If you’re just joining us, I recently wrote a blog post with some thoughts on how the Internet is killing brick and mortar retail spaces.  This is not a new idea and it makes sense that people will flock to an easy-to-use source where they can save money on purchases.

There is nothing wrong with making purchases on-line, but it does pose a fairly large problem.  We are humans and live in a physical world where going to certain retail stores can be fun and very enjoyable.  There are certain stores that I love and make me feel good.  I walk in and just really enjoy the shopping experience.  I’m sure that you feel this emotion as well from time to time.

As the Internet continues to grow, it threatens to cannibalize the brick and mortar shopping experience.

So the main problem is that we like going to retail stores, but don’t like spending money with them.  How often have you heard, “I bet I can find this cheaper on-line.”?

The entrepreneurial opportunity comes in figuring out how to take advantage of the abundance of open retail space available in cities across the country, while also creating a physical retail environment that produces a reasonable profit.

Here are some ideas on how to succeed with a physical retail space:

1. Specialization – A store should only sell a very narrow line of products. We sell bicycles. We sell guitars. We sell coffee grounds for at-home use…we have the best coffee from all over the world…we host coffee classes in our store….etc. In general, specialization is very hard to maintain because revenues might be low and there is a myth that increasing the variety of products will increase sales.  The goal here is to become the best in the world in one particular area.

2. Expertise – The on-line world (at this point) does not provide experts available to meet my needs, answer my questions, and make recommendations. The physical retail space should offer experts who can listen to my needs and respond accordingly. In the coffee ground store example, the sales people would ask questions about my needs and help me pick the best coffee.  They would join me in sampling the various blends and guide me on the journey.  Choose an area where you have passion and excitement for the product…perhaps something where you are already an “expert”.

3. Experience – I want a fun and entertaining experience in the retail environment. There are some good examples here: a store that sells cigars and they have a person sitting in the window hand-rolling cigars….a store that sells caramel apples and allows customers to make their own treat….Build-a-Bear….a ceramics studio where I can make something right in their store…people love taking part in the retail experience. They want to watch an expert do something…or they want to do it themselves.  Think: Retail-tainment.

4. Offer the Best – In some situations, I want the very best available…and I’m willing to pay for it. I want the best running shoes possible.  I want the best coffee.  I want the best beer.  The store should offer the highest quality available.

5. Customization – Offer advanced levels of customization. If they sell something that is 17 inches, they can make the same item 18 inches, based on my needs. Ideally, it would be one main product with numerous options for customization.  In the coffee grounds example, there could be an endless variety of customization based on the size that I want, packaging options, and the desired blend that “speaks” to my palate.  A real world example might be Teavana (http://www.teavana.com/).

6.  Embrace the Internet – The retail store should have a strong connection to the Internet.  This might include on-line product ordering, but more importantly the on-line presence should be an extension of the physical retail environment.  Customers should be able to interact with each other to share ideas and best practices related to your specialization area.  Poll questions are posted publicly to understand preferences. There should be a blog where the owner can share ideas and receive customer feedback.  The owner of the store and key employees should be individually and personally connected to the website.  It would be an on-line community.  Information about news and new products is shared.  The website should make it easy for people to share information about the store with others…ie:  click here to email this article to a friend, etc.

7.  Replicate – There is a huge opportunity available to take advance of open brick and mortar retail space across the USA.  When the business model is proven, it should be expanded to a regional or national audience. Begin with the end in mind and think about retail businesses that could be profitable and lend well to replication.

This is part two of a three part series about the brick and mortar retail industry, in the last entry I’ll share some predictions on how retail will change in the future.

These are some of my thoughts on how retail spaces have changed in the past and what a good retail model looks like for the future. I am not a retail business expert, but I do play one on tv. This entry is the first part of a three part series. I think about this topic every time I drive by an open retail space in Milwaukee.

In the last couple of years, I’ve seen an over-abundance of open retail spaces. I’m concerned about the decline of physical retail spaces and interested in the future of retail, from an entrepreneurial perspective.

The basic problem is that while people like spending time in certain brick and mortar retail environments…they won’t spend extra money on the items to cover the additional costs of doing business in a physical space…rent, insurance, labor, utilities, fixtures, showcases for products, etc.  There is a lot of cost involved to create an attractive retail environment for people to enjoy.

A quick example:  While traveling, I found an interesting book in a hotel gift shop.  When I left the store I used my phone to add the book to my wish list on Amazon.com. I really enjoyed the store, but knew that I could buy the book later for less money.  Also, I could have the book shipped to my house, which created less hassle to carry the book around with me, fit in my suitcase, etc.

Ok…enough of the intro…let’s get started:

In many parts of Europe, you walk down narrow streets and see little retail spaces set up. Often there is only one or two people working in these spaces. And to complement the narrow streets…the businesses also have a very narrow focus. With specialization comes expertise. The owner of the leather store knows a lot about leather. The owner of the book store knows a lot about books. The owner of little store that sells men’s ties knows more about ties than you. They are experts in the subject matter and people can enjoy learning from their experience, receiving appropriate recommendations, training and product support, etc.

This model has worked for hundreds of years… Think about an old town image where there is a blacksmith, a cobbler, a baker, a tailor, etc. People develop a specialty area and then dive deep to provide products and services around that specialty.

Over time, mass production entered the picture and the costs of production went down. Retail spaces no longer needed to be specialized because the items were not produced on-site. One store could sell many items produced by various people from different locations. This led to larger department stores, Dime Stores, General Stores, etc…  I think these larger stores are more common in the US were the population is more spread out and many people live in suburban areas….compared to Europe where the small retail spaces appear to be very popular and primary outlets.

Fast Forward to the current day and also the advent of the Internet.

In the US, the Internet is killing many retail outlets. Why should anyone buy a book at Border’s bookstore when they can purchase it less expensive on-line. If you’ve walked in to a Barnes & Noble recently, you’ll see that their model has shifted to provide things other than books. Much of their floor space is now dedicated to gifts and other items like board games, candles, greeting cards, stationary, home decorations, etc. (If the book business was profitable, they would not give floor space to these other items.)

When I was growing up, large department stores were very popular.  These could be found in shopping malls but also I would consider Walmart and Target in this category.  The idea of going to one store to purchase all my items is attractive. Walmart has become known for low prices. They are good at offering low prices, but horrible at customer service or support. Next time you’re at one of these stores, try asking for a book recommendation or ask the guy in the electronics department a service question about your home audio system. (The mere thought of this is comical.)

With the Internet, people can now make these purchases right from their home computer or…mobile device. This enables me to be physically shopping in Barnes & Noble, find the same book on my phone and make the purchase from Amazon.com for less money. The only downside is that I must wait for the shipment…but, the plus side is that now I have a piece of mail to look forward to…

In this framework, people would be stupid to purchase something from Barnes & Noble, when they can find the same item on-line for cheaper….unless they need it right away…(but how often does this happen?)

On the contrary, there are some items where I really want the very best available. In these cases, I need an expert helping me. For example, I am in the market for new running shoes. I could buy these from some website, like zappos.com, but then I wouldn’t get to try them on…and I also wouldn’t have an expert available to guide me. So instead I will go to a physical retail store called Performance Running. All of their business is from runners who buy running shoes and accessories. They are experts in the niche market and I am someone who wants the best available. When I go in their store, they let me try on various shoes and also have a fancy treadmill with video recording so that I can ensure an ideal fit.

Another example might be stores that sell guitars and other music instruments. I would want the expertise and recommendation from the staff…and also want to take a test drive of music instrument.

In conclusion, it’s going to take a Retail Revolution to change the way that physical retail spaces compete with the web. Thus far in the short history of the Internet, many brick and mortar retailers haven’t figured out how to compete. This has lead to noticeable amounts of vacant retail spaces in cities around the country. In most cases, the Internet has hurt their business models, because people are buying on-line when in the past they would have supported a local business or retail space.

In the next part of this series, I’ll suggest some ideas on how to succeed in the current business environment with a physical retail space.  Then I’ll conclude with a third post on some predictions for the future of retail.