How Empathy Will Save Brick-And-Mortar Retail

The death of brick-and-mortar retail is a well-worn topic. Amazon.com, Inc. AMZN is crushing. Online is the future. Yadda, yadda. But Loup Ventures analyst Andrew Murphy has a different perspective.

“We don’t typically talk about the percentage [of] sales that happen offline, but it’s powerful to see how large that market remains,” he wrote in a Friday note.

Offline sales comprised 91.7 percent ($1.1 trillion) of total U.S. retail sales in the fourth quarter of 2016. Web made up the other 8.3 percent ($103 billion).

So in-store retail really isn’t on its deathbed ━ yet. Murphy proposed that, in the long term, transactions will increasingly migrate online until such sales account for 55 percent of the total, but brick and mortars aren’t fated to fade entirely.

The Battle Plan

The traditional model maintains an edge in at least one respect: its capacity to foster relationship.

“Some of your favorite stores probably already leverage these capabilities like retailers of handmade goods with a unique story and shops where you’re a regular — you know others and feel known by the community,” Murphy wrote. “There will always be a place for these retailers — but they’ll need to be laser focused on empathy.”

Interpersonal connection and personalized service are critical to what Murphy calls “empathic” retail.

“The degree to which retailers are successful in leveraging creativity, community and experiences in their stores is the degree to which they will be successful in defending their businesses against online commerce and automated retail,” he noted.

But the two other categories will continue to gain ground regardless.

The In-Between

Online shopping already entices with convenience, speed and options, and it’s still in its infancy. Murphy predicts augmented and virtual reality to transform internet markets with immersive and lifelike product experiences. The capacity to virtually test outfits or arrange furniture could ultimately drive gains for online retailers, particularly as returns decline.

Still, even the likes of Amazon see value in brick-and-mortar models. Maybe not the traditional kind, but brick and mortars, nonetheless.

The corporate polymath is piloting a cashier-less, machine-driven grocery store in Seattle and has already inspired similar experiments at Wal-Mart Stores Inc WMT. Murphy considers the shift a portend of future operations.

The warehouse-like model serves consumers with speech-capable robots, cuts shopping time through automated, line-less checkout and, as Murphy acknowledged, limits negative interactions with potentially poor customer service agents.

“For human-delivered brick and mortar retail to survive, every time a customer visits a local store, that store has to deliver a great customer experience,” he wrote. “The store can’t afford to have employees that don’t care or, even worse, project their own bad days onto customers. And if retailers don’t care, then they don’t give shoppers a reason to interact, build community or share an experience.”

For commodity-based industries not reliant on personalized service, the reduction of workforce costs would ultimately lower prices to appeal to cost-conscious consumers.

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