Don’t write off the high street yet. eCommerce is changing the role of shops as we know them, but not in the way you might typically expect.
On the surface, it’s doom and gloom for the high street. Newspaper reports of well-known stores closing are common place, whilst industry experts forecast more to come, with 500 retail stores in the UK predicted to go into administration by 2020. By way of example, British Heritage retailers such as House of Fraser & Debenhams have been struggling to remain competitive in the market and are both undergoing dramatic restructures in attempt to recover market share. Whilst brick and mortar sales continue to stagnate, much of the growth in retail will come from eCommerce. It remains to be seen whether the likes of Debenhams and House of Fraser can react quickly enough to these changing market trends, and re-purpose their stores to offer the customer a greater experience. Critically, this involves a more seamless integration of their online and offline channels. Whilst this is potentially more difficult for larger and less agile retailers, it is certainly not impossible. For example, Amazon’s merger with Whole Foods puts into focus the importance of building a store footprint but doing so in an integrated way, that facilitates its omnichannel ecosystem (e.g. offering in-store exclusive deals for Amazon Prime members). Amazon CFO Brian Olsavsky reported that Prime members are integrating the grocery chains benefits into their personal habits faster than other perks that come with the exclusive membership. Overall, J.P. Morgan estimate that since its acquisition by Amazon, Whole Foods revenue has increased +7% YoY. This begs the question; do we really see the high street dying? At first glance yes, but under closer inspection we see that its role is simply changing.
The Amazon-Alibaba effect. A halo worth following.
Until recently, the idea of online to offline (O2O) was an unknown concept except simple click and collect within the grocery sector however today it’s a multibillion-dollar industry, with Amazon buying Whole Foods for a staggering $13.7 billion and Alibaba investing $3 billion in the industry in 2017. Why, you might ask? Pure play retailers are increasingly seeing the value in physical stores as they are a way of getting their less tangible and more perishable goods in front of shoppers. The physical footprint also allows the potential for more locally centric, responsible hub and spoke delivery mechanisms which will help bolster and maintain these giant’s superiority within the retail space. Bridging the digital to offline gap has become the goal of both major players and start-ups, with some of the most powerful voices in this space even calling it the trillion-dollar opportunity. Those who embrace this will win not only the digital sale but the shopper. Advanced logistics systems, increasing digital connectivity and spending has positioned China ahead of the curve when it comes to innovation opportunities in online to offline commerce. For example, Alibaba is expanding Hema, a chain of cashless supermarkets, with 2000 stores expected to be in operation in the next 5 years. Hema offers a grocery format with integrated retailing in mind as its new retail strategy calls for the marriage of online and offline retail worlds with a shopper experience shaped by data and technology. The in-store experience is largely digitally enabled with digital touchpoints to facilitate everything from browsing to payment, providing the customer a more convenient and seamless shopping experience. Equally, convenience is king in terms of its online delivery proposition, meaning those who place orders online can receive their items within 30 minutes of ordering. Based on Alibaba’s data, offering a combination of online and offline shopping options results in an increase in average monthly spending by customers. Consumers who shopped both online and offline at Hema spent an average of 575 Yuan monthly, compared to under 300 Yuan for purely online, or purely offline shoppers. By blending physical and digital formats, Hema is delivering a truly consumer centric approach that is flexible to the customers’ needs, providing a consistent omnichannel experience.
M-commerce at point of fixture
You might think that the rise of mobile has accelerated the growth of specific omnichannel shopping behaviours, such as showrooming and webrooming, across all industries including apparel, auto and high-end consumer electronics. Showrooming is when a shopper visits a store to check out a product but then purchases the product online; Webrooming, on the other hand, is when consumers research products online before going into the store for a final evaluation and purchase. Some brands have completely reinvented the shopping journey to drive the O2O effect to their advantage by focusing on repeat purchases to drive up reoccurring revenue. For example, Canadian clothing company Frank & Oak have introduced a frequent shopper program called Elevate that enables for $20 a year express shipping, cash back deals and smarter, personalized in-store customer service. The program’s app offers a 24-hour live chat service with stylists, in-store appointment booking and two-hour on demand shipping. The app also uses beacon technology to recognize Elevate members when they walk in and then offer them a complimentary cup of coffee. This clever use of both web and showrooming allows the brand to stay relevant, top of mind and incentivises customers to buy time and time again.
Today consumers are shopping in many different ways based on factors such as value, perception and perishability of the goods. For this reasons brands must be dynamic and adaptable to think outside the box when planning decision and shopping journeys.
Recent studies have shown that 87% of shoppers are seeking additional information before visiting the store, but more importantly, 79% are browsing while actually visiting the store. When it comes to preferred sources, Amazon takes half of consumers’ first product research, followed by Google and other search engines (36% of consumers) and individual retailers’ websites (15% of consumers). Despite eCommerce sales representing only 12% of the global retail sales, they are still increasing significantly year over year and as indicated above, online impacts offline more than ever before. Brands need to embrace the growth, power and application of digital retail and augment this with the showroom setting to make sure they build-up brand trust to foster repeat custom.
Despite appearances, the young shop offline.
What is ironic is that millennials are often portrayed as a digital-only generation, social and mobile obsessed with a fixation on real time buying, but the reality is actually that they prefer to research online and shop offline with mobile influencing 34% of total retail sales, which translates to over $1 trillion worth of value. By 2022, the same Forrester study estimates that the percentage will rise to 42%. Critically, this means the role of the physical store will rise again, with a much stronger reliance on the eCommerce and retailer.com destination to connect the O2O journeys.
Smart data can connect the O2O sales
With new technology comes new opportunities and, like all other areas of commerce, retail has been heavily disrupted and has had to evolve.
Platform giants like Google, Facebook, Amazon and an army of nimble start-ups have already proved they can make smart use of data to know more about consumers and deliver relevant content to them. From a commercial perspective, data can also be used by these platforms as a means by which to inform strategic direction for themselves. For example, the data at Amazon’s fingertips gives them a phenomenal ability to systematically assess the value of the brands sold through them and to determine which products they should pursue on their own. They simply use their marketplace as a laboratory to identify products that have a meaningful brand tax. Then they contract with manufacturers to produce those products, building a profitable volume for themselves and passing the savings on to customers at the same time. It is reported that Amazon’s own brand batteries held a 30%+ market share in online battery purchases in the US in 2017, far surpassing Duracell, Panasonic and Energizer. This clearly demonstrates how strategic utilisation of data can drive commercial value for Amazon’s business, in this case through its private label offering. The challenge comes in ensuring that the power of data is not abused by these platforms in ways that are considered to be beyond the realms of legitimate and credible usage.
Through interoperability and cloud-connected devices, actions and activities are recorded; real time- boundaries between the physical and digital world are just blurred lines. When matched with offline purchase information, the connection between online and offline becomes clearer. This will help simplify the path to purchase and provide an increasingly friction free experience for all shoppers.
How does my brand survive? Preparation is key.
Brands and retailers need to focus on offering a seamless shopping experience and catching potential consuIn mers not only when they are ready to buy, but when they start researching for products. This way, they can position themselves to catch shoppers when they go to spend offline. Whilst the role of the brick and mortar store might seem to be dipping in today’s world, we will see it rise again and adopt a more prominent place for millennials and generation Z in the form of showrooming as part of the wider O2O effect. Brands and retailers must also focus on how they can consistently add value to their customers through service, with consumers becoming increasingly expectant of service led value propositions. Uber is a good example of this, its entire business model is focused around providing a convenient service to its consumers at a reasonable price. The consumer is not necessarily concerned with the product itself (the car), but it is the service that is provided that drives Uber’s success. Results published this year indicated that ride bookings were up +51% YoY and the business raked in $2.5 billion from a one-time gain from selling business units overseas.