Goldman Sachs has observed a ‘shift back to the middle’ among both breeds of retailer, with large retailers moving aggressively in ecommerce “because they needed to”, and ‘digitally-native’ brands “finding some value in brick-and-mortar stores”.
In the third installment of this multi-part miniseries, Goldman Sachs’ head of retail investment banking, Jen Davis explains the three core areas where traditional are investing to optimise their strategy in the age of disruption. Davis explains:
“Traditional retailers have been investing is in last-mile delivery, and in ‘buy online pick up in store’, or BOPUS. They do that both in terms of lowering distribution costs, and two, getting add-on sales. A good example of that is Lowe’s, they fulfill 70 percent of their online orders via their stores. And so that’s a significant chunk of their online business today. And 30 percent of the time, when a customer comes to pick up their order, they add on an additional product.
“Another example is Walmart. Walmart’s on track to offer grocery pickup in almost 3,100 stores, and they will add grocery delivery from 1,600 stores by year-end. And so really thinking about this last-mile delivery to customers today is one area that the traditional brick-and-mortar players have been thinking about, using their footprint.”
The two other areas traditional retailers have been focused on is on smaller stores and more urban centers with a more localised assortment smaller footprints specifically by big box retailers, according to Goldman’s Davis. A further area of focus is in providing services to drive traffic, such as dining, tailoring, grooming with manicures and pedicures – anything to drives traffic by leveraging their existing footprint.
“For the ‘digitally-native’ brands, they are also seeing the benefit of having a brick-and-mortar and kind of omnichannel offering. And what’s interesting today, you’ve seen dozens of stores from Warby Parker and Caspar and Bonobos and Away, the luggage company, all opening stores today. Those ‘digitally-native’ brands combined are expected to open almost 850 stores over the next five years. And so, I think you see this convergence between the traditional players and the ‘digitally-native’ brands coming together in terms of their store footprints.”
Davis was speaking Goldman’s Jake Siewert, in the firm’s latest Exchanges at Goldman Sachs podcast.