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Are recent headlines a sign of things to come?

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Two recent business stories that received a fair amount of attention in mainstream media channels raise some interesting questions about the trajectory of retailing in America.

MMR OpinionThe National Retail Federation reported in the middle of last month that holiday sales increased just 3% to $626 billion. The lackluster performance fell well short of the association’s projection of 3.7% growth, including online volume.

NRF president and chief executive officer Matthew Shay and chief economist Jack Kleinhenz attributed the difficult selling season for retailers to a number of factors, including unusual weather patterns in much of the country, problems with inventory, the impact of technology and heavy discounting on the part of many merchants. Still, Shay characterized the growth rate as healthy, even though the 3% increase was down considerably from the 4.1% gain in 2014 and a long way from the post-recession high of 5.2% in 2010.

The performance by the nation’s brick-and-mortar retailers looks even shakier when it is noted that non-store holiday sales, including e-commerce, advanced 9% to $105 billion. The disparity between traditional merchants and their online rivals reflects an ongoing paradigm shift in how consumers shop for a broad and growing range of products.
For some those doubts were subtly reinforced when, on the same day that NRF released the holiday sales figures, Walmart, the embodiment of mass market retailing, announced plans to shutter 269 of its 11,600 outlets around the world, including 154 in the United States.
The store closures were significant in two respects. Included in the culling process were all 102 of the company’s small-format locations, marking the end of an experiment that had been under way since 2011.

While acknowledging that Walmart learned a good deal, particularly about the everyday needs of customers, from the test, president and CEO Doug McMillon said management decided to focus on two tried-and-true formats that have proven their worth — Supercenters and Neighborhood Markets.

The turn away from small-scale stores pits Walmart’s thinking against that of many of its rivals. A notable example is Target. It is upping the ante in that area, with almost all of its store openings in the coming year involving outlets that are less than half the size of one of a typical discount store.
Another priority that McMillon cited when discussing Walmart’s store rationalization program is the need to capitalize on technology, together with the wealth of data it generates, to deepen relationships with consumers and develop a next-generation supply chain that can meet customer expectations no matter what form they take. “What Walmart can do that no one close can is marry e-commerce with our existing assets to deliver a seamless shopping experience at scale,” he said.

Viewed from that vantage point, the fine-tuning of Walmart’s store base makes a lot of sense, even if an argument can be made that, in the long run, small-format stores would have been useful, especially in support of the company’s effort to expand its reach in high-density urban areas.

All of the activity at Walmart, which also includes a pay raise for 1.2 million associates in the U.S., reflects the bigger trend of retailers trying to find the right formula in a marketplace that is changing at an unprecedented rate and, as the NRF data on holiday sales shows, meaningful gains are harder and harder to come by.

The challenge for Walmart, Target and their peers is to find ways to leverage existing strengths by giving people a compelling reason to visit a store, as opposed to shopping online, even as they hone their omnichannel capabilities.


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