The Future of Retail - Now!

Exactly one year ago, I wrote about the Future of Customer Engagement and created the IDEAL customer engagement framework. The framework proposed how brands might leverage the power of consumer insights and experiential shopping to ready themselves for retail transformation.

Amid the COVID-19 situation and the slumbering of physical retail businesses today, the physical retail landscape is facing accelerated disruption and transformation.

Within a short few months, we see big names like Zara (theguradian, 2020), L Brands (cnbc, 2020), Esprit (insideretail.asia, 2020), Target (news.com.au, 2020) and many more chains (moneywise, 2020) are closing hundreds and thousands of stores worldwide. Many more brands such as Forever21 (thefashionlaw.com, 2020) and GNC (The Straits Times, 2020) are facing bankruptcies. Locally in Singapore, familiar names like Home-Fix, Sasa, DFS and MPH will be missed (Vulcanpost). Food and beverages businesses have not been spared as well. Starbucks is closing 400 stores and shifted 300 to take away services (foodondemandnews.com, 2020). One may wonder how many of Yum Brands (Pizza Hut, KFC) 7,000 stores that have been closed (cnbc, 2020) will reopen.

The physical retail scene is depressing. Physical malls that had once enjoyed good rental yields are facing tremendous pressures to retain tenants and to attract footfalls. On the other hand, e-Commerce has seen the largest growth in just a few months. As reported by Forbes, in April U.S. and Canadian retailers have reported 129% YoY online growth. e-Commerce companies are also enjoying their highest growth ever. For example, Amazon has reported over $75 billion revenue in Q1 2020 alone and it share price hits new all-time high (cnbc, 2020).

On 19 June 2020, Singapore has entered the Phase 2 of Circuit Breaker re-opening. The retail businesses are now allowed to operate. There seems to be light at the end of the tunnel for the bleak physical retail world. Queues being formed at shopping malls and restaurants, and consumers can finally go back to shop and dine out. However, as we know it, the retail industry will not return to where it was once before.

From the technology and digital adoption viewpoint, Circuit Breaker (Singapore’s term for restricted social interactions) has provided good opportunities. COVID-19 has demolished all the excuses to adopt eCommerce, automation, and digitalisation. Due to the fear of contaminated paper notes, there has also been an increased in the take up of contactless digital payment technologies. Governments, such as Singapore’s are taking this opportunity to push for digital payments through various support schemes such as SME Go-Digital. The Circuit Breaker had left businesses and users with few options but to adopt digitalisation or faced total shutdown. It has compressed 5 years of technology adoption in to 8 weeks (The Straits Times, May 2020) resulting in fundamental shift of mindset and commerce landscape.

This extended closure of physical retail shops has provided the retail ecosystem and shoppers two-and-half good months of disruption that would have never been possible in the past. It has allowed businesses and consumers to learn and realise the benefits and possibilities of e-Commerce. Therefore, it would be short-sighted to hope that things would return to how they were before. Physical retail world will change, businesses will have to transform, malls owners will have to innovate and shift their strategies if they are not prepared to end up with empty malls. 

In my previous article, I had discussed that brands should move beyond engaging the customers through the physical stores. They will have to leverage multi-channels marketing and data intelligence to gain 360 degrees understanding of their consumers’ preferences. Such data driven personalised engagements would build loyal customers and increase conversion rates. I have also shared the IDEAL framework which brands could follow by first gaining Insights on their customers, followed by direct influencing techniques to create emotional engagement. This will further increase brand association and develop customers’ loyalty thereby creating long term attachment to the brands that drive recurring transactions. Most importantly, I had also discussed on the changing role of the stores and customer experience. 

Amid COVID-19, the adoption of internet commerce and e-payment is a good step toward retail transformation. However, this is only the very first step. To really transform and to be ready for next stage of retail, retailers need to rethink and redesign their entire retail strategy to fully capture the benefits of O2O integrated commerce. If e-payment and online stores are being viewed as just another set of tools to support the physical retail stores, and if retailers continue to treat offline and online shopping as two separate approaches, then their retail transformation strategy will never achieve the desired outcomes.

In many instances, brick-and-mortar businesses’ approach to e-business are still physical store centric. To them online extension is just another means of promoting their physical stores. This could be due to the lack of experience and internal capabilities to grasp the e-business concept. Another key reason is because digital engagements often are an afterthought, and that the online team or agency that have been engaged to develop online engagements were only given the limited scope. For retail transformation to truly work, brands will have to adopt digital transformation from a strategic level, and adopt a whole-of-brand approach to drive integrated commerce instead of just leaving it to the marketing department while the rest of the organisation carry on business as usual. 

Transformation would need to be done through self-disruption, overhauling the management processes, redesigning supply chain and fufilment channels. It will have to involve redeveloping the entire store concept. Retailers will have to redistribute the centre of gravity away from physical retail spaces and develop a mash approach toward 360 customers engagement. Unfortunately, this is easier said than done. This approach would often mean closing and re-designing physical stores and letting go of staff who are no longer relevant to the digitally integrated process. Such decisions are often difficult to make, and there might also be labour laws to consider, or unions to negotiate. As such, COVID-19 has provided brands with a wonderful opportunity to really redesign their retail concepts.

In Southeast Asia, we are observing tremendous and rapid growth in the eCommerce market. According to the “e-Conomy SEA 2019” report by Google and Temasek, the SEA Internet economy driving by 360 million internet users is expected to grow to $300 billion by 2025. Naturally, online commerce will be become increasingly important and it would soon take the centre stage. This however does not mean that it is going to be the end of physical retail business. Humans are social in nature, hence social interactions are still important. 90% of consumers who are comfortable making purchases online are still shopping in stores (Harris Poll conducted by Eventbrite, 2014). We could observe this from the Phase 2 COVID-19 reopening in Singapore when people rushed out to the retail malls. Therefore, malls and physical stores still have their place. However, given that 78% of shoppers prefer to spend money on a desirable experience or event over a desirable object, the role physical spaces play will fundamentally be shifted and malls will have to be radically reinvented.

Shopping is a six-senses sensory experience (sight, sound, touch, smell, taste and emotion). Today's online shopping is still not able to replicate the full experience of physical shopping. Brands can leverage this understanding when redesigning their new digital commerce strategies and transform their physical stores to create that full senses engagement experience for their clients.

This concept is not entirely new. Several brands have already tried experiential marketing and shopping. Besides NIKE and Albert Heijn that have set up their concept stores. Luxury brands like Chanel also have setup experiential pop-up concept. Coco Flash Club creates the immersive experience for their must valued customers, while “Hermès Club” (scmp.com) presented different artistic themes, displaying the ready-to-wear products and accessories. In Singapore, Love Bonito which had started as an online fashion store has setup its flagship store (8days.sg) to provide the physical interactions with their customers and to conduct exchanges while most of their transactions remains online. With the success of Boba Pop-up (Today, 2019), the Bubble Tea Factory is planning another concept store to promote experiential engagement. 

In integrated commerce, physical stores no longer need to be the place of transactions and fulfilment. These tasks can easily be fulfilled by the online channels and delivery services. Rather the stores of the future would be the place where the brand interact with their clients, bring the brand community together and create that social and emotional connection with their clients. They will be the place that provide immersive experience where the customers can feel and touch the products, and a place where they can meet and network with other customers. The actual transactions can be done online. 

There are three key advantages to experiential stores. Firstly, the stores no longer need to keep large stock of the products. By centralising the inventory, retailers can benefit from reduced on-site inventory, stocks distributions to the outlets, and downtime for stock checks. Secondly, this reduces the physical space requirement per store thereby saving on rental costs. Thirdly, the stores can easily be reconfigured to cater for different experiences according to different seasons.

Expanding the concept to the whole mall, future malls can longer take the cookie-cutter approach to tenancy and in attracting the shoppers  (CNA, 2017). Instead they will have to move away from commoditizing shopping toward broadened value proposition for the consumers (Mckinsey). In Singapore, there are few differentiations between the malls where the same brands and shops are repeated in almost in all the malls. These malls do not have their own flavour and this makes the shopping experience extremely boring. This lack of differentiation also reduces the motivation for shoppers to visit different malls. The lack of options also reduces the overall amount the shoppers spent across all the malls. 

Mall operations will need to understand that besides economic and personal factors, consumers buying behavior are influenced by social and cultural factors (N Ramya). The future malls must provide that immersive and engaging experience for the shoppers, with each providing its own unique experience that is different from the other malls. They will have to develop their unique identity that resonates with their shoppers’ value and bring together a community that supports the social and cultural aspect of their shoppers to create stickiness. 

The malls will have to carefully curate the types of brands and tenants mix that are in line with the mall’s overall concepts. Innovative malls have to strategically rethink the types of stores that consumers will respond to (Mckinsey). REITS with multiple malls in their portfolio could also provide seamless experience between their malls and linking that experience through continue connectivity with their shoppers online. A trip to the mall would therefore no longer be just for the purpose of buying something but as an extension of the entire shopping experience. 

Perhaps a good example is Disney, where a visit to Disneyland creates that deep immersive (Forbes, 2020) and emotional experience. Each Disneyland is also designed to provide its own unique experience and visitors would often visit more than one parks in their lifetime with 70% customer return rate (Qualtrics.com, 2018). Visits to the parks would also often be associated with one’s various life experiences. For example, a person may associate the park with the wonderful memories of their childhood with their parents, or the fun time that they had during their teenage years when they visited the park with their friends, or the sweet memories of their first dates. When they have their own children, they will bring them to the park as they wish their children to have that experience as well. Through this, Disney has created recurring lifelong customers that span across generations. The experience is further expanded through online content, merchandise, cartoon and movies, each channel fueling further emotional engagement with their customers, linking to a common brand.

Through experiential and multi-channels engagement, Disney has managed to create their perfect lifelong customers. They have done this over a long period of time. However, not many brands have the luxury of engaging their customers since young and deeply engrave that memory in them to create that brand association. Does that mean younger brand would not be able to effectively maximize experiential engagement to build their loyal customers? The question would be if there is a way where that engagement process could be shorten and still achieve similar results.

Perhaps the answer could be found by understanding how our memories work. In “The Formation of False Memories”, Loftus, E., & Pickrell, J. (1995) showed it was possible to hack one’s memories and install fake memories. Perhaps personal and culture preferences could also be hacked to shorten the duration in building brand association. 

In an experiment the hypothesis that personal preference could be hacked was tested. In this experiment, the aim was to promote self-expressionism edgy fashion. The assumption was that everyone has multiple personalities, but these inner more unique and self-expressive side have often been suppressed to conform to society norm. Often this would be reflected in one’s fashion sense. Given the right environment, social support and freedom of expression, one would choose the fashion that are more unique and resonate with their inner self.

In this experiment participants were brought together through a drinking networking session. The topic of self-expressionism was seeded. Throughout the session the idea of non-conforming and self-expressionism was reinforced. They were then encouraged to sign a pledge to dare to express themselves. The next day, it was observed that there was a much greater participation from this group in posting in edgy fashion at the pop-up store and there was an increased in their purchase of self-expressive fashion as compared to those that have not been through the networking session.

This little experiment has shown that person’s preference could be enhanced and maybe modified through community engagement and cultural association. Similarly, brands and malls could deploy such techniques to build and influence their communities and subtly inject that brand culture to create the right group of customers shortening the engagement process.

In conclusion, the retail scene is undergoing transformation. Internet commerce, changing demographics coupled with COVID-19 has built the perfect storm for unprecedented transformation. It is important for brands and malls to take this opportunity to rethink and relaunch their engagement strategies, leveraging digitalisation to create deeper experiential engagement with the consumers. It is possible and important to create that culture experience and socially immersive experience to build the perfect loyal customers. 

References

1. https://www.today.com/style/zara-closing-1-000-stores-focusing-online-shopping-t184425
2. https://www.theguardian.com/business/2020/jun/10/zara-owner-to-close-up-to-1200-fashion-stores-around-the-world
3. https://www.cnbc.com/2020/05/21/l-brands-set-to-close-250-victorias-secret-stores-with-more-to-come.html
4. https://www.news.com.au/finance/business/retail/target-the-drastic-action-needed-to-save-discount-department-store/news-story/ad9a9e858a0e3acec3359c457ca5dc78
5. https://www.thefashionlaw.com/retail-woes-a-bankruptcy-timeline/
6. https://insideretail.asia/2020/04/28/esprit-to-close-all-of-its-asian-stores-by-june-30/
7. https://moneywise.com/a/chains-closing-the-most-stores-in-2020
8. https://foodondemandnews.com/06182020/starbucks-closing-400-stores-going-all-in-on-off-premises/
9. https://www.cnbc.com/2020/03/25/yum-brands-suspends-2-billion-buyback-program-amid-coronavirus-crisis.html
10. https://vulcanpost.com/684051/singapore-retail-closure-2019/
11. https://www.forbes.com/sites/louiscolumbus/2020/04/28/how-covid-19-is-transforming-e-commerce/#65d6612e3544
12. https://www.cnbc.com/2020/04/14/amazon-stock-hits-a-new-all-time-high.html
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20. https://www.qualtrics.com/blog/6-ways-disney-world-delivers-top-customer-experiences/
21. https://www.forbes.com/sites/blakemorgan/2020/01/23/5-lessons-from-disneys-magical-customer-experience/#1c05c3dd7555
22. https://www.channelnewsasia.com/news/singapore/experiential-retail-trendy-buzzword-or-new-norm-9227024?cid=FBcna&fbclid=IwAR1JD04isxE1K_UbDjzFcOW0WtaYq24gjeKAtyWxbsklY2tSuFrZ5vEBxBE
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