When one door closes, hundreds of internet windows open. In a trend that’s only accelerating, bricks-and-mortar retail locations across North America are closing as e-commerce continues to thrive. In fact, New York-based real estate developer Clarion Partners reports that approximately 5,000 store locations have shuttered in the past 18 months, and retailers like Sears and Macy’s have announced further closures are on the way in 2017. Non-physical retail, however, shows no signs of closing up shop.

According to the US Census Bureau’s Retail Trade Report, online sales grew by 11.4% last year. The leader of the pack, Seattle-based online behemoth Amazon, reported a 50% increase in holiday season shipping between 2015 and 2016. Additionally, it reported that the number of third parties using its fulfillment service to store, pack and ship goods rose by more than 70% in 2016.

E-commerce is becoming the new normal, which means the focus for bricks-and-mortar stores needs to shift in tandem. To take advantage of the opportunities afforded by online shopping and the emergence of in-store “experiences,” licensors and licensees need to shift not only their strategies, but also their perspectives.

“When you look at an entertainment or a retail platform, there are obviously surging technologies and competitors coming into the landscape and causing disruption,” says Bill Graham, chief business development officer for PhatMojo, an L.A.-based global product development company.

PhatMojo specializes in plush, hangers, collectibles and apparel and has a history of working with digital properties like Crossy Road and Borderlands, along with entertainment brands like Steven Universe. So connecting with consumers where they engage with digital IPs online is second nature to the company—e-commerce has always been part of the mix for PhatMojo.

“The really positive takeaway from all of this disruption is that all of these products are being supported,” says Graham. “It’s really the methodology that we need to explore. What people want to deliver is the product to the consumer in the way the consumer wants. So, when we’re looking at digital natives and their level of comfort in using technology to acquire tangible goods, it’s certainly a factor.”

To take advantage of this growth and meet consumers where they are, he says, the industry has to stop seeing e-commerce as competition, or simply as a tool to prop up traditional retail.

“Online retail is very easy and it’s kind of aligned with how lots of kids engage on a number of other platforms, socially and educationally,” Graham says. “We want these new channels to succeed, because ultimately it’s in everyone’s best interest that both the online retailers and bricks-and-mortar retailers are successful. It’s important to the industry at large.”

PhatMojo’s gravity feeders are designed to take advantage of limited space while adding to the overall in-store experience

For Hasbro, bridging the gap between traditional and online retail means enabling consumers to interact with the products in ways that fit with their personal preferences through as many points of engagement as possible.

“Today’s consumer is looking for a more robust brand experience than ever before, which means extending our strategy to hit every touch-point in people’s lives,” says Maureen Smith, SVP of brand marketing in the US for Hasbro.

In an effort to evolve brands like Transformers and My Little Pony in a way that makes them as appealing as possible both in stores and online, Hasbro has developed a brand blueprint strategy with a focus on storytelling and consumer insights.

Structured like a wheel, the brand sits at the center of a number of spokes in the blueprint, with each spoke representing an expression of the brand. As unique as the expressions might be across different consumer product categories, they are connected by the brand’s central theme, like the power of friendship in My Little Pony.

“Storytelling creates a connection that inspires the consumer to travel with a brand across the many points of engagement,” Smith says.
By investing in storytelling and building out the world of My Little Pony brand, Hasbro is working to create a connection that will inspire in-store and e-commerce opportunities. Kids who first approach the wheel through digital content can follow those central storytelling themes to collectibles, apparel and plush, or vice versa.

“There is no doubt that the retail landscape is in a period of transition,” says Smith. “We’re telling stories and interacting with fans in-store, on their phones, in their living room and everywhere in between.”

To execute this kind of plan, it’s important to know who your consumers are and what they want, and then meet them where they are most comfortable interacting with brands, Smith explains. Fortunately, feedback is more readily available than ever as kids continue to share their opinions online.

For Hasbro, licensed products have been a valuable tool in developing customized offerings with a focus on individual shoppers’ needs and interests. Each licensee provides a new spoke for the wheel, and each spoke appeals in a different way to kids looking to engage with the brand.

This ability to zero in on consumers and their retail habits only grows in importance as the retail landscape continues to evolve, Smith says.

Eric Marcy, chief revenue officer of the Chicago-based search marketing intelligence platform AdGooroo, agrees that IP owners, toycos and retailers need to truly embrace e-commerce in order to ensure continued growth in the industry at large.

“Previously there was a kind of disconnect between the digital side of these organizations as compared to the store side,” Marcy says. “Oftentimes they are working in silos in terms of how they drive consumer behavior, and that leads to not being able to optimize their assets in a way that tells a story and connects with consumers where they’re at today.”

Integration between traditional and online retail is no longer optional, he says. Coordination between the two channels is necessary to provide consumers with the experiences and conveniences they’ve come to expect, like being able to order a product online but return it in-store.

This integration isn’t just one-way, however. Marcy says the experiential nature of traditional retail is also informing e-commerce as it continues to expand. AdGooroo focuses on the pay-per-click search market. And brands and retailers are adjusting their online strategies, Marcy says, by moving away from traditional text ads and shifting to more widespread use of product listing ads (PLAs).

“The PLA is a more visual experience,” Marcy explains. “It provides you with an image and a price, and it’s more visually appealing. It replicates more of that experience you’re used to when you’re in an actual bricks-and-mortar store.”

Google is listing more PLAs at the top of the search result page than ever before, Marcy says, and the search engine is also experimenting with PLAs on the right rail of the search results page.

“It’s not prevalent everywhere yet,” says Marcy. “But it’s what we’re anticipating to see from Google. And I think that kind of coincides with the idea of a more experiential digital experience for the consumer.”

PLAs also boast a higher click-through rate than traditional text ads, according to AdGooroo, so it’s no surprise that the most successful retailers are taking advantage.

AdGooroo’s recent study of PLAs based on roughly 900 popular toy-related keywords found that Walmart is currently the biggest player in this area. Walmart’s three websites are pulling in approximately 30% of total clicks related to those keyword searches. And as massive as Amazon is in e-commerce, the study found that the retailer has largely abstained from PLAs in favor of text ads, although AdGooroo reports that Amazon has recently started testing PLAs in the toys and home goods categories.

Product listing ads, which are more visually appealing than text-based ones, are driving more click-throughs than ever before

E-commerce needs to continue to evolve to provide consumers with all the comforts of a traditional retail experience. Marcy contends the importance of consumers’ experiences cannot be overstated. He also believes bricks-and-mortar stores need to continue to focus on creating the type of retail experiences online shopping is incapable of providing, to prevent traditional retail from feeling like an inconvenient mode of buying.

“We’re seeing an experiential shift in stores from a retail perspective,” he says. “How do you take advantage of the physical assets you have with these retail stores in terms of setting up really unique experiences for the consumer that they’re not going to be able to find anywhere else? It needs to become this stellar experience that you can’t replicate online.”

As retail locations continue to close this year, Marcy says the remaining stores will focus less on the quantity of locations and more on the quality of experience. PhatMojo’s Graham agrees, comparing the experience of traditional retail and e-commerce to seeing a live performance versus watching one at home on a screen.

“I think what’s important for retailers as they offer compelling reasons for consumers to come into their stores is to provide the full sensory experience,” contends Graham. “Embracing that ‘live show’ component is very important. Ultimately, what you want to do is deliver an experience that supersedes all of the conveniences of online retail so that you’re executing your brand experience on a store level that can’t be duplicated—it has to be seen in the store. Of course, that’s the challenge a lot of retailers are figuring out.”

PhatMojo is working closely with retailers in an effort to reach that ideal in-store experience, Graham says.

“Within bricks-and-mortar stores, we’re very aggressively pursuing a number of different packaging and display executions, where we’re making sure we’re offering retailers the best opportunity to leverage their available real estate.”

For example, the company is using gravity feeders for properties like Animal Jam and Star Wars. The feeders hold dozens of products in one space, and kids can easily grab a blind bag or collectible from the open mouth at the bottom. The feeders are designed to be merchandised in multiple locations, including the collector’s aisle and point-of-purchase areas. Graham says the company is currently working on end-cap and side-cap real estate solutions that take advantage of unused space.

“Where there is unused space, we’re trying to make sure we’re coming up with creative solutions to take advantage of that space and get incremental sales for everyone involved,” he says.

This shift in strategy regarding traditional retail, e-commerce and the relationship between the two is key, Graham says, as the retail landscape continues to evolve.

The National Retail Federation’s economic forecast for 2017 projects that US retail industry sales (excluding automobiles, gasoline stations and restaurants) will grow between 3.7% and 4.2% over 2016. And while retail sales were up by 4% overall in 2016, sales in department stores were down 7%, and online sales saw a significant growth of 12.6%. The NRF found that the toy industry, in particular, made the majority of its gains online. Data like this is of course important in crafting future retail strategies, Graham says. But he cautions against forgetting the human element.

“I think it’s important to take a step back,” he says. “We have to have a good blend of heart and mind when you’re looking at these things. There are different strengths within traditional and online retail, and I think it’s up to all of us in the industry to make sure we’re helping to deliver to their respective strengths as best as possible. We want all of these channels to survive and thrive, and it’s a very healthy discussion to have at this point so the industry can react to it in a way that’s as constructive as possible.”