Retail Horizons: Will we need physical stores in the future?

Sustainable Futures

Retail Horizons: Will we need physical stores in the future?

Image of boutique by zhu difeng via Shutterstock

This article is the second in a 12-part series about the future of U.S. retail for the Forum for the Future-led 2014 Retail Horizons project in partnership with Retail Industry Leaders Association. For more about the project, read the previous post.

The future looks promising for online retail. Technological advances will continue to make mobile payments more widespread and simpler, delivery more efficient and supply chains more transparent. Online giants, including Amazon and eBay, already offer same-day delivery in urban areas, getting products into the hands of consumers as quickly as possible. Census data shows that online shopping is 6.4 percent of all retail sales (PDF) and it's predicted to reach 10 percent — and $370 billion — by 2017.

Tempting though it may be to look at these numbers and imagine a Jetsons-style future where products arrive home at the push of a button, it isn't time to write off the traditional storefront just yet.

Just as online retail offers wider selection and convenience, physical stores offer multisensory experiences and human interaction. The future likely will hold a blend of the two, with consumers switching between formats among product categories and within the same brand.

If we look at current retail leaders such as Apple, Nordstrom and Whole Foods, it is clear they share key common traits that have enabled success in a rapidly changing retail environment. To succeed in the marketplace of the future, stores likely will need the following three traits.

1. Seamless digital integration. The question is no longer about online versus physical, but rather how the two are integrated. In J.Crew stores, shoppers can try on clothing in the store, as well as place orders through the online store for out-of-stock styles. Online men's web clothier Bonobos opened physical storefronts called GuideShops, which serve as showrooms where customers can determine size and fit, and receive guidance, before placing an order online. Online shoppers can drive traffic into stores and vice versa.

2. In-store experiences. Millennials, predicted to be one of the largest consumer segments in 2030 (at 78 million), place great value in experiences and sharing, which means that to capture this group stores will have to cater to these wants. Urban Outfitter's Space 15 Twenty is one example of a mixed-use space with art, food vendors and events open to the public, which create more opportunities for driving consumers into stores.

3. Design. Depending on who you are, shopping can be fun or tedious. For some stores and brands, nifty design can be a way to differentiate themselves in the market. For example, Dollar Shave Club made a very mundane product (men's disposable razors) well-designed, cheap and convenient. Target has stood out as a leader in making everyday things into highly designed covetable objects through its Design for All initiative. One example of this is the Michael Graves tea kettle for Target, which made an iconic design accessible to the public. In an increasingly competitive future, stores and brands that can make the mundane amusing will have the potential to succeed.

The challenge future stores will face is how seamlessly they can integrate new technology into providing a superior experience for customers across all platforms. Augmented reality is one such tool that retailers such as IKEA are experimenting with, allowing consumers to imagine what their products would look like in their homes.

There will continue to be a need for stores in the foreseeable future. Even when "the death of the mall" was proclaimed after the financial crisis of 2008, Legaspi managed to find success by creating malls catering to the Latino community. These malls provide family-friendly entertainment and community spaces.

The store of the future will exist in an America that is increasingly urban and tech-savvy. Stores will continue to provide value if they can work in conjunction with online retail to provide consumers with new products, technology and experiences.

Top image of boutique by zhu difeng via Shutterstock.