Experience, Convenience and the Physical Space – What Retailing Will Look Like This Year
Jan 30, 2019 / By ThinkInk
It’s time for retailers to finally bury the “brick and mortar is dying” storyline, or at least change the terms of discussion. In the US, Kroger, the nation’s largest grocery store chain, started off the New Year announcing a new partnership with Microsoft to open a pair of high-tech grocery stores. This comes after a similar partnership in 2018 between Microsoft and Walmart as brick-and-mortar retailers fight back against Amazon and the iron grip it holds over retail in the form of distribution networks, the popularity of Amazon Prime, and Whole Foods stores which essentially are becoming Amazon’s brick-and-mortar locations.
So, what’s behind this resurgence of brick-and-mortar retail in the age of digital commerce?
I think more than anything it’s about the in-store experience of talking to other people and feeling connected to a physical location, as well as wanting to see, touch and feel things – vinyl records, tomatoes or hand-made purses. Online shopping has made it easier to get information through photos and videos and personalized suggestions, but nothing will ever replace tangible in-store sensations and interactions, especially if that experience is seamlessly integrated with the online experience. In fact, this seems to be the lesson retailers are taking to heart in 2019 as they try new creative strategies to engage shoppers, get them into the store, increase sales, and go beyond discounts and door-buster sales to build long-term loyalty.
Of course, the eternal challenges of the retail business remain both on and offline. Brick-and-mortar retailers struggle to stay profitable while paying overhead to run their stores, while “pure play” retailers (those who only or mainly sell online) are relegated to niche markets unless they can compete (or work with) the Amazons of the world. Like Amazon, today’s retailers must be able to anchor a superior digital experience to loyalty programs (Amazon Prime), brand-driven stores (Whole Foods), and forward-looking strategies (Amazon Go). Maybe they won’t do it at Amazon’s scale, but they can absolutely change how they do business online and offline.
And that’s what will separate the winners from the losers as we prepare for a new decade – the ability to provide a seamless, omnichannel experience to shoppers.
Here are a few stories and trends from last year that reflect the highs and lows, challenges and opportunities for retailers in the year ahead:
The Good, the Bad, and the Ugly for Retail in 2018
- The Good: Walmart acquired Flipkart, India’s largest online retailer and a major Amazon competitor, in a $16 billion blockbuster deal. If Walmart can’t match Amazon technologically, it at least now has a digital foothold in one of the world’s fastest growing markets in Asia, in addition to its global distribution networks and supply chains which Amazon can’t match (yet).
- The Bad: Even as some retail legends were growing, others were folding – and technology is a big reason why. Toys-R-Us started 2018 on a gloomy note as the iconic toy retailer went bankrupt and shuttered its US business (closing 180 stores in total). The reasons were many, including decades of deterioration at its brick-and-mortar stores and simply not being able to connect with kids or their parents in a digital age. It’s always sad to see an iconic retailer go, but retail (online and offline) has been thriving in the US and just saw its strongest Christmas season in six years with sales up 5.1% to more than $850 billion, according to Mastercard SpendingPulse. Other digitally-driven retailers like Bonobos (a Walmart subsidiary since 2017) and Allbirds are showing how serving a niche market can resonate widely as a brand, and be successful by working with rather than against the Walmarts of the world.
- The Ugly: Market winds hit ecommerce giant Asos hard in 2018 with the retailer falling by as much as 43% in December, and in contrast to the US, signaling the start of a difficult holiday season for UK and European retailers. In the case of Asos, heavy discounting was one of the main causes of its troubles – just like brick-and-mortar retailers, those selling online have to get “foot traffic” to their sites and discounting is one way to do that. But it’s not the only way and more retailers, particularly grocery chains, are leveraging their digital loyalty programs to move beyond discounting and attract customers more positively with loyalty apps that keep them coming back for discounts but also rewards, personalized offers and engagement with the brand.
- The Wildcard: The US Supreme Court ruled on a case that could lead to online sales tax for retailers like Wayfair and Overstock. These companies argue that sales tax puts smaller ecommerce players at a disadvantage in terms of costs and complexity. Traditional brick-and-mortar retailers, on the other hand, argue that this will further even the playing field and not burden them alone with the operational costs of sales tax. What this represents more broadly is that even regulators are blurring the lines between online and offline and seeking a new framework for doing business. The retailers that are succeeding don’t have a special plan for bridging the physical-digital divide inherited from their legacy IT infrastructure. They’re investing in new technology solutions and learning how to do business in this new market through trial and error, and relying on technology partners (our clients) to educate them and help find the right solutions that grow their bottom line in new ways.
- The Trendsetters: Direct-to-consumer beauty brand Glossier remodeled its SoHo flagship store last year to attract more passersby and get them to come inside or just take a selfie in front of the store. A small but telling example of what’s been happening all across retail, not just in SoHo but in Miami, London, San Francisco, Brisbane, Beijing. Brick-and-mortar locations are assets, nothing more – it’s about how much brand value retailers can bring to that space and many are renovating accordingly.
How do the above events impact retailers this year? And for the technology companies serving them, what are the top priorities in terms of retailers’ technology investments?
One reason why brick-and-mortar has seen a resurgence is because some stores are simply amazing – Nordstrom Local doesn’t stock clothes, for example, but provides a suite with personal stylists, home delivery and other services such as tailoring. Brands are also going above and beyond in terms of experiential marketing. This includes high-tech immersive experiences – our client Twenty Four 7 executed and won an award for a Times Square takeover for a major telco brand – as well as more functional improvements like how stores are physically laid out.
Customer Relationship Management
One of the biggest challenges for brick-and-mortar retailers is knowing who’s coming into their stores and how to make the most of their time. More store attendants are now equipped with tablets and can see online inventory and personal customer information such as past sales or loyalty membership. The future of CRM is much more personal, dynamic, and driven by loyalty data (our client Excentus is leading the way here in the grocery and convenience retail sectors).
New Ordering and Delivery Methods
Five years ago, Jeff Bezos predicted that Amazon would have drone delivery at our doorsteps. Alas, that hasn’t fully happened yet, but new ways of ordering and delivering merchandise are already in full force, from sample boxes for beauty retailers to hotel delivery for travel retailers, ordering by text, curb-side pick-up and same-day delivery.
Looking Ahead to Retail in 2019
Whether online or at a brick-and-mortar location, today’s shoppers want more than inventory and quirky (or annoying) emails. They want a seamless, omnichannel experience that makes it irrelevant where, when or how they shop. Yes, they enjoy touching and seeing what they’re buying, but we all have five senses and the ding of a mobile offer can be just as enticing as the tactile pleasures of browsing. And these tactics will increasingly complement each other as retailers invest in new technology solutions that put customer experience and user experience at the center of retail – that’s what we’re all expecting to see more of in the coming years.
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