Four years ago, I had the opportunity to share coffee with a Target executive who was a University of Northern Iowa business alum and had been invited to speak to our business students. I asked him how many new stores Target planned to open in 2015. “Four,” he said. Sensing my surprise at the low number, he held up his phone, adding, “This is the new Target store.”
What changes in retail in the Cedar Valley can we expect in the coming years?
To cut costs, expect retail leaders such as Walmart and Target will aggressively shift more sales out of their stores to online by offering deals you can’t refuse. Also, expect most of the products you buy in the future will be delivered direct to your home. The result: By 2040, large retailers will have closed most of their stores nationwide and here in Waterloo and Cedar Falls (Until now, home delivery has not been affordable for most retailers, but that is changing.)
A former marketing student of mine at UNI, today a leader in search optimization in Chicago, Dave McAnally, recently told me: “The products that bring us joy and happiness (clothing, cars, furniture, jewelry) amount to no more than 15 percent of everything we buy. The rest is toilet paper.”
It is this “joy-filled 15 percent” that will still be on physical shelves in 2040 available for customers to touch and feel. Sofas and high-end apparel need to be touched and felt before purchase. But who needs to touch and feel a bottle of Drano before they buy it?
Bottom line: You can expect that a whopping 85 percent of the products that appear today in your neighborhood stores (canned tuna, bagged bread, salad dressing, aspirin, frozen pies, and thousands more), will be be permanently pulled from shelves within the next 20 years. Gone!
How and where, then, will we purchase these “joyless products” once they are not available at the store? Hint: Check your driveway.
Today, three of the largest investors in electric driverless technology are Walmart, Walgreen and Target. They view these vehicles (that operate for as low as $2 per 100 miles) as future commercial real estate. In anticipation, Walgreen alone has shut 600 stores in the last three years, with more to come. If Walgreen can do this, what’s to stop Ace Hardware, or Blaine’s or Hy-Vee? Nothing.
Every retailer knows profit increases as square footage decreases. So how might store space look?
Take cars. Image visiting a boutique-size indoor shop or outdoor pop-up tent in a high-traffic shopping area just large enough to park three vehicles. Imagine this space staffed by two salespeople who demonstrate the car you’re thinking about on your phone or IPad and end with an opportunity to order your new car on the spot.
Sound futuristic? Actually, it sounds like Tesla, which has been selling cars like this for the last five years. (Imagine one more thing: how many millions of dollars Tesla saves by not renting massive retail buildings and miles of sprawling asphalt!)
What can you expect by 2040? First, expect most existing large discount and department stores to be shuttered and replaced with warehouses filled with robotic delivery systems and van-size “stores on wheels.” Second, expect traditional retail jobs to shrink significantly or disappear as employees are shifted out of floor sales to order fulfillment responsibilities in automated plants. Third, expect commercial real estate prices to soften. Situated atop four wheels, size and location mean little if 85 percent of the products consumers buy come direct to their home.