Brick-and-mortar merchants face challenges as retail sales slow down

The retail sector in the US has been hit by a slowdown in sales growth, as consumers face higher prices, supply chain disruptions, and uncertainty over the pandemic. Brick-and-mortar merchants, who have been recovering from the lockdowns and closures of 2020, may face more difficulties in attracting and retaining customers in the competitive and changing retail landscape.

According to the latest report from the US Census Bureau, retail sales in September 2023 increased by only 0.7% from the previous month, and by 13.9% from the same month last year. However, these figures were below the expectations of analysts, who had forecasted a monthly increase of 0.8% and a yearly increase of 15.2%.

Brick-and-mortar merchants face challenges as retail sales slow down
Brick-and-mortar merchants face challenges as retail sales slow down

The report also showed that some categories of retail sales declined from August to September, such as motor vehicles and parts dealers (-3.6%), clothing and clothing accessories stores (-2.6%), and sporting goods, hobby, musical instrument, and book stores (-1.9%). On the other hand, some categories saw an increase, such as nonstore retailers (3.1%), gasoline stations (3.0%), and food services and drinking places (1.7%).

The slowdown in retail sales growth reflects the challenges that consumers and retailers are facing in the current economic environment. Some of the factors that may have contributed to the slowdown are:

  • Inflation: The consumer price index (CPI) rose by 5.4% in September 2023 from a year ago, the highest annual increase since 1990. The rising prices of goods and services have eroded the purchasing power of consumers, especially for discretionary items.
  • Supply chain disruptions: The global supply chain has been strained by the pandemic, as well as by natural disasters, labor shortages, and geopolitical tensions. These have caused delays, shortages, and higher costs for many products, such as automobiles, electronics, furniture, and clothing.
  • Pandemic uncertainty: The emergence of new variants of the coronavirus, such as the Delta and Mu strains, has raised concerns about the effectiveness of vaccines and the possibility of new lockdowns and restrictions. This has dampened the consumer confidence and spending, as well as the business outlook and investment.

Brick-and-mortar merchants face more competition and pressure

The slowdown in retail sales growth may pose more challenges for brick-and-mortar merchants, who have been trying to recover from the impact of the pandemic on their businesses. Brick-and-mortar stores have been losing market share to online retailers, who have been able to offer more convenience, variety, and lower prices to consumers. According to a report by eMarketer, e-commerce sales in the US are expected to grow by 17.9% in 2023, reaching $1.2 trillion, while brick-and-mortar sales are expected to grow by only 6.6%, reaching $4.8 trillion.

Brick-and-mortar merchants also face more pressure from rising costs, such as rent, labor, utilities, and transportation. These costs have been increasing due to inflation, supply chain issues, and labor shortages. According to a survey by the National Retail Federation (NRF), 97% of retailers said they have been impacted by port and shipping delays, 80% by increased transportation costs, and 67% by increased labor costs.

To cope with these challenges, brick-and-mortar merchants need to adapt and innovate their strategies, such as:

  • Offering omnichannel experiences: Brick-and-mortar merchants need to integrate their physical and digital channels, such as by offering online ordering, curbside pickup, delivery, and returns. This can help them provide more convenience and flexibility to customers, as well as leverage their store locations and inventory.
  • Enhancing customer loyalty: Brick-and-mortar merchants need to build and maintain strong relationships with their customers, such as by offering personalized services, rewards programs, and exclusive offers. This can help them increase customer retention, satisfaction, and spending.
  • Differentiating their value proposition: Brick-and-mortar merchants need to highlight their unique advantages and benefits, such as by offering experiential retail, product demonstrations, expert advice, and community engagement. This can help them attract and delight customers, as well as create a competitive edge.

The future of brick-and-mortar retail is not bleak

Despite the challenges and competition, brick-and-mortar retail is not doomed to decline or disappear. Brick-and-mortar stores still have a significant role and value in the retail sector, as they offer some aspects that online retail cannot replicate, such as:

  • Sensory and social experiences: Brick-and-mortar stores can provide customers with the opportunity to see, touch, try, and buy products in person, as well as to interact with other customers and staff. These experiences can enhance the enjoyment, trust, and loyalty of customers, as well as influence their purchase decisions.
  • Immediate gratification: Brick-and-mortar stores can offer customers the benefit of instant availability and access to products, without having to wait for shipping and delivery. This can appeal to customers who need or want products urgently, or who prefer to avoid the hassle and cost of online shopping.
  • Local presence and relevance: Brick-and-mortar stores can cater to the specific needs and preferences of local customers, such as by offering local products, services, and events. This can help them create a sense of community and connection with customers, as well as support the local economy and environment.

Therefore, brick-and-mortar retail is not likely to be replaced by online retail, but rather to coexist and complement it. According to a report by Forrester Research, brick-and-mortar retail is expected to account for 72% of US retail sales in 2024, while online retail is expected to account for 28%. The report also suggests that the most successful retailers will be those who can offer a seamless and integrated omnichannel experience to customers, leveraging the strengths of both physical and digital channels.

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