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12/17/2020

What’s the Future of Retail Stores?

What’s the Future of Retail Stores?
Kohl's is among the retailers using their stores for more commerce-related services, such as Amazon returns.

Retail stores will take on more functions in the future, thanks to the pandemic and other trends, according to a new report from CBRE.

The commercial real estate and services firm says that stores could increasingly take on such functions as high-tech fitting rooms, hospitality lounges, on-site processing of merchandise returns, and the shipment of online orders. These are just a few of the features and functions that retailers are adopting in order to meld in-store shopping and e-commerce fulfillment in the same space, according to the report.

As CBRE put it, while these innovations and trends have long been talked about in the retail sector, the pandemic has fueled a new sense of urgency for retailers to design stores of the future that support shopping in-person, online or by mobile device.

The report notes that annual growth of online sales has averaged 15.9% since 2010, while brick-and-mortar retail sales averaged 3.1% per year over the same period. COVID-19 has accelerated this growth even more, as shoppers have become more comfortable shopping online.  

“Brick-and-mortar stores will remain vital for retailers for branding purposes and essential customer interaction, but the store’s purpose will shift to supporting the rise of the multichannel consumer a consumer who uses physical stores, e-commerce, mobile commerce, and social media for shopping and purchasing,” said John Morris, CBRE’s Retail and Industrial & Logistics leader. “This will be key for cost control, as shipping for online orders can eat away profits if retailer supply chains are not efficient. To improve this, stores will now include a big portion of their overall footprint for inventory control, product sorting and shipping/receiving,” he added. 

With appealing to multichannel consumers as the goal, the new “front of house” retail format will include:

  • More space set aside for curbside pickup.
  • Digital wayfinding signs for shoppers, and in-store features for the retailer’s mobile app.
  • Designated click-and-collect desks to separate traditional and omnichannel shoppers.
  • High-tech fitting rooms with smart mirrors, allowing shoppers to try on apparel and accessories virtually.
  • A multi-purpose media lounge to allow customers to take a break from shopping.

The new hybrid store will also handle multiple forms of fulfillment and inventory control, as well as returns. Referred to as “back-of-the-house,” the industrial footprint will include: 

  • A warehouse racking system that will separate online orders, buy-online-pick-up-in-store orders, and in-store replenishment.
  • Delivery access for shipping and receiving of online orders.
  • Inventory optimization technology similar to that of a distribution center to ensure continuous replenishment.
  • Reverse logistics support for online returns to determine if a product should be re-shelved or shipped back to the regional fulfillment center. 

“To make the hybrid store format successful, both retailers and landlords will need to approach real estate differently. For some retailers, it will mean fewer, larger stores in key locations and for others, smaller stores in more locations for greater market penetration,” said Melina Cordero, managing director for CBRE’s Retail Capital Markets. “Lease rates will adapt to blend more expensive rates for retail space with less costly rates for logistics space.”

 

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