Payments Innovation

What Overcoming Inertia Tells Us About The Future of Physical Retail

By now, you’ve no doubt heard the story about how Isaac Newton turned quarantining during London’s outbreak of the Bubonic Plague between 1665 and 1667 into a time of great focus and innovation.

Newton’s sojourn out of Cambridge, England, where he was attending Trinity University, to his family home in Woolsthorpe in order to avoid the risk of infection produced some of the world’s most important scientific and mathematical discoveries.

What’s lost in that story, though, is the more direct application of one of Newton’s quarantine-induced discoveries to the modern world’s reaction to the global pandemic.

Newton’s First Law of Gravity was one of his most important work-from-home discoveries. Although great debate remains about whether the apple that fell out of the infamous tree on his family’s property and inspired his discovery actually landed on his head, there is little debate about the importance of what actually came out of his head.

“An object at rest stays at rest, and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.”

Newton’s first law of motion is also called the law of inertia.

And the global pandemic has taught the world a lot about inertia — or, more appropriately, getting over it.

For nearly every pillar of our economy, the pandemic has been the force strong enough to break the inertia associated with doing business mostly in the physical world and to activate the shift to a largely digital-first way of life.

The pandemic has also made laid bare the one force strong enough to move consumers and businesses, en masse, away from the status quo: concerns about their health and safety.

Consumers who have shifted to a largely digital-first world over the last five months will need an equally strong force — like the internet breaking completely apart — to move them completely away from the digital habits they have developed (and now enjoy) and onto something entirely different.

It’s why the mindset that the world will revert to “what it used to be” once the pandemic passes is deeply flawed.

A Long Time Ago … In January 2020

For physical retail, the pandemic was simply the force that accelerated a decline that had started in 2014 — one that inertia had masked for all of the years up until now.

Admittedly, 2020 has been a year that has felt both like the fastest and slowest ever, which makes anything that happened PC (Pre-COVID) a big blur.

But even as recently as February of 2020, it was obvious that physical retail’s decline was nothing new.

That month, the Commerce Department reported that January sales at clothing stores had declined the most since 2009.

This data came on the heels of a holiday shopping season that was strong, but weaker than retail analysts had expected. Sales at brick-and-mortar stores for clothes, health and beauty items, sporting goods and other retail products were soft, as online commerce sales grew. At the time, analysts dismissed that data as the result of a shorter holiday season and more cautious consumers tightening their purse strings ahead of a potential recession.

All despite a confident, spending consumer and record-low levels of unemployment.

It seemed a little like fiddling while Rome had been burning for a while.

Over the last five years, the Commerce Department stats showing physical retail sales holding steady at 90 or more percent of all retail sales did a huge disservice to physical retailers. That data lured the retailers into thinking there was still life in their traditional retail business model, and that reports of the physical retail apocalypse were overblown.

That was despite incontrovertible evidence that online was taking share in important categories that were once critical to keeping the lights on in physical retail stores — like clothing, sporting goods, shoes, electronics, auto parts and even home furnishings — and that consumers' feet were showing up less often in their brick-and-mortar establishments.

Anyone who went to a major department store knew it, too. It was hard to miss the fact that there were few people there — it was like social distancing before it became a way of life.

It also ignored the reality that between 2017 and 2019, analysts reported that roughly 23,144 physical stores had closed. So far in 2020, analysts report that more than 12,000 physical retail establishments have closed permanently. The downward trend continues.

Then there are the malls.

Reports of “zombie malls” were making headlines back in 2017. Holiday 2014 was the first time that stores in malls acknowledged a steep decline in foot traffic, and stories began to surface about the malls losing their grip on shoppers. As anchor stores like Sears and JCPenney closed, department stores went under and the shops that lined the corridors between the anchor stores shuttered, malls become less appealing to consumers as one-stop shopping destinations.

Today, analysts report that as many as 25 percent of the 1,100 malls still left standing will close. One retail expert once quipped that there are probably a couple of hundred great malls in America — but the problem is there are about 1,100 malls.

Mall operators have tried new tactics to reverse the tide, some even turning malls into experience centers — a mix of stores, restaurants and other attractions. They’ve found the results to be no different than those that stuck to their physical retail focus: Consumers didn’t show up. Shoppers who had already been disproportionately putting more of their dollars into in-home entertainment centers and less into out-of-home entertainment just didn’t feel compelled.

Now, if media reports are to be believed, many of the malls that remain open will become something different still: fulfillment centers for Amazon as the eCommerce giant reportedly negotiates to take the spaces once leased to JCPenney and Sears.

It’s unclear whether the future of the mall will have much, if anything, to do with shopping.

The Laws Of Gravity

It’s perhaps ironic that the law of inertia Newton discovered around 355 years ago, in kind of a loose sense, provides insights into why some 104 million Americans — or some 46 percent of the adult U.S. population — have become digital shifters.

PYMNTS first coined this phrase in mid-March after measuring the shift among consumers who have done two things at the same time: They have done less of a particular activity in the physical world and have done more of that same activity in the digital world.

PYMNTS research, as of now based on a national sample of more than 20,000 consumers queried since March 6, consistently shows this digital shift, with an increasing number of consumers now saying they’ll stick with, even as they reenter the physical world. And this shift is most pronounced for those buying retail products.

In truth, the pandemic was the big force that got consumers to do more of what they had already begun to do: shift their shopping experiences away from physical stores and more online. But it was a force far greater than the promise of a more efficient and seamless 24/7/365 shopping experience that got them over the hump. Delivering a safer and more certain shopping experience is why consumers accelerated their shift, and why today they feel comfortable sticking with it.

The consumer’s digital shift has also been a wake-up call for brands that relied on physical-world intermediaries to drive sales, as the channels that once served as important distribution channels for consumers dried up. The pandemic has also forced these brands to break with their own inertia of relying on old business models because it was the way it was always done, and has pushed them to find new outlets to reach consumers where they now want to shop.

For brands to go back post-pandemic to “the way it used to be” means being convinced that the consumers will go back, too.

But getting consumers to go back to the mall or to the physical store means convincing them it’s worth doing more of something they were already doing less.

Inertia is what kept physical retail alive — even as online channels have emerged, flourished and expanded.

And now, inertia will accelerate its inevitable decline.

Once consumers overcome the inertia to move to something new that works, they rarely — if ever — go back.

Who Needs A Horse Anymore?

People with places to go in the late 1800s often got there by horse and buggy.

As it was originally a mode of transportation that only the well-to-do could once afford, the proliferation of carriage companies in the United States drove down the cost of buying one, thus democratizing transportation for many people. By the time 1900 rolled around, a person living in the U.S. could buy such a buggy for as little as $20 — about $621 in today’s dollars — which was roughly 4.5 percent of the median household income at the time. In 1914, the carriage industry was booming with some 4,600 manufacturers cranking them out.

A couple of years before that, the production of the horseless carriage in the U.S. began to get some traction.

Although Henry Ford gets much of the credit for democratizing access to automobiles when the Ford Motor Company introduced the Model T in 1908, by 1899 there were already 30 automotive manufacturers pumping out 2,500 such vehicles that year, purchased mostly by wealthy businesspeople.

As automobile manufacturing plants became more efficient, the cost to produce automobiles dropped, and competition kept prices competitive. And consumers began buying them.

By 1910, the number of horseless vehicles on the road topped the number of those with them.

By 1929, there were fewer than 90 buggy manufacturers in the U.S. producing carriages — mostly for those living in rural areas for which travel by car was impractical because of the lack of roads.

Over the course of just two decades, the buggy industry and the ecosystem that supported it had all but collapsed.

It wasn’t as though shifting away from the horse and buggy to a car was an easy transition.

Consumers had to figure out how to drive a car — a pretty big hurdle — and store it. They had to figure out what to do with the horse and the carriage. They had to be convinced that cars were as reliable and dependable as a strong, healthy horse — and as easy to operate. They also had to be certain there were enough places to fuel up, and enough roads to use them on. Horses didn’t come with those built-in dependencies.

But once consumers got a taste of what it was like to have a vehicle that was more efficient and more practical to use, they never looked back.

And they never went back.

Innovators saw opportunities to build new ecosystems around this new mode of transportation, making the experience even better for consumers who bought cars. Better experiences meant more reasons to buy and own a car. And more and more consumers did just that.

And there was nothing the carriage manufacturers or dealers could do to get consumers to change their minds.

Breaking With Inertia

At some point — very soon, we all hope — the virus will be part of our past, and no longer part of our present. Until then, consumers, businesses and governments will continue to make decisions about how best to integrate physical into the digital-first experiences around which consumers have now organized their lives.

But the pandemic will define our future.

In fact, it already has.

The latest PYMNTS research says the typical U.S. consumer believes it will be another 371 days — yes, a little more than a year from now — before they are comfortable fully engaging in the physical world as they once did.

For all sectors of the economy, that means taking stock of the frictions that keep consumers from reengaging — in full or in part — in the physical world.

Take travel. People are still traveling, and they are staying in hotels. They are just staying in hotels within driving distance of their homes, and aren’t getting on planes to fly to the places they once considered their vacation go-tos. Consumers will eventually get back on airplanes once they are convinced it won’t endanger their health. In the meantime, a whole new crop of innovators has emerged to address these physical-world frictions, and to create new, digital-first experiences tailored to consumers’ new expectations of travel — experiences that consumers won’t likely leave behind, even as they broaden their travel horizons.

For physical retail, it’s folly to think that a year from now will start to look like January 2020, since January 2020 was simply a continuation of its five-year decline. Bailouts and bankruptcies, and financial and tax tools, may stop the bleeding — but they won’t change why consumers stopped being enamored with the physical retail experience many years ago.

That’s not to say that physical retail doesn’t have its place. It does. But the players will likely be very different. Like the carriage makers that couldn’t pivot to making horseless carriages, many of the traditional retailers that once defined how retail happened in the physical world won’t overcome their own internal inertia to embrace the new, digital-first models that their consumers have already embraced.

Innovators will continue to make these digital-first experiences richer, stronger, more valuable and safer for consumers. New ecosystems will emerge that deliver experiences that we haven’t yet imagined. It will take a lot to convince consumers, now propelled forward into this digital-first world by their pandemic-fueled burst of energy, to even think about going back.

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WATCH LIVE: HOW WE SHOP – TUESDAY, NOVEMBER 10, 2020 – 12:00 PM (ET)

New forms of alternative credit and point-of-sale (POS) lending options like ‘buy now, pay later’ (BNPL) leverage the growing influence of payments choice on customer loyalty. Nearly 60 percent of consumers say such digital options now influence where and how they shop—especially touchless payments and robust, well-crafted ecommerce checkouts—so, merchants have a clear mandate: understand what has changed and adjust accordingly. Join PYMNTS CEO Karen Webster together with PayPal’s Greg Lisiewski, BigCommerce’s Mark Rosales, and Adore Me’s Camille Kress as they spotlight key findings from the new PYMNTS-PayPal study, “How We Shop” and map out faster, better pathways to a stronger recovery.

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