The Next New Thing: A Retail Store
By Dipanjan Mukherjee | August 10, 2015
The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids - at least the consumer doesn't think so. Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix.
Much has been written recently, with more than a touch of surprise, about ecommerce companies opening physical retail stores. Whether it is Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK or FirstCry and Flipkart in India, young tech-based ecommerce businesses are adopting the ways of the dinosaur retailers that they were apparently going to drive into extinction.
Perhaps, the seeds of the surprise lie in the perception that the ecommerce companies themselves built for their investors, the media and the public, that it was only a matter of time that the traditional retail model would be dead.
Or perhaps we should pin it on their investors for keeping the companies on the "pure-playâ€ path so far - venture funds that have invested in ecommerce have largely taken the view that the more "asset-lightâ€ the business, the better it is; so they're far happier spending on technology development, marketing, salaries, and even rent, than on stores and inventory.
After a bloody discounting and marketing battle, in a few short years, there are now a handful of ecommerce businesses left standing in a field littered with dead ecommerce bodies, surrounded by many seriously wounded physical retailers who are trying to pick up unfamiliar technology weapons. And their worlds are merging.
Which is a Stronger Building Material - Bricks or Clicks?
Online business models offer some clear strengths. Etailers have a reach that is unlimited by time and geography - the web store is always up and available wherever the etailer chooses to deliver its products.
An ecommerce brand's inventory is potentially more optimised, because it is held in one location or a few locations, rather than being spread out in all across the market including in those retail stores where it may not be needed.
However, we forget that consumers don't really care to have their choices and shopping behaviour dictated by the business plans of ecommerce companies or their investors. The fact is that physical retail environments do have distinct advantages, as etailers are now discovering.
Firstly, shopping is as much an experiential occasion as it is a transaction comprising of products and money. In fact, the word "theatreâ€ has been used often in the retail business. For products that have a touch-feel element, the physical retail environment continues to be preferred by the customer. Of course, there are products that could be picked off a website with little consideration to the retail environment. For standard products such as diapers or a pair of basic headphones, online convenience may win over the need for a physical experience. However, non-standard products such as apparel or jewellery lend themselves to experiential buying, where a physical retail store definitely has an edge.
Shopping in a physical retail environment is also a social and participative activity. We take our friends or family along, we ask for their opinion and get it real-time. The physical retail environment lends itself to the consumer being immersed in multiple sensory experiences at the same time. These aspects are not replicable even remotely to the same degree by online social sharing of browsed products, wish-lists and purchases, nor by virtual smell and touch (at least not yet!).
In a market that is dominated by advertising noise, a physical store also helps to create a stronger and more direct and stronger connect for the consumer with the brand than any website or app can. An offline presence creates credibility for a brand, especially in an environment where online sales are dominated by discounts and deals, and many brands have risen and fallen online in the customer's eyes during the last 3-4 years.
As a matter of fact, every store acts as a powerful walk-in billboard for the brand. If used well, the store conveys brand messages more powerfully than pure advertisements in any form. This reality has been embraced by retailers for decades, as they have created concept stores and flagship stores in locations with rents and operating costs that are otherwise unviable, except when you see it as a marketing investment.
Showrooming vs. Webrooming
As ecommerce has grown and brands have become available across channels, offline and online, the retail sector has been faced with a new challenge: customers browsing through products in the store, but placing orders with ecommerce sites that offered them the best deal. This obviously meant that retailers were, in a sense, running expensive showrooms (without compensation) on behalf of the ecommerce companies! The industry adopted the term "showroomingâ€ to describe the phenomenon.
However, ecommerce businesses are now getting a taste of their own medicine as retailers are benefitting from a reverse traffic.
Consumers have now started using websites to conveniently do comparative shopping without leaving the comfort of their homes, and collect information on product features and prices but, once the product choice has been narrowed down, the final decision and the actual purchase takes place in a physical store.
This is described with a slightly unwieldy term, "webroomingâ€. This is one among the reasons that lead to consumers abandoning browsing sessions and carts when they're online.
Bricks AND Clicks
The wide split between offline and online channels is mainly because traditional offline retailers have been slow to adopt online and mobile shopping environments.
Most physical retailers around the world have approached ecommerce as an after-thought, with a "we also do thisâ€ kind of an approach. Ecommerce has typically been a small part of their business, and not typically a focus area for top management. So, in most cases the consumer's attitude has also reflected these retailers' own indifference to their ecommerce presence. However, due to the accelerating penetration of mobiles, tablets and other digital devices, a serious online transactional presence is now vital for any retailer that wants to remain top of the consumer's list.
On the other hand, ecommerce companies, as mentioned earlier, have so far mainly stuck to "pure-playâ€ online presence due to their own reasons. However, with passage of time there is bound to be a convergence and eventually a fusion between channels.
The Journey to Omnichannel
Omnichannel today, in my opinion, is still more a buzzword today than a reality. Being truly omnichannel requires the brand or retailer to offer a seamless experience to the customer where the customer never feels disconnected from the brand, regardless of the channel being used during the information seeking, purchase and delivery process. For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online, have the product delivered at home, and be provided after-sales support by a service franchisee of the brand.
Very few companies can claim to offer a true omnichannel experience, due to internal informational and management barriers. However, having an effective multi-channel presence is the first step to creating this, since operating across different channels needs a completely different management mind-set from the original single-channel business. Having a presence across different channel means that a retailer will need to juggle the diverse needs. Capabilities, processes and systems that are fine-tuned for one channel, may not be fully optimal for another channel. This requires the retailer to restructure its organisation, systems and processes to handle the different service requirements of the various channels.
For instance, brick-and-mortar retailers moving online need to rethink in terms of the service ("always openâ€), speed ("right nowâ€), and scale ("everywhereâ€). A traditional retail organisation is seldom agile enough to work well with the new technology-enabled channels as well.
An etailer opening physical stores, on the other hand, needs to embrace product ranging and merchandising skills to allocate appropriate inventory to various locations, as well as the ability to create and maintain a credible, distinctive store environment - in essence, inculcating old-world skills and overheads that they thought they would never need.
The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids - at least the consumer doesn't think so.
Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix. They need to mould their business models until they achieve balance, proficiency and excellence across channels, and eventually become truly omnichannel businesses. It doesn't matter from which side of the digital divide they began.
About the author: Devangshu Dutta is chief executive of specialist management consulting firm Third Eyesight (www.thirdeyesight.in) and co-founder of PVC Partners (www.pvcpartners.in) that works with early-stage organisations. Devangshu has been involved in modern retail and consumer products sectors for over 25 years.
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