If retailers want to prosper, and they can't match Amazon on price, survival may come down to this: People are lonely.
More than ever, shoppers crave human interaction in a way that technology can't provide. Sure, after a day of working remotely, you can sit on your couch and buy every item in every color, but was the experience memorable? Did it meet your primal need to congregate with others?
Forget that basic need and you forget a key advantage brick-and-mortar have over online retailers, said developer Rick Caruso, during the National Retail Federation's annual convention last week.
Caruso, the founder and chief executive officer of Caruso Affiliated, one of the largest privately held U.S. real estate companies, caused some squirming among retailers when he said the typical U.S. mall has outlived its usefulness. Most are dull and boring, and without a major reinvention will be considered a thing of the past in the next 10 to 15 years.
What retailers should be doing, he said, is what cavemen were doing at the beginning of time: Inviting people to their cave to sit by their fire. (And, more recently, it's what Starbucks does when it invites you in for free Wi-Fi with your venti skinny vanilla latte.)
Caruso pointed to his hugely successful open-air shopping center in Los Angeles. The Grove attracts 18 million visitors a year — up there with Disney's Magic Kingdom — and is listed among the top 15 shopping centers worldwide based on its sales per square foot. Rather than stay home and shop online, its customers come for the atmosphere and experience. They ride the trolley through the property or watch events in the park. The parking garage has a sparkling $5 million lobby with concierge, and bathroom attendants hand you towels. At least one guy has proposed at the big fountain.
Caruso, who considered running for L.A. mayor last year, said the best shopping centers are designed around enjoyment, not shopping. Make people happy, and they will spend, spend, spend.
"When you create a compelling retail experience, not only does your market share grow, but more importantly your heart share grows — and that is known as customer loyalty,'' he said.
Caruso set the tone for the NRF conference held Jan. 12-15 at New York City's Jacob K. Javitz Convention Center. Dubbed the "BIG Show,'' the convention attracted 30,000 retail executives and vendors selling everything from digital wallet systems to shopping bags.
Whereas past conventions hit hard on ways to boost digital sales and combat show-rooming (the concept of people going to a brick-and-mortar store to look at products but then buy online), this year's show centered on better reaching consumers, regardless of whether it's through stores, websites, mobile devices, television or catalogs. In the words of the retail wonks, it's all about "omnichannel retailing,'' a term repeated over and over again at the convention.
Hamish Brewer, chief executive officer of JDA Software, cautioned retailers against trying too hard to price match. Lowering prices might generate revenue, he said, but at what strain to your business or impact on the bottom line?
"The elephant in the room is that Amazon doesn't need to make a profit, where most retailers do,'' he said, alluding to the fact that Amazon did $61 billion in sales in 2012 but had $40 million in losses.
Best Buy is a timely example. A day after the convention ended, Best Buy announced intense pricing competition over the holidays cut into its revenue, sending the stock price plummeting more than 27 percent. The message: To win in the new retail reality, it takes more than price.
Ken Hicks, president and chief executive officer of Foot Locker, told conventioneers that brick-and-mortar chains need to capitalize on their strengths, chiefly that every store is a distribution center capable of receiving, processing and shipping inventory.
"We have 3,500 warehouses,'' he said, noting that Amazon wouldn't be building so many fulfillment centers — including one headed to Hillsborough County — unless shortening the time it takes for products to reach customers wasn't a priority.
This year, more retailers will start pushing free shipping to stores and in-store pickup to lower delivery costs and improve customer service, said Sucharita Mulpuru, an analyst at Forrester Research. Shoppers have grown accustomed to free shipping but at a great cost to retailers, which must absorb the cost.
"Shipping is the Achilles' heel of e-commerce,'' she said.
Just look at what happened this holiday season, she said. Amazon and other retailers who promised last-minute orders in time for Christmas got into major trouble when United Parcel Service and FedEx weren't able to handle the rush.
When all was said and done, customers directed their anger not at the shipping companies, but at the retailers. Amazon tried to apologize with gift cards and refunds, but the damage was done. Poor Jimmy had one fewer gift under the Christmas tree.
And that's something no retailer wants to happen, whether they are selling online or in a store.
Susan Thurston can be reached at [email protected] or (813) 225-3110. Follow @susan_thurston on Twitter.