Retail - Hard Times for Brick and Mortar

By Robert Roman

01/01/20

Location of a retail store is often thought to be the single most important element for business success. For example, car wash developers must mirror the traditional brick-and-mortar business model, open a storefront, and drive traffic to it.

Car wash operations attract business from pass-by traffic and nearby residents and businesses. Consequently, the car wash should be located along a road that has robust traffic as well as surrounding development that would complement the car wash.

This includes convenience stores and gas sites, pharmacies, groceries, dry cleaners, banks, auto-parts stores, fast food drive-thru, day-care centers, strip retail centers, etc. Second tier businesses include new car dealerships, shopping malls, office complexes, schools, universities, churches, etc.

The challenge is finding such locations where there is unmet demand and not much in the way of direct competition. Today, this challenge is even greater because the retail environment has changed considerably.

For example, consider the retail meltdown that is occurring. According to the U.S. Department of Commerce, there were more than 14,000 store openings in 2017, but there were also over 10,000 store closings.

Hit hardest were retail strip centers, department stores, and some of the nation’s 1,200 or so shopping malls. According to Trans Western, a full-service real estate company, most Class A malls are strong but B- and C-tier are deteriorating rapidly.

Mall vacancies are at a seven-year high and analysts predict roughly 30 percent of malls located in markets served by multiple malls will likely close or be re-purposed over thenext decade.

According to the Wall Street Journal, even mighty Walmart announced the closing of 17 super store locations recently and plans to open fewer than 10 new stores over the next year.

Of course, this wouldn’t be welcome news for car wash operators that located a store across the street from one of these sites or next to the center’s gas bar.

Experts attribute the retail meltdown to several factors. One is the rise of online shopping. Between 2007 and 2018, e-commerce went from 5.1 percent of total retail purchases to 14.3 percent. During this period, department store sales dropped by almost 50 percent. Analysts estimate online shopping could reach between 30 percent and 40 percent of retail spending in the foreseeable future.

Another factor is mobile commerce. Since 2010, mobile commerce has grown from 2 percent of digital spending to 20 percent. Another factor is changing consumer spending attitudes and habits. Spending on travel, food services, and establishments that provide experiential retail is booming. Experiential retail or purchasing refers to a store in which stuff happens in addition to selling, and shoppers do things besides buying. The idea is that a retailer offers consumers a chance to buy an experience rather than just an object or service.

For example, consider the 10-hour-long waiting line for the newly opened Harry Potter ride at Universal’s Islands of Adventure or the large number of people who camped out for 40 hours to see President Trump in Orlando, FL. Reportedly, there were over 100,000 requests for 20,000 seats.

Clearly, people are willing to wait or spend inordinate amounts of time and money if the experience is worth it. For example, is it the ingredients and naming convention that gets customers to buy up or is it the flashing LED lights, lava bath, cherry scent, and beading water?

Another potential threat to brick-and-mortar stores is digital transformation. For example, digital technology like websites and customer apps has allowed car wash operators to expand the market range of their stores, but it has also allowed tech firms like Superoperator and EverWash to create a car wash business without owning any real estate, buildings, or equipment.

The next digital transformation that car wash operators may have to wrestle with is when customers are less inclined to visit a particular store location. For example, some analysts opine that retail and logistic companies could one day buy up millions of cars once autonomous vehicles are practical. Here, cars could become stores and the streets real estate.

Seems weird, but so does standing in line for 10 hours for a three-minute-long amusement ride.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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