E-Retail vs Brick-and-Mortar

This week, Gordon Orr continues on the theme of digital changes that are impacting China. Though it may not be the first industry that comes to mind when we talk about the rise of the digital era, the retail sector will also need to evolve to survive.

Remodeling shopping malls

According to Orr, shopping malls are losing ground to the online marketplace. While retail sales are still growing, e-retail sales jumped by 50 percent in 2013. Although the rate of growth may slow in 2014, it will still be significant.

However, regardless of such a significant rise in e-retail sales, developers have already announced plans to increase China’s shopping mall capacity by 50 percent during the next three years. For an industry that generates a significant portion of its returns from the percentage of retail sales in its malls, this decision doesn’t seem to be coherent. If clothing and electronics stores are pulling back on the number of outlets, what will fill these malls?

“This is a going to be a very important challenge,” says Orr. “Of course, there will continue to be brick-and-mortar malls, but they are going to be different in the future in multiple ways.”

So, what is going to be changed? “Traditionally when you open a mall, you focus on attracting retail stores like clothing and electronics. There will still be some of those in the future and maybe even grocery-type stores, but the big change is going to come with the increase of service stores.  There will be a significant rise in the number of doctors’ offices, opticians, hairdressers, cinemas and restaurants in malls: the things you can’t get online. It will become a service center rather than predominantly a retail center and that is going to, for the mall owner in most cases, generate less revenue. So they are going to need to adjust their business models,” explains Orr.

Is the retail industry in crisis? They are in danger, but not yet crisis. The changes in consumer behavior can stimulate transformational changes for the retail industry if they can find a way to leverage technology and evolve the customer experience to keep customers coming back to the traditional brick-and-mortar.

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