difficult to invest in innovation. They were slow to embrace e-commerce, essentially allowing the competition to beat them online. The rise of mobile devices as entertainment for children, discount retailers, online shopping and indie retailers like Mastermind Toys stealing market-share have all added up to disaster for Toys “R” Us. Efforts to revitalize the brand were half-hearted even though it was clear the company was in trouble. Debt prevented Toys “R” Us from making the substantial, transformative changes that were really needed.
Sears had a different problem. Customers are shopping at large discount stores like Walmart and Dollarama for staples, and then indulging in brand name luxury items at Nordstrom’s, leaving a gap on both ends for department stores. 18 months ago Sears decided to right-size and refocus their offering around fashion and home décor, but this effort (which included a new logo and store design) meant competing in a fierce marketplace – fashion was not Sears’ strength, and even H&M now offers home décor. Sears would have been better off focusing on appliances and housewares, where they have strong brand association and trust, rather than compete in an extremely over-saturated market where they were not really contenders.
Retailers cannot afford to wait and see, or make choices that are not strategically vetted. An omni-channel presence is the new retail experience, and the best retailers are killing it. Nordstrom allows you to instantly buy items you like on Instagram. Bonobos has “guideshops” where merchandise can be viewed, touched and tried on, but not taken home, to introduce their online brand to bricks-and-mortar retailing. And Apple has changed retail stores from a place that sells products to an experience where the brand is so crisply defined in every touchpoint, it couldn’t be anything else but Apple.
Retail is not dead, but it has transformed and is still evolving. Retailers who use omni-channel most effectively and creatively will be the big winners, while once-iconic giants like Toys “R” Us and Sears fade into distant memories.