Digital domination: Is physical retail dead?

With the growth of online retail, the physical shop is in a crisis. Digital shopping has been the trend for the last decade but will COVID-19 be the final nail in the coffin for physical retail? During the pandemic, omnichannel shopping has further accelerated, and retailers need to get prepared for the transformational change in the retail industry. So how are retailers tackling this change? This looks at retailers in Hong Kong and their digital journeys, showing that digital processes can both save and even enhance in-store experience and improve the bottom line as well. It also considers the solutions provided by data, AI and robots that are driving change. Crisis or opportunity? The latter is the only way retailers need to think.

The pandemic that propelled transformation

Retail has been beleaguered for years – COVID-19 is propelling a digital transformation that started taking place over the last decade, known as “retail apocalypse”. Yet with every decline comes an opportunity – online sales have increased exponentially across the world.

A ‘Deloitte - 2019 Retail Outlook | Transition ahead” report highlighted the scale of this process in China. The country’s e-commerce sales were estimated to be 55 percent of the global e-commerce market in 2019. Its total mobile payment transaction volume reached US$13 trillion in 2017, compared to US$50 billion in the United States. “With less established public infrastructure as recent as 5 to 10 years ago, Chinese companies such as Alibaba, JD.com, and Tencent have invested on their own, helping Chinese retail consumers leapfrog their peers in the United States. The current generation of Millennials has grown up digitally native, and many are willing to bypass traditional consumerism for a more connected approach,” the report says.

The situation is mirrored across the West. According to CNN, there were 9,302 US store closings in 2019, a whopping 59% jump from 2018 and the highest number since the cited source Coresight Research began tracking in 2012. In the UK, retail profit margins have declined from 4 percent in 2013 to 2.5 percent in 2019, according to KPMG in a recent Global retail trends 2020 report.

“Given that physical stores have been the foundation of the retail experience since the dawn of ancient Greece, the implications for today’s retail business model are massive. Even before the upheaval, it was becoming increasingly clear that store-based retailing had passed its zenith. And while many physical stores will certainly return to growth, it is clear that the days of being able to drive growth through physical stores alone are over. Those with no existing online or delivery channel will struggle to survive this challenging time,” the report adds.

Retailers can stem the tide by boosting their online offerings and speeding up digital transformation in their businesses. This could help them make it through the pressing challenges of the pandemic and on to the emerging future. This is not a zero-sum game of online versus offline. Retailers who boost their presence online, work on their social media, and strive to bridge the gap between digital and physical retailing by leveraging data, AI and associated technology, will be winners, retain customers, and engage wider scope of consumers.

The solution to saving physical shops is to offer the winning blend of a seamless online experience, backed by data and tech solutions. A robust physical presence enhanced by online tools offers the traditional charm and excitement that people seek from retail, with the holy grail of unlocked information on consumers. With COVID-19 still raging across the globe, combining physical and digital is a must for all retailers.

Viewpoint from the battle: Janis Tam, Managing Director of Swire Resources Limited

A well-known retailer in Hong Kong, Swire Resources Limited started developing their e-commerce capabilities in 2016 but found that there were not many vendors in the city they could use in this effort. Turning to a Chinese provider they had been working with, the company started integrating e-commerce with supply chain and logistics capabilities. In the process, Swire Resources found that brands focused on the China market could drive results with data and refine approaches with the information gathered from consumers. They then took those learnings from China and focused on developing the sports and outdoor travel market in Hong Kong.

“Business changes in retail forced us to consider whether we can only survive with physical channels, and things started moving quickly in Hong Kong a few years ago,” Tam says. Social media came first for Swire Resources Limited, then came data analysis. “Every retailer has to embrace it, especially with the COVID-19 pandemic around the world, it accelerates digital transformation, it does not allow you time to do things slowly, and it made us engage in what we call ‘beyond store initiatives’,” she says.

The current pandemic has also highlighted the challenges in the next few years, including lack of digital talent, integrating sales channels, and developing platforms integrating small brands which cannot build individual online stores, and overall, providing a cohesive experience for consumers. “Of course, we had to take some risks, and prioritise which brands to digitise first. Even if there is no return initially, you need to understand how to digitise. But in fact, it’s not just about digitisation, but more about looking into the future and understanding customer trends,” Tam says.

Changing customer trends meant Swire Resources Limited really had to think with a truly omnichannel lens. “You can only do so much in store, and if you look at HKTV Mall and their success, you can see how the market is buying nowadays. So we now engage our customers through the likes of WhatsApp or WeChat, send pictures to them, or pass a product link. If they know their size or what they want, we take orders and send products to their home. 

This has created a different way of operating because of the pandemic and this will be part of the model down the road,” says Tam. Sales teams need to be able to curate communication both online and offline, “serving in store and communicating with customers off-store, on mobile, to create a frictionless journey for our customers,” says Tam.

For retailers, it is a dual process. Internally, they need AI-driven data analytics that can help sales forecasts and manage inventory; enterprise systems streamline internal processes and workflow; and new tools can help companies understand customer profiles and formulate global sales strategies. Meanwhile, company talent should be ready for innovation and transform organisations from the inside. “We are now using data analysis tools that save us a lot of time and offer many insights, helping us to make decisions faster, and understand behaviour, preferences of consumers, to create value for both customers and ourselves,” says Tam. 

Physical stores are still important during COVID-19 regardless of all the changes delivered by digital. “The lockdown has forced everyone to change, but the physical stores are still important. During COVID-19 we have staff in physical stores to personalise communication with our best customers to help them buy their favourite products, regardless of which channel they want to buy through, whether it is an online store, or simply purchasing in person. The store associate has to become a customer service manager engaging people online or offline – some of our store staff are even livestreaming now, so we need to use all the tools available to us,” says Tam. These tools could be as simple as engaging more on social media, offering people bespoke services based on data of their purchase history and behaviour, or going as far as creating in-store tech solutions that bring the excitement back to retail.

If merging physical and online is the new norm, then how can it be achieved? It is a mission that is carried out by retailers on a daily basis. Click on the case studies below to see how it is done.

Bricks and clicks is the new norm - In Hong Kong, Lane Crawford is known as one of the Asia’s premier retailers. But not everyone realises the extent of their digital capabilities. How can we use data to optimise business processes?

Video is the star of the show - We often think of YouTube as having lots of annoying ads that make you want to tear your hair out. Maybe this perception is about to change.

Robots are going shopping - If you are a traditional retailer, digitising a whole store seems like a complete nightmare. But what if a robot could take the hassle out of all it? 

Develop your data driven humanism

It’s a tough environment in which to be a retailer – conquering how people find you and how you serve them is key to driving execution. This will be down with treating people well, and helping them buy products in a way that makes sense for them. Survival is driven by how well you engage customers, and make the relevant business decisions from available data. Retailers should stop differentiating between online and offline locations, but rather see them as a unified environment. They need to focus upon the journey consumers undertake when buying, from searching for products to executing the purchase. Do all this right – and customer retention is a real possibility. Once consumers like a brand, loyalty will be an optimal factor driving them to purchase, whether that transaction is made online or offline.

As Deloitte put it in a 2019 Retail Outlook | Transition ahead report: “Retailers should refine each consumer profile based on data from all types of sources – social media, transactions, and reviews – to achieve ultra-personalisation. This vision is aspirational for many, but it can quickly become the new norm. Automation and machine learning are providing the much-needed scale to enable ultra-personalisation, as current approaches are too manual and not adaptable enough.”

When visiting your shop in person or online, customers should feel like they are walking into a home. They should be taken cared, offered assistance, given the right information and not pressured to buy. With the empowerment of the data revolution, retailers have no excuse not take these once in a lifetime opportunities offered to them.

The time is now.