Physical Stores Still Relevant Despite Rise in E-Commerce

Chong Mock Seng

Retail is evolving quickly and there are many predictions about the store of the future. Some suggest the death of the brick-and-mortar model; others talk about a world where there is no checkout, no queuing – a world so smart that predictive technologies restock our necessities as they run out. But what’s the reality?

Despite the rise of e-commerce, online channels accounted for only 8.7% of global retail sales in 2016, and in 2019, 87% of retail sales will still occur in-store. So, while the discussion continues, most agree that the physical store is likely to remain, except that its focus will change – distinctly.

The store of the future: an experience hub, a fulfillment center

The store of the future will no longer focus on making a sale. Instead, physical stores that survive well into the future will change how they operate and service their customers. Stores will increasingly move from showrooms to playrooms where shoppers can experience products in a meaningful way. They will become experience hubs for consumers, allowing product immersion that eventually drives a purchase, online or offline. Ultimately, the retailers that win will be those that can leverage powerful yet subtle technology to offer inspiring physical experiences to shoppers, as well as moments that touch them, to result in conversions.

While the physical store will likely continue to play a key role, it’s also clear is that consumers will continue to increase their shopping online. This is especially so in Asia-Pacific, which will remain the world’s largest retail e-commerce market through 2020, with sales topping $1 trillion in 2016 and more than doubling to $2.725 trillion by 2020.

This gives traditional retailers an opportunity to capitalize on the biggest advantage they have over their online pure-play counterparts – the physical stores themselves. By transforming the store into one that blends physical and digital, a retailer can provide an evocative, experiential shopping journey as well as create a flexible fulfillment center. This enables retailers to profit from their investment in stores near where people live, work, and play.

The pressure is compounded by dwindling foot traffic in shopping malls, especially in the more developed retail markets. Many mall operators are proactively helping their retail tenants bridge the digital divide, transforming beyond mere “lifestyle centers” by exploring click-and-collect shopping, enhancing customer engagement experiences, and even experimenting with deliveries using drones. We’ll see more of these types of initiatives in the months and years to come and – in some cases – a reversal of the dwindling footfalls. Whether or not shoppers return to malls, one thing is clear: Retailers must innovate or fall to Digital Darwinism.

New technologies already transforming stores

We are already seeing today’s technologies influencing the store of tomorrow.

  • RFID: At the Rebecca Minkoff store in New York City, when a consumer walks into a fitting room, an RFID tag triggers an interactive touch screen that displays product images and makes other product recommendations based on what the consumer is trying on. The connected store concept has tripled Rebecca Minkoff’s expected clothing sales. Similar connected fitting rooms in Ralph Lauren’s Fifth Avenue flagship store in Manhattan gave the store a 90% customer engagement rate, beating the company’s expectations. These technologies allow retailers to discover information such as conversion rate per item, time spent in the fitting room, and conversion rate per fitting room visit. Data on items that are tried on but not purchased can help retailers optimize their merchandising strategy.
  • Beacon technology: Imagine a consumer walking into his local grocery store. His phone buzzes, but it’s not a text message; it’s a welcome message from the store, delivered through an app he downloaded two weeks ago and likely hasn’t used since. Around 90% of U.S. consumers use their smartphones while shopping in stores. In Singapore, 66% of consumers use their smartphones to search for local information. This provides a great opportunity for retailers to take advantage of the connection shoppers have with their phones. Target is testing beacon use cases. The value of in-store U.S. retail sales influenced by beacon-triggered messages in 2015 was $4 billion, which was expected to increase tenfold in 2016.
  • Mobile clienteling: Mobile clienteling offers consumers a feel-good, VIP experience that harkens back to the days when shop owners knew us personally. It allows retailers to engage consumers – one-to-one, in the moment – and streamline the shopping experience. Retailers also gain operational efficiencies when empowering employees with real-time access to information such as consumer profiles. Not only does this turn employees into strong brand advocates, it also enhances employee satisfaction. Clienteling keeps the physical store relevant because it makes it a delight for consumers to visit the store, even if retailers have a strong online presence. Burberry and Ulta Beauty are examples of companies successfully leveraging this technology.
  • In-store analytics. By tracking data points such as how many customers enter a store, when they come, where they go first, what they are browsing, how long they stay in an area, the shopping cart size, and more, in-store analytics can help merchants gain valuable, actionable insights. Not only that, retailers can also glean insights from their customers’ browsing and buying behaviors and then adjust inventory accordingly. Collated data allows retailers to measure conversions, enhance shopper-to-associate ratio, as well as understand whether queue times affected exit decisions. Ultimately it is about tracking consumer behavior in-store, but retailers must look ahead and incorporate all this data with that gleaned from other channels to understand the impact they have on one another.

For more, view this infographic on seven technologies making the store of the future a reality.

The winning formula

In essence, online and offline presences are complementary extensions of each other; online provides the hyper-convenience and offline provides the experiential engagement.

New, disruptive technologies and innovative methods have and will continue to emerge to help retailers enhance customer engagement. However, the winning retailers will be those that can amalgamate both online and offline presence into a seamless customer engagement channel. Otherwise, there is simply no way a retailer can effectively engage its more demanding and savvy customers.

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Chong Mock Seng

About Chong Mock Seng

Chong Mock Seng is Retail Industry Leader of Southeast Asia for SAP. He has focused on retail, consumer products, and high tech manufacturing customers in the Asia-Pacific region and has a wealth of insights and practical experience through his myriad engagements in which he enjoys sharing with his customers in his current role as Retail IVE for Southeast Asia. He is most passionate about dialogues and action plans on transformative retail engineering in the disruptive digital era.