Retail apocalypse or re-imagination?

How brick-and-mortar retail is adapting to meet evolving customer expectations

To paraphrase Mark Twain, “the reports of retail’s death have been greatly exaggerated.” As news of the impending retail apocalypse continues to make headlines, sales numbers tell a different story.

Retail and restaurant merchants that rely on Bank of America Merchant Services for payments processing witnessed sales growth of 3.2 percent from January through May 2018 compared to the same period the previous year.1 This tracks U.S. Census Bureau findings showing that total offline retail sales grew approximately 2.5 percent in 2017. This begs the question: Is brick-and-mortar retail really dying?

Retail is still growing

It’s easy to assume the worst. In the U.S., retail businesses accounted for almost 15 percent of bankruptcies in 20172 and nearly 7,000 stores are slated to close in the next three years.3

The recent closures are partly in response to rampant overdevelopment, particularly with the same types of stores, as well as businesses that resisted the call to adapt as consumer expectations changed.

According to research by Cowen and Company, the number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, and the U.S. has 40 percent more shopping space per capita than Canada, five times more than the U.K., and 10 times more than Germany.4

Despite the attention-grabbing figures, retail is growing, with around 3,500 expected net store openings in the U.S. in 2018.5 Categories witnessing expansion include dollar, convenience, beauty and auto parts stores.6

Spending habits and consumer expectations are evolving

Consumers are shifting more of their spending from goods to services and experiences. From 2007 to 2017 there was a $309 billion shift in consumer spending from goods to services.7 While a large percentage of this shift is attributed to rising healthcare costs, 21 percent went to experiences like travel, dining out and other recreational activities.7

And it’s no secret that eCommerce has altered customer expectations in terms of convenience, price and service. Amazon and other online retailers continue to raise the bar on their customer experience. They’ve added features like personalized product recommendations, fast and free shipping, and robust loyalty programs. Amazon Prime membership alone rose from an estimated 46 million in July 2016 to 54 million in July 2017.8

“The bottom line is that customers have become more discerning about how they spend their disposable income,” says Roberts, “so they’re spending it where it’s most convenient, affordable and enjoyable for them.”

Traditional brick-and-mortar stores are under great pressure to innovate to meet these new customer habits and expectations, as well as ensure a consistent and pleasing customer experience across all channels. According to consumers, the brick-and-mortar shopping experience is the one that often lets them down. When surveyed, 72 percent of respondents said the physical shopping experience is dull, 64 percent said it’s hard to shop at brick-and-mortar locations and 60 percent said the service is poor.9

of retail spending is done in physical stores.11
of millenials and 77% of GEN Z prefer stores.11

The future of brick-and-mortar

Make no mistake, the physical store remains an extremely valuable asset. More than 90 percent of all retail spending takes place in a physical store,and consumers still prefer an in-person shopping experience over online for a wide range of product categories.5

Retailers that are thriving have embraced enhancing the customer experience.

Take Nordstrom, for instance. The company launched new, smaller-footprint, alternative-concept stores that provide personal stylists, tailoring services and manicure appointments, while stocking zero inventory. All product purchases are made online.

Innovation is also going the opposite direction where major eCommerce players are opening brick-and-mortar outposts to better engage with customers, test new technologies — like Amazon Go’s checkout-free model — and to raise their profiles in the physical world.  “The key is realizing what your customers want, when they want it, and how to help them purchase it” says Roberts. “All those capabilities rely heavily on omni-channel tactics that bridge the gap between online and in-store.”

Based on industry research and predictions, the future retail store will have three key characteristics. It’s smaller, it’s high-tech and it’s high-touch, providing customers personalized shopping experiences that meet their expectations.


People still prefer shopping in stores10

Percent of U.S. adults who prefer shopping in-store vs. online by segment

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