In a world where cell phones have made pay phones and landlines obsolete, GPS systems have put maps off the grid and search engines have replaced phone books and encyclopedias, is brick and mortar retail the next to go?
Does the Rise of eCommerce Signal the End of Brick and Mortar Retail?
Yes, we now do more things online — including shopping — than ever before. But does that mean that eCommerce will eventually obliterate brick and mortar retail? If the headlines of store closures dominating the news are any indication, then the answer is yes.
But maybe we shouldn’t be so quick to believe everything we read (fake news, anyone?). In reality, the broader retail industry is actually growing year-over-year, which makes stories about individual companies that are struggling (most often due to an inability to adapt to the new digital world in which we now live) misleading when it comes to the state of the industry as a whole.
That said, brick and mortar retail is indeed going through a rough patch right now, but that rough patch is just that — a rough patch, not an extinction. One of the biggest reasons for this rough patch is the existence of a massive disconnect between how useful retailers consider stores to be for various purposes and how useful consumers consider stores to be for those same purposes. Consider the following data from Capgemini:
This data suggests that there are improvements to be made to training in-store staff, since engaging with a helpful store associate should provide significantly more value than shopping online. As Marshall Fisher of the University of Pennsylvania contends, well-trained and managed front-line workers are the key source of competitive advantage in retail. Therefore, it stands to reason that if retailers can optimize the in-store experience for the needs of today’s digital shoppers, particularly by arming store associates with the knowledge they need to provide value for customers, then brick and mortar should be well-positioned to make a comeback — maybe just not in the form we once knew.
The Surprising Benefit Brick and Mortar Brings to eCommerce
Although it’s easy to pit brick and mortar against eCommerce, we really need to look at how they can support one another. As much as it might seem like eCommerce is cannibalizing brick and mortar retail, the two outlets actually have a very symbiotic relationship.
Consider the case of Kohl’s, which found that store closures impact both physical and digital revenue. Kohl’s online sales increased by 12% in 2016, but they remained flat in markets where the company closed stores. Kohl’s CEO Kevin Mansell learned an important lesson, reporting: “At the end of the day, if you’re not top of mind, and you’re not relevant, and you’re not convenient, people are going to shop you less.” He continues that while large physical stores might not prove as profitable as they once were, some physical presence (even if it has a smaller footprint) is absolutely necessary.
Research from Retail Dive supports this point, finding that 55% of consumers visit stores to see, touch and feel products before buying them online. Similarly, global strategy and management consulting firm A.T. Kearney finds that even though “consumers prefer to engage with brands online for research and transactions…two-thirds of the time they have used a store prior to or after the purchase” to make their decision or make an exchange or return.
Additionally, a recent IBM/NRF study finds that 67% of Gen Z shoppers visit physical stores “most of the time.” According to data from Euclid Analytics, these digital natives visit stores to get a more curated experience and, once there, they are more likely to engage with store associates than other generations. Given that the IBM study finds this young cohort already has access to $44 billion in buying power and spends more than half the money available to them each month, these behaviors are nothing to brush aside.
Building a Reality Where Both Physical & Digital Can Thrive
If physical stores are still an integral part of the retail experience, what happens when those stores start disappearing? As Kohl’s learned, brick and mortar sales don’t automatically transfer to eCommerce. Specifically, Bloomberg reports that when a store closes, 15% of sales typically move to the retailer’s website, 15% go to nearby stores and 70% disappear.
As a retailer, what does all of this mean for you? If the economics for those 5,000 square foot stores you’re operating just aren’t there, is it better to close them and risk losing 70% of the revenue they generate? It sounds like a lose-lose situation, but it doesn’t have to be.
For a growing number of retailers, the answer is showrooms — stores with a significantly smaller footprint where shoppers can do things like try out products, get one-on-one recommendations from knowledgeable sales associates and make returns but can’t actually take anything home. That said, showrooms don’t work for every retailer.
Regardless of whether or not showrooms are a fit for your brand, what can you do to retain the 70% of revenue that will likely disappear if you close a store? The best place to start is to look at what your store did well and determine how you can replicate that experience online. For example, you might:
Improve post-purchase messaging online to increase engagement
The more you can keep customers engaged after their purchase, the more likely you are to remain top of mind. As Kohl’s CEO Mansell points out, staying top of mind is one of the reasons why brick and mortar stores contribute to eCommerce sales. Beyond staying top of mind, continued engagement also helps keep shoppers interested in what you’re doing and helps maintain their “ready to buy” state of mind.
Follow up with replenishment offers
If you can hit customers with replenishment offers at just the right time, it makes re-orders a no-brainer. Combine that with the fact that 71% of Gen Z shoppers are interested in automatic replenishment and you have a winning formula. Ultimately, this type of intelligent replenishment offer can replicate the feeling of customers’ regularly timed shopping trips, such as the monthly trip to the beauty counter or the beginning of season wardrobe refresh.
Send personalized recommendations based on affinity
Perhaps one of the most valuable steps you can take to replicate the in-store experience online is to determine customers’ product and category affinities and send them personalized offers. This effort should mimic the experience of the shop owner who knows her customers so well that she calls them when something comes in that she thinks they’ll like. In other words, it’s the ultimate form of personalization and value a retailer can provide for customers.
Bringing It All Together
Although this new reality where physical and digital retail support one another is more than possible, we still have a long way to go before we reach this point.
Getting to this end state all comes down to the data, as creating this type of retail environment requires collecting and analyzing mountains of customer data to understand who your customers are, what they want and which actions you should take to deliver a personalized, value-add experience for each of them regardless of the channel on which those interactions occur.