Remember the time you were a child and wanted a new toy, or maybe your parents wanted to buy a new dress for your birthday? That would call for a fun family excursion to the town’s main shopping street lined with brick and mortar stores, and maybe you’d have dinner outside. Who knows, maybe you’d even be treated to dessert! Those were the days of slow gratification and happy memories.
Fast forward to this day.
Expectations have changed, and businesses compete with each other to match customer expectations. It is the moment of instant gratification, where a toy, dress or dinner can be ordered with a click on the ubiquitous smartphone. The exponential growth charts of ecommerce businesses suggest that consumers are lapping up the pleasures of online shopping. Even categories that require fairly high involvement- shoes, lingerie, insurance and even cars – now have entire companies dedicated to selling them online.
Does that mean this is the turning point for retail? Does that really spell the death knell of the good old brick and mortar store?
An Unequal Playing Field
The increasing penetration of mobile phones, greater wallet share shift to online, and irresistible discounts dangled by ecommerce companies means there will be a continuous growth of online.
Inability to adapt to changing circumstances has left many offline businesses crippled. In the US, big names like Borders, RadioShack and JC Penny are bringing down the shutters on several stores. Malls are dying a slow death as a combination of costly real estate and tough competition from ecommerce makes business increasingly untenable.
Closer home, we may be slightly behind the developed nations but surely moving in the same direction. Offline Indian electronics retailers, in particular, have badly felt the pinch of price wars started by ecommerce giants like Flipkart and Amazon, leading to great discomfiture for brands like Samsung who have been trying to keep both channels alive and happy.
In a rather surprising 2013 interview Marc Andreesen took an extreme view of the end of brick and mortar, opining that the twin high costs of real estate and inventory will become too much for any offline retailer by the end of this decade. Besides, ecommerce companies are learning to make the online shopping experience much more enjoyable with social features and entertainment, and that, he avers, will ultimately clinch the game in favor of online.
The Digital Divide
For years now, offline retailers have watched from the sidelines while ecommerce companies have collected online customer data strewn across a trail of websites through cookies and other methods. They have been able to analyze this data and draw meaningful insights about customers. They know exactly the best performing times for their websites, the inventory, offers and marketing campaigns that attract the most people, and the demographic and behavioral characteristics of their audience. Armed with this data, they have been able to target customers with relevant advertisements, show them preferred product selections, and entice them with customized offers.
In stark contrast, offline retailers know close to nothing about people visiting their stores. True, there have been efforts to capture data through loyalty schemes, but with only 15% Indian shoppers actively using loyalty programs, this method leaves much to be desired.
Death of Brick and Mortar Stores
Notwithstanding all the dire predictions, most industry specialists now believe that online is NOT going to eat up offline. Despite what the screaming headlines will have you believe, nearly 94% of all shopping in the world still happens in the old-school way, at physical stores. What has changed, however, is the buying process. Today’s consumer has very little time on her hands, and even less patience. Sometimes she will simply order the product online. More often, she will do her research online. She will browse through e-commerce sites to assess product types and price range and narrow down her preferences. Then she will target a specific store, see a few products, and pick one that matches her expectations. In and out of the store in less than an hour.
And then there’s the story of the happy shopper accidentally happening upon a product she instantly falls in love with. How many times have you walked through a mall and decided to step into a store because the window display was attractive? How many times have you enjoyed browsing new collections at your favorite store, and decided to buy something you didn’t actually need? Shopping is not just a utilitarian activity, it is entertainment. Devin Wenig, president of the ecommerce giant eBay, calls it the “serendipity of stores” in an interesting interview to McKinsey.
[pullquote align=”full” cite=”” link=”” color=”#A4D3EE” class=”” size=””]“You could step back and connect dots and say, “The world’s going to have e-commerce only” and that “stores are dead,” but we don’t see that future at all—in part because I don’t think consumers want that future.”[/pullquote]
That’s the key to this whole debate. Ask any shopper in the world if they would like all shopping to go online, and the answer would be a resounding ‘NO’. Consumers still want the touch and feel experience. They still love to be surprised and delighted by well thought out stores.
This does not, however, mean that offline retailers can rest on their laurels and let processes continue as they have for decades. To remain meaningful it is imperative for them to not just adapt, but take advantage of the digital revolution.
Digital Transformation the only option
Digital presence is fast becoming a prerequisite for brick and mortar stores. A great website, efficient store locator, investment in content marketing, and an engaging social media presence are now just starting points for any business to succeed. The customer has come a long way- she no longer wants to think separately of offline and online. She will no longer accept differential pricing and disconnected services.
Businesses have no choice but to change their business models. Enabling free home deliveries, store pick-ups, easy returns, and rapid turnaround in queues and trial rooms will help brick and mortar stores compete better with online stores, and ensure customers don’t visit them just for checking out products that they later purchase online.
Like ecommerce, brick and mortar retailers will also need to use data to meet customer needs better. A new crop of startups across the world (including us at LocalPeep) is solving an interesting set of problems for the world of offline retail. With technology ranging from wifi sensors to bluetooth tech to instore cameras, it is now possible for stores to know exactly when customers are visiting and what they are spending their time on. This in turn gives them many valuable insights akin to Google Analytics for websites, including visitor analytics, repeat rates, instore campaign performance and staffing effectiveness. Such digital programs that make their stores more competitive and better equipped to deal with the onslaught of ecommerce.
As continuously doling out heavy discounts slowly becomes nonviable for ecommerce companies, the two models will eventually co-exist and adapt, giving way to the much touted ‘omnichannel’. Ecommerce companies will open their offline stores, while brick and mortar chains will start selling online. The two models need to become merchandising showrooms for each other, creating one seamless business for the modern retailer. Even in India we are already witnessing consolidations and redefinitions to prove this point: Recently, Mahindra bought out BabyOye to integrate with its chain of physical Mom & Me stores; niche online players like FabFurnish, CaratLane and Lenskart are opening offline experience centers in Indian metros.
It is up to retailers to ensure that customers find shopping an enjoyable activity instead of a chore, and once that is achieved, no one can kill brick and mortar. What we’ll witness is not the annihilation but the digital transformation of retail.
Customers love shopping at brick and mortar stores because it gives them ideas, inspiration and entertainment. But today’s customers have already experienced the convenience of online, and most brick and mortar stores are not able to give them the same seamless shopping journey. Overwhelming inventory, crowded trial areas, long queues and jarring return policies are only some of the pain points that can potentially keep customers away from the store.
It is up to retailers to focus on physical and digital innovation to iron out the creases. It is up to retailers to capture and use data effectively to learn more about customers and serve them exactly what they need. To quote Mr. Wenig once again as he talks about the impending restructuring of retail real estate,
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”Now we’re very quickly moving to a world where we just think there will be technology-enabled screens, connected screens, of all sizes. Some of them may be in a retail location, some of them will be on your wrist, some of them you may hold.”
Yes, the death of offline is an overhyped sentiment. But the brick and mortar retailer that will live to see another decade will be one that embraces this world of connected screens and uses data to meet customer needs.