WOODRUFF: Now, the second of a two-part look at the transformation and troubles of retail.
The Federal Trade Commission has cleared the way today for Amazon to take over Whole Foods
starting next week. Meanwhile, Sears announced it plans to close even more of the K-mart
stores that it owns. While each company has its particular story, there`s no question
the retail sector is going through a major transformation.
Our economics correspondent, Paul Solman, reports on how companies are trying to reboot
and adapt to a most challenging environment. It`s part of our weekly series, "Making Sense."
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PAUL SOLMAN, PBS NEWSHOUR ECONOMICS CORRESPONDENT (voice-over): More store closings this year
than any since the Great Recession, retailers filing for bankruptcy at a record pace, countless
others teetering on the brink. And so, the obvious question:
(on camera): Is this Armageddon for retail?
MARK COHEN, RETAIL PROFESSOR, COLUMBIA UNIVERSITY: The retail industry is fine but the legacy
players are facing Armageddon.
SOLMAN (voice-over): Columbia University retail professor Mark Cohen.
COHEN: You know, back in the day if you wanted almost anything you could think of, you had
to go to a department store. Now what`s happening, the Internet is hollowing out the great American
shopping mall.
SOLMAN: Amazon founder Jeff Bezos predicted as much to me almost 20 years ago: unless
brick-and-mortar stores do something different, they`re toast.
JEFF BEZOS, AMAZON FOUNDER: To put it in the extremes, the category that`s most threatened
is the strip mall --
SOLMAN (on camera): Because?
BEZOS: -- because that`s no fun.
SOLMAN (voice-over): This outside a Borders Bookstore which, of course, went bankrupt
12 years later.
So, what`s a retailer to do now?
COHEN: The traditional retailers that survive this paradigm shift are going to have to create
a physical presence that`s far more attractive and engaging than what they`ve got.
SOLMAN: More engaging or else. Earlier this summer, Hudson`s Bay, which owns Lord & Taylor
and Saks Fifth Avenue, slashed 2,000 jobs. Now, an activist investor is pushing the company
to sell its stores for the real estate. The Saks flagship in Manhattan alone is reportedly
worth $3.7 billion. To Hudson`s Bay CEO Jerry Storch the challenge is clear:
GERALD STORCH, CEO, HUDSON`S BAY: How do we give the customer that extra reason, beyond
simply consummating a transaction to buy some merchandise to come to a store.
SOLMAN: Lord & Taylor`s answer: The Dress Address. At 30,000 square feet, it`s the largest
dress floor in the country, with a rotating pop-up space that spotlights a new designer
every eight weeks, a restaurant and shopping suites with space for you and a bevy of buddies.
LIZ RODBELL, LORD & TAYLOR: I bet this is going to be a bestseller. And I love --
SOLMAN: Lord & Taylor`s Liz Rodbell is betting on custom service, too.
RODBELL: We have a concierge on the floor that will help connect you with a stylist
immediately to really put you together to look terrific.
SOLMAN: Lord & Taylor is also testing lifestyle shops curated by makeup maven Bobbi Brown.
At Saks Fifth Avenue, they`re selling health and fitness.
STORCH: Think of as an amusement park for an adult, a reason to come to experience something
new and different.
SOLMAN: Hudson`s Bay CEO Storch met us at The Wellery. You can buy stuff here, or get
a manicure, practice your golf swing, work out, sample dry salt therapy to improve lung
function.
Saks president Marc Metrick.
MARC METRICK, PRESIDENT, SAKS: I think when people leave this area, leave this floor,
and actually leave the store after visiting here, I want them to think, wow, that`s not
the Saks I thought. When they bump in to somebody, when they see someone a few weeks later and
someone says, oh, what`s going on in those department stores? Somebody could say, wow,
have you been to Saks lately? There`s a lot going on.
So, that`s the goal.
DAVE GILBOA, CO-FOUNDER, WARBY PARKER: We don`t think retail`s dead. We think mediocre
retail is dead.
SOLMAN: Dave Gilboa is cofounder of eyewear monger Warby Parker, an e-retail success story.
His answer to Armageddon is to combine online with brick-and-mortar.
GILBOA: We just want to give customers options. We like to say that we`re experience focused,
but medium agnostic.
SOLMAN: The online retailer had been in business three years when it opened its first store.
GILBOA: We found that there`s still a lot of demand for people walking into physical
stores.
SOLMAN: So, Warby Parker has opened 55 stores with plans to add 25 more this year.
GILBOA: There are certain customers that probably will never feel comfortable buying glasses
online. There are other customers that even if we open up a store right next to their
house, they`d prefer the experience of ordering online.
SOLMAN: Yes, e-commerce grew 16 percent last year, but most purchases are still made in
person and Warby Parker wants a piece of that action.
So, its stores have photo booths for trying on glasses and sharing photos of them with
friends. Not feeling the specs? You can buy or just read books here too.
And Gilboa says the company uses data it collects online to offer personalized service in its
stores.
GILBOA: If you`ve bought a pair of sunglasses or prescription glasses from us online, and
you walk into our store, any of our retail advisors could pull up your customer record.
They could see your preferences. You could even go on your phone or on our Website and
create a list of favorites and then come into our store and one of our advisors can help
you find those frames.
SOLMAN: Indeed more and more e-commerce players are merging technology with physical retail.
Case in point: Amazon`s recent ventures in grocery stores, and actual bookstores, where
your Amazon Prime account gets you an automatic discount.
Meanwhile, other retailers are re-conceiving the store entirely. Story in Manhattan`s Chelsea
district creates retail narratives -- themes that change every three to eight weeks, like
a magazine. The theme when we visited was fresh story -- founder Rachel Shechtman`s
37th completely different narrative.
RACHEL SHECHTMAN, FOUNDER, STORY: If a magazine tells stories by writing articles, and taking
pictures, we tell stories through merchandise and events. And then, magazines have advertisers,
and we have sponsors.
SOLMAN: The sponsor of fresh story, Jet.com, an e-commerce upstart bought by Walmart that
ventured into grocery delivery last year.
SHECHTMAN: We created a wall out of jet boxes since and we`re telling a story about them
shipping fresh groceries, and so, this is a stasher and it`s a storage bag that`s, you
know, plastic-free and reusable. We`re really using merchandise as a narrative storytelling
tool.
SOLMAN: Story has two revenue streams sponsors like jet.com pay to promote. In this case,
fresh produce and their delivery of it.
SHECHTMAN: Would you like a banana to eat?
SOLMAN (on camera): I would. I haven`t had my banana today yet, actually.
(voice-over): The other revenue stream: sales, here of fresh-food themed merchandise.
SHECHTMAN: That`s a flask.
SOLMAN (on camera): A banana hip flask!
SHECHTMAN: Yes.
SOLMAN (voice-over): Now, admittedly, some items were more fresh than others.
(on camera): But still have the vegetable theme here. I strategically placed the salts.
SHECHTMAN: Yes, you did.
SOLMAN: So, this is public television.
SHECHTMAN: It is public television.
SOLMAN (voice-over): But unlike traditional retailers, Shechtman doesn`t worry much about
sales per square foot.
SHECHTMAN: What we`re focused on is experience per square foot. Frankly, if there`s subscription
retail and you have all these new business models online, why the heck is no one reinventing
the business model offline?
SOLMAN (on camera): This is offline?
SHECHTMAN: We are offline. We are in a physical world.
SOLMAN: I never thought of that. My life is offline.
SHECHTMAN: Your life is offline.
SOLMAN (voice-over): Shechtman believes retailers must pay more attention to offline experience,
because that`s what human beings still want. To that end, every story has themed events
-- classes, workshops, panel discussions. And at fresh story, fresh-baked cookies.
SHECHTMAN: Someone doesn`t just need to go to a store to buy something, right? So, here
you can taste something, you can learn something, you can do something with a friend. And so,
it`s not just commerce, it`s content and community.
SOLMAN: That`s also true at Warby Parker, says Gilboa.
GILBOA: Humans are social animals and are always gonna value face to face interactions.
So, I don`t think that`s going away.
SOLMAN: It`s a view shared by the CEO of stores like Lord & Taylor, Saks, and others.
STORCH: There will always be physical stores. Until they invent the transporter, like on
"Star Trek", there will be a reason for stores. It`s still the only way you can touch merchandise
instantly, feel it, try it on.
SOLMAN (on camera): Very nice.
(voice-over): Or, for that matter, eat it.
SHECHTMAN: I`m breaking my diet for you.
SOLMAN (on camera): I`m breaking my diet for you!
(voice-over): For the PBS NEWSHOUR, this is ever expansive economics correspondent Paul
Solman, reporting from New York.