The brick & mortar stronghold

Recent reports indicate that Google will soon open its first retail store in New York City, following in the footsteps of competitors like Apple, Samsung and Amazon.

The store will sell things like Pixel phones and Fitbits.

According to Richard Kestenbaum (co-founder of Triangle Capital), making a move into brick and mortar is smart given the importance of reaching customers in person, especially post-pandemic.

However, analysts have pointed out that Google’s success lies in the “cool factor.” This means that Google will have to come up with some form of fun experience that draws people into the new stores.

While there has been a growth in online sales across the globe, brick and mortar models appear to maintain a stronghold in certain consumer categories.

For example, makeup and fragrances fall squarely in the category of goods that consumers want to sample in person.

Fruit and vegetables are also good examples of things that are tough to sell online. In an age where people can purchase products with a tap of a button, brick-and-mortar retailers need to step up their game and offer experiences that people cannot get online. The following are types of experiences that keep shoppers coming back;

• Treasure Hunts

One thing that gets people into a store is the excitement that comes with seeing a great product or deal. 

• Shopping experiences that feel safe and secure

In a post-pandemic world, consumers will continue coming back to retailers that make them feel safe and secure. There is a need for retailers to stay on top of store cleanliness and follow health guidelines.

• Face to face customer service

Nothing beats interacting with knowledgeable store associates who genuinely want to help.

• Constant reinvention

One of the reasons why some stores do well is that they are constantly reinventing themselves. Walking into a shop and seeing the same old things is one of the most disappointing experiences a shopper can have. 

• Omnichannel shopping experiences

Research from Google found that 98% of consumers switch devices throughout the day, so it is important to be able to keep up. The key components of omnichannel retail experiences including buy online, pickup in-store, curbside pickup and in-store fulfillment are essential in today’s modern shopping environment. Getting these things right tends to keep shoppers coming back to the physical store and website. 

• Community

Physical spaces also bring people together in ways that websites or mobile apps cannot.

 Community is one of the most significant strengths that brick-and-mortar stores have. This also includes events and competitions that bring people together.

• Social media opportunities

As AdWeek puts it, “These days, if consumers cannot Instagram a store, it’s almost not even worth going.” This is particularly evident in younger generations. These consumers are digital natives, many of whom have lives that are well-document on social media. Setting up an Instagram wall in the store can encourage shoppers to snap photos in-store. 

Looking at the Zimbabwean context, we are witnessing a trend within the grocery retail sector whereby the main players are focused on improving physical shopping experiences.

The retail sector in Zimbabwe has undergone significant changes since 2010. Retail and distribution sectors also constitute the largest share of the country’s imports with approximately 70% of products sold by the retail sub-sector being imported. The three actors dominating the formal distribution market are OK Zimbabwe, TM Pick n Pay and Spar.

As Morgan & Co Research, we like the fact that Meikles has largely restructured and its focus is largely agriculture and food retail.

The sale of the Meikles city hotel has effectively recalibrated the business as a consumer services and horticultural concern. More recently, the group has indicated that it will be unbundling Tanganda (the agricultural concern).

We highlight that TM Pick n Pay stores have also been defensive given that supermarkets have remained open throughout the pandemic-induced lockdowns. During the 2020 financial year, the business invested ZWL$386.6m in 7 store upgrades and the construction of an upmarket mall in Marondera.

Moreover, the clearance of foreign currency denominated liabilities has well positioned the business for accelerated store upgrades, branch network expansion and a boost on the working capital front.

Investors can seek exposure in TM Pick n Pay through Meikles Limited. Based on our estimates, the stock is trading on a Fwd PER of 13.6x compared to a ZSE average of 22.5x. We rate the stock BUY.

Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or               batanai@morganzim.com / batanai@piggybankadvisor.com

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