Retail industry has been completely transformed in the last decade.
We’ve all faced a shopping crisis at some point or the other. An event turns up at the last hour and the next thing we know is that we’re hunting for an appropriate attire that suits the occasion. Shopping, however, can be daunting sometimes. More so, if the time is too less to order from an online store or if the closest shopping centre doesn’t have the collections that you’re looking for!
Now, let’s think of an alternate situation. As soon as you get an invitation to the event, you launch a video conference with your personal attendant from Bloomingdale’s who suggests several dresses, showcasing them on your online avatar. In need of a second opinion, you share the images with your friends from the same platform and get their feedback. And viola! Your new ensemble is ready!
Extending our thoughts further, you enter a store to buy a shoe and the attendant greets you by your name and accompanies you to the leather boots section. This is thanks to the camera mounted at the entry linked to your customer database (with your shopping choices) that is flashed in the fancy pocket-device of the attendant whenever you enter the store.
Retail is at a crossroads and everything mentioned above are gradually becoming a reality given the technology trends. Shoppers today are not just looking for price and quality. They want something more. They are looking for the perfect shopping experience – an abundance of information, complete price transparency, a plethora of special deals, and personalized service. Retail stores not only need to align their space with consumer demands but also build consumer loyalty by offering product innovation, variety, and engaging digital programs.
Over the past decade, we have experienced phenomenal growth in the retail sector fuelled by several factors such as rising household incomes, increasing consumerism, e-tailing, and favourable demographics. Whenever there has been any invention affecting the masses, the retail industry has been impacted.
A century and a half ago, the growth of railway networks led to what we now call a modern retail store. Mass-produced automobiles shortly followed and we witnessed the rise of shopping malls. These malls swiftly replaced the sub-urban department stores. The 1970s saw the dominance of discount department store chains such as Walmart and Kmart. These chains reshaped the entire retail industry.
If we look at the patterns, change doesn’t make the past irrelevant. Rather, it reshapes the current landscape and enhances consumer expectations, often drastically.
Subsequently, the dot-com era saw a massive uprise in modern retailing with Amazon.com and pets.com, all set to embrace the new trend: e-tailing. However, the dot-com bubble burst in the early 2000s proved to be a fatal blow to most of these retailers. Especially, the great downfall of pets.com, still a glaring example of the failure of tech, proved that technology available during that period was not capable of handling online retail the way it was expected and envisioned.
However, today, the reality brings good news for e-tailers. According to a report by Forrester, e-commerce accounts for more than 9% of retail sales in the U.S. Moreover, the industry is now approaching $200 billion in size. If we look at the adjoining regions, the growth figure stands at 10% in the United Kingdom, 3% in Asia-Pacific, and 2% in Latin America. Globally, digital retailing stands at approximately 15% – 20% of total sales and is highly profitable. For example, the average five year RoI of Amazon stands at 17% as against 6.5% in traditional discount stores. In terms of customer satisfaction numbers, the average customer satisfaction for online retailers like Amazon (87 points) is almost 11 points higher than brick and mortar stores.
Does this mean the death of traditional brick and mortar stores?
Today you can shop by either driving to a retail store or purchasing from an online retailer. However, there are gaps in both. In many circumstances, customers are not happy with these two being discrete options. Well, in China, led by the Alibaba group, a new form of retailing called “New Retail” is gaining wide popularity.
New Retail is helping traditional retail stores renovate their model in a digitized world in unexpected and creative ways. Thanks to a the right mix of technology and traditional experiences like fine-dining and home delivery all from the same point, consumers find these stores so appealing that they are moving to live closer to these stores. The New Retail is blurring the line between online and offline and giving the consumers what they actually want – a meaningful experience.
You can watch all about China’s new retailing innovation in this video:
Because of the way in which digital retailing is evolving, it needs a new name – Omni-channel Retailing. As reflected from the name itself, retailers will now be able to reach the customer with not just one channel but a combination of many. Direct emails can now be combined with SMS, social media marketing, and physical stores to provide a 360-degree experience to the customer.
Unfortunately, traditional retailers are lagging massively.
Online sales account for less than 2% of revenue at Walmart and Target. The retailers, no doubt, are truly experienced in physical retailing and have the exact knowledge of aesthetics like the perfect amount of lighting needed to shift a customer’s focus to a particular product. However, when it comes to computer literacy, they are way behind. Their IT systems are almost non-existent and brilliant folks shun these places. The future of retail is digitization combined with understanding consumer insights to the deepest level.
Let’s look at some of the factors that are holding traditional retailers from thriving in this new economy
Dot-com bubble burst
The nightmares from the e-commerce crash during the dot-com bubble burst is still afresh. Fledgeling companies gained much initial traction until a combination of wrongly perceived strategies, conjectural gambles, and a slowing economy burst the dot-com bubble. The resulting collapse wiped out half of all e‐commerce retailers where a huge amount of acquisitions failed.
Even after a decade, there is no collaboration between the digital operations and retail owners.
The compensation metrics used by traditional retailers have remained the same since ages. KPI’s like same-store sales and in-store sales per labour hour are prevalent today.
Such obsolete metrics work when the percentage of online revenue remains low. But, when online sales goes beyond 15% of total sales, a new set of performance measures are needed.
For instance, the idea of focusing on ‘margins’ as a measure of profitability may not work in e-retail. Online retailers like Amazon, who have almost zero inventory holding costs, consider the return on invested capital as their success parameter. As a result, even though its margin is lower when compared to traditional retailers, Amazon beats them on return on invested capital.
Finally, retailers tend to be less innovative in their customer experience outlook also. Traditional retailers tend to think that their customers are always going to be there. Little do they realize that with more omni-channel shopping, the attitude of customers towards retail stores is changing.
What is the best way to prep up for the future?
Redesign, Revamp, Reorganize.
The first step to prepare for any major change is to accept that such a change is forthcoming. Retail executives must accept the fact that digitization is here and it will remain in this sector only to get stronger with time. The best way to stay ahead of competitors is to start equipping oneself with the necessary toolkit, which in this case is a thorough understanding of how tech affects CX. Subsequently, this understanding and knowledge must successfully be implemented across stores. Retailers need to adopt the start-from-scratch approach, a strategy that was implemented in Bell Labs in 1951 when the group was rebuilding the telephone from scratch.
To organize themselves around an omni-channel strategy, retailers need to have an efficient tech team that is bold enough to take risks and creative enough to envision the future. The team should be a subset within the parent company, with just the right amount of coupling between the two. This is the kind of coupling that is strong enough to maintain the same culture throughout but loose enough to give them autonomy. The process of restructuring is indeed a long, tedious, and challenging one. However, it is, perhaps, the only way that can help retailers steer through the digitization wave.
If retailers believe that technology is going to be limited to the online world only, they might be in for a huge surprise. We are beginning to see novel implementations of tech to enhance customer experience in the offline retail stores as well. Have a look at this amazing concept store by Amazon: