Blog Post - Hugh Fletcher, May 16 2019

Digital isn't killing retail. It's driving its evolution

Digital isn't killing retail. It's driving its evolution

Traditional bricks-and-mortar retailers can feel like they are in the eye of the storm. Everywhere they turn, they face change and disruption. If it isn’t technology, it’s customer behaviour, as hordes of shoppers stay away from the high street in favour of the ever-increasing number of digital shopping channels available to them.

To some, the rise of digital commerce has left traditional retail in crisis. With a constant drip-feed of stories about administrations, redundancies, takeovers and rising numbers of vacant retail premises blighting our high streets, it can certainly feel that way.

But the facts are that ecommerce still only represents a fraction of the retail market overall. Granted, its share is growing at some speed, but stores are still where the overwhelming majority of worldwide consumer spend goes. Digital is a long way from killing physical retail, and there is perhaps no better evidence of that than the fact that Amazon, the undisputed champion of online commerce, is now aggressively looking to make in-roads into the physical retail space.

What Amazon and other digital retailers recognise - the likes of Birchbox, Made.com, Zalando and more have all made the jump into bricks-and-mortar recently - is that consumers are not going to stop going into stores any time soon. Stores offer shoppers experiences they just cannot get online, including the chance to sample and interact with products in person, and instant fulfilment - no waiting for orders to be delivered.

But equally, Amazon knows exactly what it is able to bring to the table in physical retail. As the master of digital disruption and service innovation, Amazon recognises there are opportunities to re-imagine the in-store experience to bring it into line with what customers expect online, to make it more convenient, seamless, personalised and flexible.

This is the challenge facing all traditional retailers. A flight away from stores into digital, or even continuing to run online and physical channels as separate parts of the business, is missing the direction that retail is taking. What we are seeing instead is a move towards a true omnichannel blend, a hybrid mix of the best aspects of digital and in-store commerce used to complement rather than compete with one another. Yes, digital has certainly thrown up its challenges to traditional retail. But rather than being the nemesis that destroys it, digital instead has the potential to be the saviour that takes retail in exciting new directions. Here’s how we see the hybrid future of retail panning out.

From Showcase to Experience

No one needs to deny the plain facts about what is happening in bricks-and-mortar retail. Yes, stores are closing and, yes, it is logical to assume that growth in ecommerce revenues has something to do with that. But can we conclude there will eventually be no more physical stores at all? That is not so logical.

Now that consumers have alternative options for where and how they buy, it makes sense that retail chains will not be able to sustain store portfolios of the size they once could. The key going forward will be to get maximum value from the premises they do keep.

Traditional retailers can take several lessons from their digital counterparts when it comes to making a less-is-more approach work for stores. One is using data to really dig down into the best locations to keep a physical presence, making informed strategic decisions based on footfall, revenue, customer demographics and so on. Another is to consider carefully how having a physical presence in a certain area can actually support digital growth, both through providing those unique in-store experiences and supporting fulfillment. Because of their proximity to the customer base, stores can become a very useful resource for solving those ‘last mile’ delivery issues and reducing fulfillment times.

On the experiential side, we expect to see a conceptual shift away from stores as transaction centres towards stores as a focal point for showcasing a brand. What stores provide that digital channels cannot compete with is opportunities for high-touch customer interaction, product sampling and demonstration, and in-person service. The impact on purchasing decisions of being able to touch, use, smell and taste products directly, rather than just looking, observing and perhaps listening, is not to be discounted. Similarly, the direct human interaction you get when speaking to a sales assistant face adds more depth to influence and inspiration than you can replicate online. Kept to just a modest number of outlets, the showcase store also carries an air of exclusivity about it, a go-to destination for consumers when they are really looking for something more than just another click-and-complete shopping experience.

Another trend we expect to see is more and more stores adding what we might call ‘adjacent experiences’ to their offer - not necessarily directly related to their principal retail purpose, but intended to add value for the customer. A good example of a retailer already putting this into action with great effect is Ikea, which has enjoyed huge success with its on-site restaurants - a third of its footfall is apparently driven by the food, not the furniture. We also expect to see shopping malls evolve in a similar direction, with dining and entertainment venues mingling increasingly freely with retail stores to give consumers multiple reasons to visit.

Co-retailing

Another option for saving on those eye-watering real estate costs and delivering greater choice and convenience to customers is co-retailing - multiple retailers sharing the same space. This is, of course, a very old idea, familiar in the form of department stores and marketplaces down the ages.

Brands and retailers have, in recent decades, strived to literally carve out their own space out of a concern for brand identity and control of the customer experience. But as revenue growth from bricks-and-mortar dwindles and customer acquisition costs rise, financial imperatives may override these considerations. When non-competitor brands can find synergies in their target audiences, positioning and ethos, co-retailing can slash overheads and drive complementary sales.

Making the physical digital

Finally, it is also very much the case that digital technology can and will have an impact on the way the retail stores of the future operate, and the experiences they offer to customers. Some of this will be to bring concepts pioneered and proven successful in ecommerce into the store, some will be brand new innovations geared to the specific circumstances of bricks-and-mortar retail.

There are many examples already in action. Touchscreen information points and so-called ‘infinite aisle’ display screens provide customers with the same ability to look up product information and browse an extended catalogue of goods as they get on line. Self-checkout options are the first step to replicating the frictionless convenience that has driven the evolution of shopping carts and online payment platforms. And then we are already seeing store-specific innovations emerge, such as AR ‘mirrors’ in fashion retail which allow customers to try on a variety of products virtually without the need to step into a changing room.

These are just some of the key dynamics and developments at play in retail today. To see our full vision for the future of retail, including the role of Augmented Reality, Loyalty & Reward schemes, Biometrics and much more, download The Future of Retail report.

Download the Future of Retail