The Reshaping of Retail in the Internet Age and its Impact on Inventory Liquidation

This Wall St. Journal blog post of April 29, 2013, applies an interesting analogy to today’s brick-and-mortar stores in the age of internet shopping. Looking back at the introduction of the motor vehicle in the early twentieth century, author Tom Gara says that the “horseless carriage” did not kill off horse-drawn carriages, it only made them rarer and more distinctive. In today’s culture that is totally dependent upon fossil-fuel transportation, horses are a tourist attraction, a luxury, a valuable hobby, and an obsession for millions of aficionados.

Likewise, Gara says that the flagship store, once a mainstay of suburban malls, is now finding its place once again in downtown urban centers. There, the stores provide something that the internet cannot provide: an all-encompassing experience that includes not just personal shopping by looking at and touching the real items, but the sights and sounds of an entertainment destination. Such a shopping trip is likely to include a meal, drinks, and sight-seeing, as it did in the early stages of retail.

Gara references a note by Credit Suisse analyst Michael Exstein in which he remarks on the apparent reversal of the migration of flagship stores from urban centers to suburbs in the 1960s and ‘70s. “The new flagship trend appears to be different than the past and is now centered around selected urban or suburban locations as opposed to a national rollout.” The areas selected for flagship stores are those that have not only large local populations, but high tourist appeal—thus the emphasis on the “experience” of shopping.

In support of this observation, Exstein notes the recent openings, all within one week, of:

• Louis Vuitton’s stores in Munich and Venice
• Sandro and Maje’s Lanvin flagship store in Hong Kong
• Ceremony’s flagship store in Tokyo and special section in the South Coast Plaza complex in Orange County, California

As further evidence of the transformation in retail, Gara points to this 2011 article detailing Macy’s $400 million renovation of its flagship Manhattan store.

What is unlikely to change is the need for efficient inventory liquidation solutions. In fact, this need may be heightened due to the need to maintain a pristine brand image in these flagship locations. Having deeply discounted, older inventory on the shelves is not likely to be consistent with the brand image goals of the retailer investing in a flagship location. By driving recovery rates up, B-Stock is able to accelerate the rotation of inventory out of the store prior to the retailer getting to those deep cuts.