Retail brick and mortar may not die completely, but it's dying as we know it

By Sarah Lacy , written on March 25, 2013

From The News Desk

Running parallel to the debate about whether or not print is dead is the debate about whether or not brick and mortar retail is dead. In recent months, we've catalogued no shortage of well-founded arguments on both sides.

What's clear is that both arguments suffer from being oversimplified. On print: Certainly the failure of local newspapers that weren't adding a lot of value and the failure of Tina Brown's amateurish attempts to bring link-baiting to the physical world show what won't work. But that alone shouldn't be viewed as an inditement on all things print.

Is print the future? Most certainly not. Can it be a smart adjunct to a digital-first strategy? Maybe, depending on what you do, and what your audience wants. As a dinosaur and writer myself, I'd go so far as to say I hope so.

Brick and mortar retail is similarly nuanced. As Marc Andreessen argued on our virtual pages weeks ago, traditional brick and mortar chains -- think mega-real estate intensive, trouble mall-anchors of yore -- are more challenged than ever before. Next, Index Ventures' Danny Rimer took this a step further, arguing that even grocery stores as we know them were doomed. One Kings Lane's CEO Doug Mack argued he'd rather own a broadcast station than a brick-and-mortar chain, because of the habitual loop between the tablet, mobile, and TV.

But notably many of Mack's contemporaries don't agree. You'd expect the traditional brick and mortar crowd to argue with Andreessen and Rimer. But the surprise is that the very ecommerce 2.0 leaders who are trying to take the medium further than the pre-Zappos generation could by replicating the browsing, brand, and enjoyment aspect of shopping online are the very ones who are arguing there's still a place for brick and mortar.

The key is this: Where it's working, it's doing so with a significant twist. The same way no one would create a print-only daily publication today with an attached printing press, these upstarts aren't following the traditional retail playbook.

As much as people have hooted that Andreessen and Rimer are being too extreme, if you look closely at what  defenders of brick and mortar -- at least in the ecommerce 2.0 world-- are proposing, the two sides are more aligned than not.

Tweak No. 1: Both Warby Parker and Bonobos have embraced the showroom model, where scant retail space frequently in non-prime spots is used for service and to try things on. The commerce still happens online, sort of like the old days of general stores and the Sears catalogs. That means they can forgo things like carrying inventory and extra space -- those aren't trivial expenses to cut out of the brick and mortar model.

This wasn't too different from how Rimer described the bleak future of grocery stores. He wasn't literally saying there'd never be a place we walked into to buy groceries ever again. He was saying that there's no reason for an aisle of, say, toilet paper to exist. New grocery stores would be places to pick up meat, produce, and other things that have highly variable quality. But staples should be delivered to your front door regularly in the future, much the way and Honest customers get their diapers now. For future generations, this scene from Raising Arizona should be a bizarre anachronism like rotary phones.

Tweak No. 2: Shoes of Prey, Bonobos and others are piggy backing onto existing retail chains. A few weeks ago, Bonobos's CEO Andy Dunn said that Nordstrom was a nice way for it to acquire lifelong customers without dangerous and risky over spending on display and social ads. Etsy has tried integrations with West Elm as well, we've heard with mixed success.

Tweak No. 3: Pop-ups and other crazy shit. One of the more interesting things Etsy has played around with are pop-up stores. CEO Chad Dickerson talked about this at our January PandoMonthly. Similarly, Warby Parker has done some off-the-wall experiments like refashioning a bus and driving glasses around the country. And Thrillist/JackThread's CEO Ben Lerer has said they are mulling physical locations but if they opened them, they'd be more event and experiential spots for the typical Thrillist "dude" and brands that want to sell with them, more than any store.

These tweaks aren't trivial. They greatly cut costs, amp up the experience around what people do in these stores, and are typically modest plans in terms of scale. No one I've spoken to envisions opening chains of hundreds of locations. Done under these parameters, brick and mortar retail is essentially an entirely different business.

Meanwhile, to see just how screwed the traditional model is look at the continuing misfortunes of JC Penney run by highly respected retailing expert Ron Johnson. As the New York Post wrote a week ago his "bold turnaround strategy has backfired badly." Sure some of that is due to the ailing brand. But a lot of it is due to JC Penney trying to mimic the only thing that's working: Fast fashion brick and mortar retailing ala H&M. The problem is JC Penney ads that show a pair of blue, say, skinny jeans for a few dollars less than the already cheap version at H&M don't give anyone much reason to switch behavior.

The bigger problem: That brick and mortar albatross hanging around its neck. It's not just the costs of keeping these empires going -- it's that increasingly they are backed by lenders who are losing faith. And that could be what kills chains like these for good -- along with a lot of the tenants who used to make malls viable. As the Post reported last week, CIT, a major lender to chains like JC Penney, is adding a surcharge to loans. This after Wells Fargo did something similar following JC Penney's woeful fourth quarter earnings.

Startups can talk up showrooms all they like. To Andreessen's original point and Rimer's rearticulation of it, not even the most struggling ecommerce companies have to contend with issues like these.

So maybe it's a stretch to say brick and mortar is dead in any iteration, but I'm finding fewer and fewer people to defend brick and mortar as we know it.

[Image courtesy Professor Bop]