WOODRUFF: Now, the second of a two-part look
at the transformation and troubles of retail. The Federal Trade Commission has cleared the
way today for Amazon to take over Whole Foods starting next week. Meanwhile, Sears announced
it plans to close even more of the K-mart stores that it owns. While each company has
its particular story, there`s no question the retail sector is going through a major
transformation. Our economics correspondent, Paul Solman,
reports on how companies are trying to reboot and adapt to a most challenging environment.
It`s part of our weekly series, “Making Sense.” (BEGIN VIDEOTAPE) PAUL SOLMAN, PBS NEWSHOUR ECONOMICS CORRESPONDENT
(voice-over): More store closings this year than any since the Great Recession, retailers
filing for bankruptcy at a record pace, countless others teetering on the brink. And so, the
obvious question: (on camera): Is this Armageddon for retail? MARK COHEN, RETAIL PROFESSOR, COLUMBIA UNIVERSITY:
The retail industry is fine but the legacy players are facing Armageddon. SOLMAN (voice-over): Columbia University retail
professor Mark Cohen. COHEN: You know, back in the day if you wanted
almost anything you could think of, you had to go to a department store. Now what`s happening,
the Internet is hollowing out the great American shopping mall. SOLMAN: Amazon founder Jeff Bezos predicted
as much to me almost 20 years ago: unless brick-and-mortar stores do something different,
they`re toast. JEFF BEZOS, AMAZON FOUNDER: To put it in the
extremes, the category that`s most threatened is the strip mall — SOLMAN (on camera): Because? BEZOS: — because that`s no fun. SOLMAN (voice-over): This outside a Borders
Bookstore which, of course, went bankrupt 12 years later. So, what`s a retailer to do now? COHEN: The traditional retailers that survive
this paradigm shift are going to have to create a physical presence that`s far more attractive
and engaging than what they`ve got. SOLMAN: More engaging or else. Earlier this
summer, Hudson`s Bay, which owns Lord & Taylor and Saks Fifth Avenue, slashed 2,000 jobs.
Now, an activist investor is pushing the company to sell its stores for the real estate. The
Saks flagship in Manhattan alone is reportedly worth $3.7 billion. To Hudson`s Bay CEO Jerry
Storch the challenge is clear: GERALD STORCH, CEO, HUDSON`S BAY: How do we
give the customer that extra reason, beyond simply consummating a transaction to buy some
merchandise to come to a store. SOLMAN: Lord & Taylor`s answer: The Dress
Address. At 30,000 square feet, it`s the largest dress floor in the country, with a rotating
pop-up space that spotlights a new designer every eight weeks, a restaurant and shopping
suites with space for you and a bevy of buddies. LIZ RODBELL, LORD & TAYLOR: I bet this is
going to be a bestseller. And I love — SOLMAN: Lord & Taylor`s Liz Rodbell is betting
on custom service, too. RODBELL: We have a concierge on the floor
that will help connect you with a stylist immediately to really put you together to
look terrific. SOLMAN: Lord & Taylor is also testing lifestyle
shops curated by makeup maven Bobbi Brown. At Saks Fifth Avenue, they`re selling health
and fitness. STORCH: Think of as an amusement park for
an adult, a reason to come to experience something new and different. SOLMAN: Hudson`s Bay CEO Storch met us at
The Wellery. You can buy stuff here, or get a manicure, practice your golf swing, work
out, sample dry salt therapy to improve lung function. Saks president Marc Metrick. MARC METRICK, PRESIDENT, SAKS: I think when
people leave this area, leave this floor, and actually leave the store after visiting
here, I want them to think, wow, that`s not the Saks I thought. When they bump in to somebody,
when they see someone a few weeks later and someone says, oh, what`s going on in those
department stores? Somebody could say, wow, have you been to Saks lately? There`s a lot
going on. So, that`s the goal. DAVE GILBOA, CO-FOUNDER, WARBY PARKER: We
don`t think retail`s dead. We think mediocre retail is dead. SOLMAN: Dave Gilboa is cofounder of eyewear
monger Warby Parker, an e-retail success story. His answer to Armageddon is to combine online
with brick-and-mortar. GILBOA: We just want to give customers options.
We like to say that we`re experience focused, but medium agnostic. SOLMAN: The online retailer had been in business
three years when it opened its first store. GILBOA: We found that there`s still a lot
of demand for people walking into physical stores. SOLMAN: So, Warby Parker has opened 55 stores
with plans to add 25 more this year. GILBOA: There are certain customers that probably
will never feel comfortable buying glasses online. There are other customers that even
if we open up a store right next to their house, they`d prefer the experience of ordering
online. SOLMAN: Yes, e-commerce grew 16 percent last
year, but most purchases are still made in person and Warby Parker wants a piece of that
action. So, its stores have photo booths for trying
on glasses and sharing photos of them with friends. Not feeling the specs? You can buy
or just read books here too. And Gilboa says the company uses data it collects
online to offer personalized service in its stores. GILBOA: If you`ve bought a pair of sunglasses
or prescription glasses from us online, and you walk into our store, any of our retail
advisors could pull up your customer record. They could see your preferences. You could
even go on your phone or on our Website and create a list of favorites and then come into
our store and one of our advisors can help you find those frames. SOLMAN: Indeed more and more e-commerce players
are merging technology with physical retail. Case in point: Amazon`s recent ventures in
grocery stores, and actual bookstores, where your Amazon Prime account gets you an automatic
discount. Meanwhile, other retailers are re-conceiving
the store entirely. Story in Manhattan`s Chelsea district creates retail narratives — themes
that change every three to eight weeks, like a magazine. The theme when we visited was
fresh story — founder Rachel Shechtman`s 37th completely different narrative. RACHEL SHECHTMAN, FOUNDER, STORY: If a magazine
tells stories by writing articles, and taking pictures, we tell stories through merchandise
and events. And then, magazines have advertisers, and we have sponsors. SOLMAN: The sponsor of fresh story, Jet.com,
an e-commerce upstart bought by Walmart that ventured into grocery delivery last year. SHECHTMAN: We created a wall out of jet boxes
since and we`re telling a story about them shipping fresh groceries, and so, this is
a stasher and it`s a storage bag that`s, you know, plastic-free and reusable. We`re really
using merchandise as a narrative storytelling tool. SOLMAN: Story has two revenue streams sponsors
like jet.com pay to promote. In this case, fresh produce and their delivery of it. SHECHTMAN: Would you like a banana to eat? SOLMAN (on camera): I would. I haven`t had
my banana today yet, actually. (voice-over): The other revenue stream: sales,
here of fresh-food themed merchandise. SHECHTMAN: That`s a flask. SOLMAN (on camera): A banana hip flask! SHECHTMAN: Yes. SOLMAN (voice-over): Now, admittedly, some
items were more fresh than others. (on camera): But still have the vegetable
theme here. I strategically placed the salts. SHECHTMAN: Yes, you did. SOLMAN: So, this is public television. SHECHTMAN: It is public television. SOLMAN (voice-over): But unlike traditional
retailers, Shechtman doesn`t worry much about sales per square foot. SHECHTMAN: What we`re focused on is experience
per square foot. Frankly, if there`s subscription retail and you have all these new business
models online, why the heck is no one reinventing the business model offline? SOLMAN (on camera): This is offline? SHECHTMAN: We are offline. We are in a physical
world. SOLMAN: I never thought of that. My life is
offline. SHECHTMAN: Your life is offline. SOLMAN (voice-over): Shechtman believes retailers
must pay more attention to offline experience, because that`s what human beings still want.
To that end, every story has themed events — classes, workshops, panel discussions.
And at fresh story, fresh-baked cookies. SHECHTMAN: Someone doesn`t just need to go
to a store to buy something, right? So, here you can taste something, you can learn something,
you can do something with a friend. And so, it`s not just commerce, it`s content and community. SOLMAN: That`s also true at Warby Parker,
says Gilboa. GILBOA: Humans are social animals and are
always gonna value face to face interactions. So, I don`t think that`s going away. SOLMAN: It`s a view shared by the CEO of stores
like Lord & Taylor, Saks, and others. STORCH: There will always be physical stores.
Until they invent the transporter, like on “Star Trek”, there will be a reason for stores.
It`s still the only way you can touch merchandise instantly, feel it, try it on. SOLMAN (on camera): Very nice. (voice-over): Or, for that matter, eat it. SHECHTMAN: I`m breaking my diet for you. SOLMAN (on camera): I`m breaking my diet for
you! (voice-over): For the PBS NEWSHOUR, this is
ever expansive economics correspondent Paul Solman, reporting from New York.