Forecasting the future of stores

In a world where consumers are doing more of their shopping online and getting orders delivered to their homes, what's the role of the brick-and-mortar store? McKinsey retail experts Tiffany Burns and Tyler Harris say there are "five zeros" that retailers should keep in mind as they plan for the future of stores. They explain the five zeros on this episode of the McKinsey on Consumer and Retail podcast, hosted by Monica Toriello. An edited transcript of their conversation follows. Subscribe to the podcast.

Monica Toriello: There's a lot going on in the world right now—a lot of change and uncertainty. That's been true for the past couple of years; people everywhere have collectively experienced things that we’ve never experienced before, including a global pandemic. One of the things we’ve seen these past two years is that the way people shop for and purchase the things they need is changing quite dramatically. That's what we’ll be talking about on today's episode: specifically, we’ll be discussing the evolving role of physical stores. Our two guests today have studied this topic deeply, as they’ve advised some of the world's leading retailers. Let me briefly introduce them and then we’ll dive right in.

Tiffany Burns is a partner in our Atlanta office. Tiffany has worked on large-scale transformation efforts at more than 15 of the biggest companies in the retail sector. She has been instrumental in developing McKinsey's perspective on the store of the future and has coauthored several retail articles including, most recently, "The rise of the inclusive consumer" and "The five zeros reshaping stores," which is what we’ll mostly be talking about today.

One of Tiffany's frequent collaborators and coauthors is Tyler Harris, an associate partner based in Washington, DC. Tyler has been on this podcast before, talking about the jewelry industry—since Tyler is a gemologist, among other things. She is also an expert in retail operations, with a special focus on next-generation store technologies. Thanks for joining us, Tiffany and Tyler.

Monica Toriello: One interesting statistic I read recently is that US retailers announced approximately twice as many store openings as store closings in 2021. Sure, there are lots of nuances in that statistic—including the fact that there had already been lots of store closings in the two prior years—but what it tells me is that stores still work. People still shop in stores. In fact, some of the brands opening stores are digitally native brands: they used to be online pure plays but have begun to build a physical retail presence.

So, as you say, there continues to be a role for stores—but that role is evolving, and it's because consumers are evolving. Let's start there: How is tomorrow's in-store shopper different from yesterday's in-store shopper?

Tyler Harris: A few years ago, we had thought that omnichannel customers were going to be much more valuable than single-channel shoppers. The past couple of years have given us the time and the data to confirm that: omnichannel customers shop 1.7 times more than single-channel shoppers. They also spend more. The in-store customer, going forward, will be someone who is hitting all the different channels and touchpoints that a brand or retailer has. That means consistency and connectivity between all those channels will be really important.

Another thing that's different about the customers of tomorrow is that they are valuing different things in the store, and we are seeing their behaviors change toward what they value. Let's use self-checkout as an example. It used to be that if you shopped at a grocery or department store, you really valued that personal interaction with a sales associate to help you check out. That's not true anymore. Now it's about speed and convenience. Checkout at a physical location is entirely out of the equation when people are using curbside pickup or buy online, pick up in store [BOPIS].

Tiffany Burns: We’ve seen such a drastic evolution in self-service. Five or six years ago, retailers had a lot of doubt: "If we put a machine there and people have to use it to check out, they won't want to shop with us anymore." But people learn technology and new ways of interacting. If you went to the airport a decade ago, you probably wouldn't have used a self-service kiosk to check your bag; today, it's what you expect. In many ways, COVID-19 has accelerated some things that we were already on a path toward. Now, those practices are here to stay.

Tyler Harris: Tiffany, what underlies a lot of what you just said are the associates, the people. The role that associates play within the four walls of the store is fundamentally different than it was five years ago. Going back to the self-checkout example: you have folks who are no longer checking customers out. Instead, they’re doing consultative selling or new activities that didn't happen in stores five years ago, like fulfillment. So investing in scalable, digitally enabled training for these associates is really important.

Monica Toriello: We’ll talk more about training and talent a little later because it's one of the five zeros reshaping the future of stores, as you say in your article. The first zero is "zero difference in channels." As you said, Tyler, everyone's an omnichannel shopper now. I could walk into a store but maybe I’m just there to pick up something that I already paid for online, or maybe I’m there to look around but I’ll actually buy the item on my phone as I walk out. And stores need to be able to meet the needs of omnichannel customers—for example, by having a dedicated BOPIS area, as you mentioned.

How are retailers getting this wrong? What are they not doing yet when it comes to zero difference in channels? On the flip side, what are the best retailers doing on this front?

Tiffany Burns: Many retailers still think, "There are omnichannel interactions and store interactions, and I’m optimizing those two things separately. I have two different teams working on and thinking about those experiences." But as a consumer, when I go on the retailer's website or app, I expect to see availability, a connection to what's in the store, and a way to order things that I can pick up in store. I also expect to be able to stand in the aisle in the store and research a product. Today, consumers are figuring out workarounds to do all those things: they’re switching over from the app to Google, looking up the product, and searching for reviews.

But we see some retailers saying, "We’re going to make shopping a seamless experience for you. Our app will help you with wayfinding, give you inventory visibility in the store, and allow you to access all of our omnichannel opportunities to place an order and pick it up. We’ll allow you to stand in the aisle and do research on a product by scanning a QR code." The best retailers—the ones who we believe will create winning omnichannel experiences in the future—are those who are solving for seamless interactions across channels.

As a consumer, when I go on the retailer's website or app, I expect to see availability, a connection to what's in the store, and a way to order things that I can pick up in store.

Tyler Harris: There's an element, too, of organizational change and how you measure success that has to go along with that. What retailers get wrong is, oftentimes, they’ll do these things that Tiffany mentioned—they’ll try to create visibility and cross-channel connectivity—but they won't make the KPIs align with that. The best retailers are completely rethinking how they set KPIs and targets. It's a fundamental change because the industry, to date, has been focused on four-wall metrics.

Tiffany Burns: It reminds me of a shopping experience I had a couple of weeks ago. I was thinking about buying something and going back and forth saying, "Hmm, maybe not now; maybe later." I was about to leave the store and the associate, to their credit, went through the full selling process and tried to make a strong close and get me to buy it in that moment. I said, "No, I’m not ready." And the associate said, "Come back to the store when you decide you want to purchase."

Now, that's because the store associate is incented on revenue that comes through the door. Another way that associate could’ve been incented was, "Let me get the email address from this potential customer and follow up through a digital channel to offer her something to help push toward a sell." Until the day that that associate can get credit for an interaction that helps "make the assist" (to use a sports analogy) over to the digital channel, then these things won't really work together. That's a tactical example of the broader system of incentives and metrics that Tyler is talking about.

Monica Toriello: That story is a good segue into the second zero, which is "zero desire for assistance." That's not a blanket statement, right? It applies only to transactional activities—shoppers want to be able to walk in and out of a store and not interact with a salesperson if they don't need help. But zero desire for assistance is not about having a store with no employees; it's about redeploying store employees to provide the services that customers actually want, right? Talk a bit about how retailers can avoid swinging the pendulum too far the other way: you can imagine some customers not wanting to shop at a store that just has technology and no people.

Tyler Harris: During the pandemic, people have used curbside pickup, BOPIS, and self-checkout at much higher rates than in the past. What we’re seeing in a lot of our consumer research is that those behaviors are pretty sticky; about 70 percent of people who tried self-checkout for the first time in the pandemic say they’ll use it again. So the tides have really turned.

There are, though, two places where associate help is value-additive. The first is in consultative selling: How do I understand more about the product? How do I match a pair of shoes with a dress so that it looks great? That's one. The other is in helping customers when the technology doesn't work. You can't install technology and just let it ride; you need some oversight from an associate because when the machine behaves badly or if you hit the wrong button, not having someone there to help is just as frustrating as waiting in a long line.

That job is a lot harder, from an associate perspective. It's a lot harder to look over a bunch of self-checkout machines, read customers’ body language, and realize that the person at machine number four is frustrated because the machine isn't working. There's a lot of training and nuance that goes into making that work well.

Monica Toriello: I’m sure there's also a lot of nuance in the third zero, which is "zero wait time." You say that two-day delivery is table stakes: consumers are becoming more impatient and speed is of the essence. Demand is growing for same-day delivery and even instant delivery. But is backlash also growing, both at this I-want-it-now mentality and at the instant-delivery providers and the noise and congestion that some neighborhoods and cities have started to complain about? How should stores be thinking about zero wait time? How do you advise retailers on this topic?

Tiffany Burns: The expectations for speed have significantly advanced. Five years ago, you didn't expect an online order to get to you in less than a week. You also were completely fine ordering your Friday night pizza and waiting 90 minutes for it; you weren't sitting in front of your phone and watching the dot as it turned down your street and stopped at the red light.

The question gets down to, "Where is it all going to land? What will be the future standard for delivery?" What we do know, though—what we have a fact base on—is when you tell a customer that it will take three days, how often they say, "Never mind." We’ve seen that when the wait times are higher than customers’ expectations—and that varies; it's not one definitive number for all customers—half of them will abandon their carts. Retailers lose sales when they don't get this equation right.

You asked about congestion. Funny enough, I had a delivery from a mass retailer to my house. The delivery person backed up across my driveway, onto my front yard, and onto the retaining wall. We had to get a tow truck and the police to come. And it was raining, so I was outside with the umbrella trying to help. It was too crazy. I thought, "I would’ve been so much better off just going to the store."

So, to your point, the inconvenience to neighborhoods that could come with zero wait time is a consideration. There are going to be lots of delivery people driving around; there are about 60 million people engaged in the gig economy. Although I don't think we’re at a breaking point yet, you could imagine that we could be in the near future.

Tyler Harris: I also think it raises the question, "What is worth the wait?" I ordered an item for a friend as a gift, and it took two weeks to arrive—but it was customized and monogrammed with her initials, and it arrived in this box that was a gift in and of itself. That whole experience of getting something that is really special was worth the two-week wait. That's the flip side for retailers: figuring out what is worth the wait and making those experiences and products really treasured, because there's a magic to that in a world where you’ve got all of this instant noise.

Monica Toriello: There seems to be some tension, too, between zero wait time and your fourth zero, which is "zero tolerance for inaction on equity and sustainability." As you say, consumers will vote with their wallets: they’ll shop from stores that value diversity, equity, and inclusion [DEI] and that sell sustainable products and have sustainable business practices. But zero wait time almost certainly means more packaging, more delivery vehicles on the road—so, not great from a sustainability perspective. How should retailers reconcile those contradictions?

Tiffany Burns: Folks are starting to acknowledge that our delivery preferences are creating more waste. Some retailers are saying, "Are you willing to combine your shipments?" In the packaging space, they’re doing a lot in product development to try to use recyclable materials.

In the past year and a half, we’ve seen a broadening of the things that matter to consumers. One thing that matters to consumers now is diversity—both in terms of gender and race—of founders and creators of products on retail shelves. Consumers are saying, "I want to use my wallet to help promote equity. It's one thing that I can do as an individual."

Customers are also willing to make some trade-offs. One interesting example on the sustainability side is around solar energy. IKEA, for example, is installing solar car parks. You might say, "Hmmm, aesthetically, would I want those? No. Is it as convenient for consumers to navigate the parking lot with these structures? Probably not." But are consumers excited to see retailers putting a stake in the ground and saying they want to be more energy efficient? Yes. Consumers are more willing than they’ve historically been to trade off a little bit on experience or convenience in the spirit of more sustainable outcomes.

Tyler Harris: We conducted some research recently about the inclusive consumer—the consumer who is looking for more Black-owned brands and more diverse brands on retailer shelves. We found that the inclusive consumer is all of us: the demographics of this consumer look very much like the US population. Ideas of inclusivity and diversity on shelves aren't isolated to a certain age or racial demographic—it's all of us—which means that it's pretty sticky and here to stay. It's embedded in the fabric of who we are as a consumer population.

Eighty percent of respondents tell us that brands have a responsibility to better the world. That raises the bar for retail, because in many ways retail is the battleground or the crucible where this is all happening, so it's important to think about the complexion of retail shelves and the brands represented, and where they are merchandised in the planogram. Are they in the back of the store? Or are they at the front, where all shoppers will see them? It raises new questions for retailers. But it's exciting because there are so many small, diverse brands out there, and it creates a lot of opportunity.

We conducted some research recently about the inclusive consumer—the consumer who is looking for more diverse brands on retailer shelves. We found that the inclusive consumer is all of us.

Monica Toriello: Your fifth zero is "zero wiggle room on talent," which you alluded to earlier in this conversation. To me, this is a confusing issue because there's been a lot of press both about the tight labor market and about how hard it's been for many frontline retail workers to get enough hours. What are you seeing and hearing? And what are the implications of zero wiggle room on talent on the future of stores?

Tiffany Burns: Employers across all industries have to understand that we’re in a Great Resignation. Over 20 million people have left their jobs. Frontline jobs have to be transformed to improve employee engagement and experience because that frontline colleague has good alternatives now. They could take a job in the gig workforce and have complete flexibility. It used to be that a retail frontline job was a fairly flexible job: you could give preferences for the shifts you want to work and you could do part-time quite easily. But now, people have on-demand availability in the gig economy.

As a retailer, you have to think about how you’re improving the employee experience and the value proposition so you can continue to attract people. When you’re hiring and onboarding them, think about the best way to build their capability, incentivize them, excite them, and continue to develop and broaden their skill set. That's the new name of the game. It's where retailers need to double down and be distinctive.

Monica Toriello: The five zeros present new challenges but also new opportunities for retailers. What's your favorite thing that you’ve seen a store do that you think is representative of the future of stores?

Tyler Harris: I get really excited about the new products and new brands, especially with the DEI lens. When you look out over the landscape of entrepreneurs who are building new businesses, there are so many incredible new products and ideas that diverse founders are bringing to the table. It definitely requires retailers to work differently because a lot of these brands are teeny tiny, and what it takes to get them into stores and on shelves is very different from how retailers are used to operating. So the operations have to change. But I think it's really exciting for the future of stores.

Tiffany Burns: And it's a big part of the population to unlock innovation. Hispanics make up slightly less than 20 percent of the US population; Black Americans make up about 12 percent. That's almost 35 percent of the population that we’re trying to activate to make sure that there's equity. And if you’re a diverse founder, you can make a product for anybody; you don't have to just make a product for a diverse population. I’m with you, Tyler—I think it's really exciting. It should be game-changing. Retailers can use these diverse founders’ stories to create a new, fresh customer experience and to keep driving traffic into their stores.

Tiffany Burns is a partner in McKinsey's Atlanta office, and Tyler Harris is an associate partner in the Washington, DC, office. Monica Toriello is an executive editor in the New York office.