As the rise of online shopping reshapes the vast retail landscape, some product categories are faring better than others in the rapidly evolving digital age.
Across the industry e-commerce sales will increase by over 15 percent a year through to 2020, JLL’s Bagged or Boxed? The Future of 13 Retail Categories report predicts. Yet growth will not be distributed equally among retail categories. “Though some product categories are more suited to today’s online ecosystem than others, retailers are employing a range of strategies to stay ahead in an omnichannel environment,” says Molly Morgan, JLL’s Vice President of Retail Leasing.
Despite the rise of digital, physical stores remain crucial, and striking a balance between online and offline offerings is a key challenge for retailers. “They need to make sure customers are drawn in by a unique in-store experience, but also make online shopping easy and convenient,” says Morgan.
Real Views takes a closer look at how different categories are meeting the challenges of the digital age.
The vast majority of consumers prefer to buy food and groceries in person, due to being able to buy what they need when they need it and selecting their own fresh produce. However, the convenience factor is now being replicated online, with more and more grocers offering services such as click-and-collect and same-day delivery.
“As grocery retailers master omnichannel offerings, sales will likely shift more toward e-commerce,” says Morgan. And as more players, such as Lidl and Aldi, get involved, competition is growing. “In a crowded marketplace, it's the retailers who can successfully create a seamless online-offline experience that will dominate.”
With a healthy consumer appetite for new fashion trends, the low prices and ever-changing stock of fast fashion retailers such as H&M and Forever 21 have given them the edge on traditional mid-market retailers. And while some apparel stores Wet Seal, American Apparel and The Limited are closing as a result, online retailers are filling the gap by opening up physical stores to enhance customer engagement and boost brand identity.
“As omnichannel approaches become more effective, stores will no longer function solely as the point of sale,” says Morgan. “Instead they will provide a brand experience that simply cannot be replicated online.” Indeed, JLL notes that 76 percent of consumers still prefer to buy apparel in-store rather than online. “While online subscription services and major e-marketplaces bring competition to physical stores, there will be a balance between bricks-and-mortar stores and e-commerce sales,” says Morgan.
Toys and children's goods
Sales of toys and hobby products are increasingly happening online, with a 16 percent jump in e-commerce from 2015 to 2016. At the same time, toy retailers' physical store sales have dropped 1.5 percent in the U.S. “Although toy and children's stores offer the benefit of interacting with products before buying, online retailers offer huge time savings for parents,” says Morgan. “Plus, toys are often given as gifts by those who may not live nearby, in which case purchasing online and arranging delivery is much more convenient.”
The emergence of mass merchandisers and online marketplaces is having an ongoing impact on traditional toy retailers—as highlighted by the recent bankruptcy of children's retail giant, Toys R Us. Morgan believes, however, that real-world shopping remains powerful. “Sales will increasingly happen online, but physical space will still be essential for the experience,” she says.
Although more than half of people prefer to buy sporting goods in person, sports retailers are facing intense competition from all sides, including mass merchandisers, online retailers and department stores. The recent bankruptcy of three sporting goods companies, for example, led to five retailers - MC Sports, Golfsmith, Gander Mountain, Eastern Mountain Sports and Bob's Stores – closing a total of 207 stores. “These recent mass closure announcements suggest that the category may move even further online,” says Morgan.
With same-store sales falling 3.5 percent in 2016 and e-commerce accounting for almost 14 percent of sales, the office supply sector has undergone considerable change of late. Store closures are common while brands such as Office Depot and Officemax have chosen to merge to present a stronger front against mass merchandisers like Walmart and Target in both online and offline arenas.“With office supply retail, physical stores don't offer much in the way of experience or time and money savings,” says Morgan. “Consolidations are therefore set to continue for this category, as is the shift to online.”
With more consumers choosing to shop for electronics online, the sector is repositioning itself for a digital age following the mass closure of hhgregg and RadioShack. For electronics retailers who still have a physical presence, an immersive experience is key. “Retailers like Apple and Best Buy offer sufficiently high-touch experiences to attract consumers to physical locations,” says Morgan. “Many other retailers, however, have been unable to compete with online prices and convenience—and online sales will keep gaining ground.”
As a retail category, books have become the posterchild of the online-offline battle—a story that started with the huge success of Amazon, which began as an online bookseller. Today, books (along with gifts) top the e-commerce sales charts, with nearly 25 percent of purchases happening online and in-store sales simultaneously flattening out.
Like music and video, the availability of books in digital format has helped push sales online. “All signs point to online further dominating this category,” says Morgan. “Yet, independent bookstores and a few chains can continue to coexist and prosper with unique offerings, new food and beverage options and in-store experiences.”
Big box discounters
With convenient locations, wide product selections and low prices, big box discounters are popular with consumers. “By offering a variety of merchandise, retailers like Target can effectively compete across a range of categories,” says Morgan.
In-store sales edged up 0.2 percent in 2016 in the U.S. while online sales reached more than 4 percent – and the figure set to grow as the big players invest more in their omni-channel strategies. “Strategic acquisitions and new store brands allow big box retailers to offer something fresh to shoppers,” says Morgan. “We're seeing more openings than closings in this category, which will maintain a strong presence in the physical space.”
Furniture is a category that straddles the online and physical worlds as many consumers choose to browse and try out items in showrooms before purchasing online where they often have the option of customizing color and materials within their orders. As these customized in-store orders for online delivery are counted as e-commerce they skew the figures a little – JLL notes that e-commerce accounts for 19 percent of sales. In addition, improvements to shipping and delivery services make it easier and cheaper to buy online.
“Physical retail will continue to be central to this category, but the online convenience factor and in-store ordering mean e-commerce will also remain relevant,” adds Morgan.