Home / Companies / Will brick-and-mortar stores survive?

Supermarkets, much like department stores, mass merchandisers, supercenters, and other broad-assortment retailers are facing impacts across almost every category in their stores. Reading the commentary of equity analysts, one is impressed by the extent to which supercenters like Walmart and warehouse clubs like Costco have stolen supermarket customers and taken over categories that were previously the sole domain of supermarkets. We believe that there are several key issues that will effect a dramatic change in the supermarket industry over the next five years.

First, e-commerce will shift significant dollars out of the industry. Although home delivery does not seem to be a viable alternative in the supermarket space today, a combination of fragmentation in consumer shopping behaviour and emerging alternatives to home delivery will change how Americans buy consumables. The inexorable march of Internet technology will create significant changes in the expectations and behaviour of supermarket shoppers that will open up opportunities for new and creative concepts.

Related to this, the consumer need for convenience will continue to explode and retailers will need to find solutions that solve problems for time-starved customers.

Second, the bifurcation of income in the US will accelerate and lead to an even greater need for supermarkets to provide value. As income inequality accelerates, the ability of supermarkets to remain competitive will diminish as volume flees for Walmart or migrates to higher-end retailers like Whole Foods.

Third, the bifurcation of consumer shopping trips will continue unabated

Fourth, the amount of excess space that supermarkets will have on hand will become an albatross around the necks of most supermarket chains as they struggle to figure out how to productively deploy or shrink the space in what has become a very inflexible format.

Finally, the wave of human health concerns (especially relative to obesity) will cause supermarkets to rethink some of their core strategies.

We are currently in the midst of many of these changes, and because of them, the past two decades have been challenging for supermarket companies. The recent recession has made things worse. Store closures have become increasingly common and even large chains, like Safeway, have struggled with generating high returns on invested capital.

©2015/HARVARD BUSINESS SCHOOL

This extract has been reprinted with permission from Retail Revolution: Will Your Brick-and-Mortar Store Survive? by Rajiv Lal, José B. Alvarez, and Dan Greenberg. All rights reserved.

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