Why retailers should NOT give up on bricks and mortar: Former JC Penney CEO

Retail needs a lift: Pro
Retail needs a lift: Pro

The narrative that "everybody shops online so who needs physical stores" is dangerous to the future of retailing, former department store executive Allen Questrom warned on CNBC on Friday, following a recent a run of largely dismal retail earnings.

"Every time you do $1 in digital [sales], it's probably one less reason for the customer to come into your store," said Questrom, formerly CEO of a number of retailers, including J.C. Penney, Neiman Marcus, Barneys New York, and Federated Department Stores (now Macy's).

Online sales still make up a relatively small contribution to the bottom lines of many of the nation's major retailers, Questrom told "Squawk Box." The numbers back up his assertion.

U.S. e-commerce retail sales in the first quarter of 2016 accounted for 7.8 percent of total retail sales, according to the latest figures from the Census Bureau.

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"What's happened in many stores is they've taken money out of bricks and mortar to put it into the internet," Questrom said.

"They are defeating the effort in the store," he continued. "They don't have the salespeople on the floor. They don't have the display people. The stores don't look good."

While acknowledging the need for an internet presence, Questrom said: "You cannot give up the bricks and mortar experience, because a customer has to come into the store and be excited. She has to see things that make her (or him) want to buy."

"Many of the stores today, there's no reason I want to shop there," he added. "All you see is … sale signs all over the place. That's not the way for bricks and mortar to be successful going forward."

Another problem facing brick-and-mortar stores is there are too many of them, Questrom said. "In the United States, we have probably 25 square feet per person ... devoted to retail." That compares to about 5 square feet person in the U.K., he added.

One of the ways to overcome the glut of stores in the U.S. is to close low-performing locations, he said.

"Many of them are starting to close down stores, particularly in the 'C' and 'D' malls," he said. "The 'A' malls are going quite well. The malls themselves must make sure it's entertaining when you go in, plenty of things going on."

Whether it's online or in the store, Questrom said serving customers and taking care of employees should always be top priorities for retailers. Get those right, he said, the business will thrive and shareholders will be satisfied, too.