The Changing Face of Brick-and-Mortar Retail: How to Stop the Bleeding 

We’ve all seen the headlines. Retailers across the board are shuttering stores or going out of business — Sears, Sports Authority, Kmart, Office Depot. The numbers are staggering. According to data from outplacement firm Challenger, Gray & Christmas, retailers have laid off approximately 44,000 workers in 2016 alone — all while Amazon.com boasts 31 percent year-over-year second quarter revenues.

The discrepancy in retailer health is impossible to miss. As online retailer profits shoot through the roof, brick-and-mortar retailers have gone into triage mode trying to determine how to stop the bleeding. The retail landscape has shifted, and large chain retailers must shift, too, in order to compete in today’s dynamic and rapidly evolving landscape.

This shift must include new strategies to cut costs, drive traffic, increase sales in-store and deliver new, engaging customer experiences. In this series, The Changing Face of Brick-and-Mortar Retail, we’ll look at all of these components. Today, we start with an immediate concern for brick-and-mortar retailers — how to stop the bleeding.

Ask anyone who shops online why they do so and their answer will invariably be one (or all) of the following: convenience, price and inventory. In the past, having stores in multiple locations would meet consumer demand for convenience and inventory. With the ability to accommodate large volumes of both customers and inventory, large storefronts could also meet price demands. However, in the current environment, online retailers can easily beat physical stores on all of those fronts.

Brick-and-mortar retailers are facing tremendous operational and financial pressure to stay competitive, leading to margins that are unsustainable in the long run.

So, how can brick-and-mortar retailers remain in the black while competing with online threats? I've highlighted six ways retailers can improve their bottom line by adopting best-in-class digital technologies within their store environments and leveraging the power of mobile engagement to reduce operating expenses.

1. Move transactions to the cloud. Point-of-sale (POS) hardware is expensive; it’s costly to maintain and even more so to upgrade. And frankly, the hardware services a paper and plastic world, whereas today nearly every shopper is using their mobile phone to some degree. So why not make the smartphone the only device a shopper truly needs to interact with retailers?

Retailers can begin by implementing a hybrid system that integrates with existing POS-based checkouts, with the goal of ultimately transitioning to a predominantly mobile-based checkout. The big picture? Retailers looking for long-term operational efficiencies should look to connect all interactions happening in-store to the cloud, not just POS systems.

2. Warehouse long-tail inventory items. If 80 percent of sales come from 20 percent of products, why are retailers stuffing their stores with inventory? By warehousing long-tail items, retailers can reduce and optimize store sizes as well as associated overhead costs, while at the same time enhancing in-store inventory with fast-selling anchor products, digital displays for product information and mobile-based suggestions. Shoppers can use their mobile devices to browse and order different colors, sizes and styles of items not carried in the store, but which accompany the products they're buying in-store. These “virtual aisles” enable retailers to minimize inventory costs and contain costly markdowns, while giving shoppers the e-commerce experience they’ve grown accustomed to.

3. Steer consumers toward low-cost payment products. While credit card companies generally charge a 1 percent to 3 percent transaction fee on every purchase, retailers no longer need to be beholden to third-party payment platforms. There are many options retailers can allow and promote for payment. No-cost and low-cost payment options include store-branded cards, co-branded cards, debit cards and — soon — real-time automated clearing houses. Merchants can now use their own mobile apps to steer consumers toward their preferred low-cost payment product, making a significant dent in the overall cost of retail operations.

4. Leverage self-checkout. By enabling in-store transactions via mobile, retailers can transition from dedicated POS terminals to simplified self-checkout aisles and exits. In this scenario, shoppers walk through unmanned lanes devoid of costly POS hardware and automatically pay for scanned items as they leave the store. This modernized checkout results in significant cost savings, mostly due to staff reductions, commercial space redistribution, reduced shopping cart abandonment, reduced wait times and cheaper technologies.

5. Digitize paper coupons and rewards. The cost of mailing, redeeming and handling paper coupons and rewards is high and inefficient for merchants. Additionally, even consumers don’t want to deal with paper coupons: 82 percent say digital coupons are a convenient option compared to printed coupons, and 51 percent of shoppers say they wish all coupons were digital.

Retailers should look to make coupons, offers and promotions available digitally to shoppers throughout all stages of the purchasing journey, while leveraging their mobile phones to simplify redemption. In addition to reducing the shipping and printing costs, these digital offers can also significantly reduce the time spent by store associates during checkout. Studies have shown upwards of 30 percent reductions in an associate’s time spent on checkout when paper offers and coupons get digitized.

6. Enable inverse showrooming. Retailers are losing customers who come to their physical store only to price compare on Amazon. These people leave the store empty handed. Merchants can avoid this by using a technique called “inverse showrooming” — i.e., using a retailer-branded app to provide automated price-matching offers to consumers who have searched for merchandise elsewhere online while shopping in-store. Inverse showrooming enables retailers to use mobile technology to retain customers they otherwise would have lost to price differentials. Best Buy is a great example of a retailer that has been aggressively price matching online merchants, a move that helped the company beat profit and sales expectations of late, and buck the trend of weak performances in the electronics category.

In a day and age where Amazon accounts for 24 percent of total retail sales growth, the retail industry must reinvent itself to compete. Fewer shoppers are visiting physical stores, and many of the ones who do end up buying elsewhere. Retailers must fight back by slashing unnecessary overhead and harnessing technology to more efficiently serve and interact with shoppers via their mobile devices.

While it's a critical component of competition, cost cutting can only take a retailer so far. In the next article of this series, I'll examine how merchants can drive traffic and sales at their stores by personalizing the shopping journey and engaging with customers before, during and after the sale.

Amitaabh Malhotra is the chief marketing officer of OmnyPay, an integrated platform for payments, loyalty rewards and offers that encourages consumers to use their mobile phone for all aspects of their buying journey.