Retail is evolving. Unencumbered by geographic availability or local stock levels, online retail is outpacing physical retail and driving tremendous growth. Today’s consumers demand digital-first — shopping in more varied ways, through more channels, and choosing to buy based on ever more diverse personal and cultural drivers.
How can physical retail possibly keep pace with the explosive growth of online behemoths such as Amazon, eBay and myriad other marketplaces?
Does digital retail mean the end of physical stores?
Online retail is experiencing a boom. With an expected year-on-year growth of 16.2 percent in the UK in 2015, while physical retail is expected to shrink by 1.4 percent in the same period. That incredible growth is driving the expectation of total UK online retail sales to value £52.25 billion.
But don't let that enormous number sway you. That figure only represents 15.2 percent of the total expected value of retail sales. The lions share (84.8 percent) of actual sales belong to physical retail stores.
The truth is, despite the rapid growth and marketing prominence of online retailers like Amazon, retailers with physical stores still command most of the market. In fact, in the US 90 percent of all retail sales are transacted in-store and 95 percent of all retail sales online and offline are captured by retailers with brick-and-mortar stores.
High-street retailers and boutique stores can breath a sigh of relief. But why is physical retail so strong?
Physical retail is here for good
OK, online retailers are growing fast. But when you drill into why consumers shop online you can clearly see that growth is driven by a limited set of specific needs — with deals and convenience taking the two top spots.
Physical stores are still consumers' preferred shopping channel for good reason. They offer real, tangible experiences that cannot be rivalled online.
Consumers prefer in-store for comparison
For high touch-and-feel categories, such as fashion, beauty and furniture, preference for in-store experiences can be as high as 85 percent. When buying a TV, shoppers might not know the difference between LCD and LED as described in online product details; but it's simple to choose whichever appears better in person.
Immediacy, ease, and personally relevant comparison criteria are all cited as reasons for preferring in-store comparison.
Consumers like the immediacy of in-store, but the convenience of digital
When shopping online, in-store pickups offer a sense of reliability and trust that consumers might not find online or through home delivery. Being tied to a physical location seems to engender a trust and reliability that pure-digital retailers have to work much harder to reach.The benefit of the immediacy of in-store pickup is also more gratifying than waiting for delivery of an online purchase.
However, consumer preference switches to online for more cumbersome purchases such as furniture, appliances or large grocery orders.
Physical stores drive sales on other channels
Physical stores sit at the centre of consumer purchasing habits, driving sales online as well as offline. Two-thirds of consumers that purchase online use a physical store at some point on their journey. In many cases, even though the purchase ultimately took place online the customer used the physical store at one point or another.
When asked, 55 percent of consumers said they preferred to use both physical and digital retail experiences throughout the shopping journey.
Physical stores also drive digital engagement
Not only are consumers engaging with retailers on multiple channels throughout their journey, one-third of consumers use more than one channel simultaneously at any given step — for example, price checking on a smartphone while in a store. in fact, a study by PWC showed that up to 84 percent of smartphone owning shoppers use their device while shopping in-store.
This creates opportunities for seamless shopping experiences that leverage the engagement of physical spaces, with the availability and convenience of digital.
Online retailers are moving onto the high-street
Amazon, famous for disrupting physical retail, is experimenting with pop-up stores and planning retail experiences. Retail newcomers like Microsoft, and pure-play digital retailers like Warby Parker, Microsoft and Bonobos are also investing in physical stores. Online sportswear retailer Athleta, who opened their first physical store in the US in 2010, now has around 65 stores.
This might have something to do with observations that on average 23 percent of customers who buy online and pick-up in-store are more likely to purchase additional items when visiting. Also, that on average 20 percent of online customers buy additional items in-store, even when they're visiting to return an online purchase.
So what is the future of digital retail?
The prominence of 'the store' in customer's behaviours and preferences doesn't mean that physical retail isn't going to change.
From geographical convenience to brand loyalty to the desire to be entertained or surprised. Consumers select the channels they shop through based on a broad range of criteria. As a result, how and where consumer value is created and captured depends on a consumer’s unique preferences, situation and goals.
Physical retail experiences have to embrace digital channels to be more flexible, available, convenient and personalised to better meet those unique needs of individual customers. At the same time they can leverage the strength of real, tangible experiences to create memorable moments for their visitors. Retail spaces are transforming into flexible venues for brand-relevant activities and events, showrooms for product experiences, and hubs to serve customers and their local communities.
Digital can transform in-store experiences
Enabled by technologies like beacons, tracking and analytics, wireless payments, interactive displays, RFID, augmented reality, online fulfilment and personal, connected devices like smartphones and smart-watches, physical retailers are already exploring the kinds of digital experiences they can deliver in-store — and how they can effect their bottom-line.
Digital experiences make it easier to find and explore products
Digital is clearly the preferred channel for product discovery for it’s convenience and ease of search. Paired with retail’s unique physical product experiences, digital discovery can streamline discovery in-store to get the right products in the hands of customers as quickly as possible.
Audi’s digital showroom in London is a rich product experiences that allows customers to explore and tailor Audi’s huge range of cars through rich interactive displays.
Despite only having just four cars in-store, sales at this single showroom are up 60% from the traditional Audi showroom that previously occupied the site.
Nike’s Fuelstation store was an entirely digital retail experience to introduce the Fuelband - a health and fitness tracking device. Customers were introduced to how the Fuelband would impact their lifestyle with informative displays, interactive experiences and personalised product demonstrations.
Digital experiences in Fuelstation celebrated Nike’s brand and products, made it easy to browse their catalogue, provided personal product demonstrations with store staff answering any questions, and captured customer contact details for future marketing and personalisation efforts.
Digital payment in-store adds convenience and reduces wait time
Payment doesn’t have to take place at the checkout. Using tools like digital payment points scattered throughout the store, store staff with payment ready devices, or apps on customer’s own phones, payment can happen anywhere on the shop floor - or even before the customer arrives in-store.
In 2012, Nordstrom introduced mobile point of sale devices that allowed customers to purchase anywhere in-store. The devices also gave sales staff access to the company’s entire inventory, which is useful when helping customers check if an alternative size or colour is available elsewhere.
After rolling out the devices at 117 stores, Nordstrom’s sales revenue increased 15.3 percent year-on-year.
Remembering customer details makes buying easier the next time they shop
Remembering customers payment details (like Amazon or Apple's App Store) reduces barriers to the payment process like entering card or address details.
Simple, effortless payments make in-store experiences more pleasurable and convenient. Customers that feel well looked after will be more loyal and advocate your brand.
Consumers respond to tailored retail experiences
A recent survey has shown that up to 43 percent of customers questioned said they would be more likely to buy more or return to that retailer if they received a tailored experience.
Digital touchpoints in store, such as in-app discovery on the customer's phone, beacons, or digital payments associated with user accounts can help to paint a picture of individual customer's preferences. This data can then be used with predictive analytics and recommendation engines to created unique experiences that reflect the tastes and behaviours of those customers.
But, with this level of convenience comes a level of risk. In a post-Snowdon era, data collection and customer tracking is a touchy subject with customers, who hold reasonable concerns about privacy, security and ownership of that data. Ensuring that customer data is collected and used with transparency, permission and even-collaboratively can help to avoid 'creepy' big-brother behaviour, and settle gently into a comfortable, 'just right' balance of convenience and observation. We need to make sure that, in our efforts to be more useful, we don't alienate customers. In short, be useful but not creepy.
Use data to make stores better
With their proximity to customers, stores are in a unique position to tailor their product assortment, layout, and displays around customer behaviour.
Story is a New York store that changes it’s layout and stock every 4-8 weeks.
Real-time analytics of where customers move in-store and what objects they interact with provides insight into what layout and product combinations are most successful, and allows them to experiment and test new combinations every time they reconfigure their store.
Reduce dependency on inventory
With digital fulfilment to get products in the hands of customers, stores can focus on product experiences. By relying on digital touch-points for the roles that they are most suited to (product discovery, arranging delivery or store pickup, convenience and availability), stores can shift from a venue for storing products to a venue for experiences, purchase and delivery activity, and for services (think Apple's Genius Bar).
Sony's digital storefronts allow shoppers interested in buying or browsing to interact with touchscreen interfaces, and select from hundreds of items from the Sony product inventory. If they choose to buy any items, they can proceed to checkout by pushing the order to their mobile phone where they complete the purchase online. Once purchased, customers can opt for delivery or pickup from a nearby store.
Created to support the retailer’s online ‘Buy and Collect’ service, House of Fraser in the UK has introduced new 'condensed' store formats to fit into smaller retail spaces. Once purchased, products are available for delivery to the customer’s home, or to the store for future collection using digital fulfilment.
This new smaller store format allows House of Fraser to increase their availability to locations more convenient than their larger department stores.
Be available anywhere
Customers shop using a range of devices in a range of environments. This could be anywhere from their living room, the high-street or their office. Being available through a variety of channels increases the chances of engaging customer's when they’re most receptive and can streamline the in-store experience.
Starbucks' mobile app allows customers to buy their coffee before they've even arrived at the store. The app also rewards customers with loyalty offers based on a point system, and can notify them in real-time when new personalised offers become available. Since introducing these experiences, Starbucks has reported considerable growth and that the 2014 financial year saw 20% of all in-store transactions taking place on mobile devices.