"Physical store into a new world of shrinking passenger flow"

Lead: In Thursday, the Wall Street Journal web page published a commentary in the paper titled "The Real Store enters a new world of shrinking passenger flow" (Stores confront New worlds reduced shopper traffic). The vigorous development of e-commerce not only shocks the physical store sales, but also changes the consumer's shopping habits, resulting in a sharp contraction of the traditional retailer's passenger flow.

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Poor performance

Best Buy's Thursday results made it another retailer who did poorly during the Christmas shopping season. Like other chain retailers, Best Buy has blamed bad performance on excessive discounts, thinking that the price wars in the retail sector not only hurt profit margins but also hindered revenue growth.

There is, however, a deeper reason for this poor performance: consumer habits are changing over time, reducing the volume of physical store traffic and leading to a sharp reduction in the pricing power of these shopping malls and storage supermarkets. More worryingly, the shift could be permanent.

The electronic commerce has been a challenge to the physical stores for many years, although large entities have deployed many defensive measures but do not seem to have played a role. Best Buy, for example, adjusts the layout and marketing of its stores, and even invites consumers to try out their products in the store, and is willing to act as a "fitting room" for e-commerce-allowing them to try out their products in the store and then place orders online at a lower price.

Even so, Hubert Joly, Best Buy CEO Hugh Burt Chorley, said the company's passenger flow fell after Thanksgiving weekend. Not only the internet shopping consumers increased, the development of network services also eroded the CD and other traditional consumer electronic products demand.

"The current atmosphere is affecting the flow of physical stores," said Jolly, "without a doubt." ”

Reduced passenger flow

US retailers were hit hard during the financial crisis, when unemployment rose and consumer spending tightened sharply. Yet while the financial crisis has been going on for the past 5 years, many consumers seem to never return to physical stores.

ShopperTrak, a U.S. market research firm, uses 60,000 passenger-flow statistics across the United States to track traffic in major shopping malls. According to the company's data, the 2013 Christmas shopping season in the United States only half of the passenger traffic 3 years ago. 2011 was reduced by 28.2%, 2012 by 16.3% and 2013 by 14.6%.

Net sales grew during the Christmas shopping season last year, reaching more than twice times the growth in real-store sales. Shoppers are also less likely to shop in physical stores, and they will first find their favorite items online and then go directly to the most expensive shops. According to Shoppertrack's data, consumers visited 5 stores on average in 2007, and now only 3.

Retailers said the drop in passenger traffic could be far more than last year's Christmas shopping season. "In fact, we don't see any signs of improvement," said Frank Conforti, hints Outfitters, US retailer, at this week's investor conference. ”

Consumers like Sarah Ryan (Sara Rhein) have little reason to go shopping in physical stores. "I like shopping," says 37-Year-old Ryan, a nonprofit group in Washington, but since I have 3 kids at home, it's a waste of time for me to go shopping. My weekend has a long list of things to do, so I prefer to go shopping online, because I do not have to go to the shop, still can easily buy things. ”

Anthony Dolfen, 23, a mechanical engineer in Massachusetts, has only been to three or four physical stores throughout the Christmas shopping season, even though he likes to go to physical stores to look for deals Anthony.

"I only buy necessities, and the rest of my money is for student loans." "he said.

Hard Struggle

Cowen & Co, an investment company, says not just shopping malls, but also the volume of traffic in supermarkets such as Wal-Mart and Target are shrinking. Although the fall in oil prices usually attracts consumers to increase the amount of shopping in traditional channels, the reality has backfired.

Wal-Mart declined to respond before its earnings were released in February. A spokesman for Target said that the company's passenger flow had been affected by the lack of stability in the economy, but they had increased their consumption when they went shopping in the physical stores.

Online retail sales accounted for only 5.9% of total retail sales in the third quarter of last year, according to the U.S. Department of Commerce, but they have had a significant impact on the way consumers shop and spend their money.

As more and more consumers start browsing and researching goods through the Internet, it is hard for retailers to make profits from impulsive shopping. Not only that, Amazon Subscribe & Save service can even let consumers do not have to go to the physical store regularly to buy urine or toilet paper and other daily necessities.

At the same time, internet retailers are further strengthening price competitiveness, resulting in a lot of consumers only when the physical stores give discounts to patronize.

"These retailers are waging a tough struggle. Cowen & Co analyst Fayer Landes Faye Landes said, "If people do not go to the store, the probability of their shopping will be greatly reduced." ”

The shrinking of passenger traffic has hit retailers such as Express, which have been aggressively promoting during the Christmas shopping season. But it would hurt profit margins and make a pressure on earnings forecasts.

Forced to close the shop

Overall, the decrease in passenger traffic has become the main reason for retailers such as Home Depot to shrink their new store openings and to increase their investment in the shop. Meanwhile, companies such as Sears and Gap have closed hundreds of stores in the past few years.

In Wednesday, J.C Penny announced the closure of 33 underperforming stores and the layoff of 2000 people, concentrating on the most profitable areas. The closing trend is intensifying: since the leasing contracts of large retailers are usually 10-25 years old, many store rents have already been discussed before the rise of E-commerce.

According to CoStar Group, a real-estate market research firm, the 54 largest markets in the United States last year had a new retail area of only 44 million square feet (about 4.09 million square meters), plunging 30.19 million from 325 million square feet (87% square meters) in 2006.

Macy's announced last week that the company plans to close 5 stores and lay off 2500 people. The company said the decision was not due to reduced passenger traffic. But the change does allow Macy's to rethink traditional retail models and boost efficiency through online sales.

"The pattern of passenger flow is changing, but we will not close more stores." "We can now make up for the decline in physical stores by selling online," said Karen Hoguet, the CFO at Macy's Kelen Hoget in Thursday. ”

Explore new patterns

The department store retailer, for example, has made adjustments to 840 physical stores to fulfill online orders. In this way, they will be able to during the Christmas shopping season, the popular sweater directly through the physical store to show the consumer, rather than to be placed in the remote warehouse.

Best Buy also took a similar approach during the Christmas shopping season by expanding its store-delivery program to 400 stores. The company said its US network retail sales grew 24% during the Christmas shopping season, to $1.32 billion trillion. However, this growth still cannot offset the overall downward trend.

In the 9 weeks ending January 4, Best Buy U.S. sales fell 0.9%, excluding new stores. The company said the discount sales for the increase in sales led to a sharp contraction in operating profits. The news has led investors to dump Best Buy stocks. The unit plunged 29% in Thursday and closed at $26.83.

In a conference call in Thursday, Best Buy said the expansion of the Internet business would be a top priority for the company in 2014. Sharon McCollam, Sharen Mccollam CFO, said the company would devote more resources to Internet marketing and user databases this year in order to catch up with rivals.

"From the Internet marketing point of view, we have lagged behind." "she said. (PEI)