6 Trends That Are Changing Retail

Nicolas Zeitler

In order to succeed, today’s retailers have to offer a seamless shopping experience across all channels – and mustn’t lose track of their customers.6 trends in retail

You’ve waited 15 minutes for a sales person to show up, only to find out that the shoes you want are no longer available in your size. What now? You immediately pull out your smartphone, find the same shoes in the right size and color and even discover it is at a lower price in a competitor’s online shop. You quickly check over the reviews from other customers, and place your order. “Thanks anyway, have a nice day!” you say to the sales person. A fictious scene perhaps, but one that many are likely familiar with. It’s a perfect example of the kinds of challenges facing modern retailers.

“Today, customers have more power and choices than ever before,” says Matthew Healey, market analyst at Technology Business Research (TBR). What’s more, “Customers are becoming more and more spoiled, expecting the ultimate user experience in both online shops and local retailers,” says Kai Hudetz, managing director of the German Center for Research in Retailing (IFH) in Cologne. A recent study by Deloitte, called “Global Powers of Retailing 2013 – Retail Beyond,” even sees the retail industry “in the midst of a customer revolution.”

Retail congresses focus on Big Data

The agenda of the World Retail Congress, which is taking place right now in Paris (October 7 to 9), highlights how retailers are coming to terms with this newfound consumer power. The event will focus on payment technologies, investigate how retailers can connect with their customers using mobile devices either at home, on the go, or in the shop itself, and examine how Big Data technology can help retailers learn more about their customers. Big Data is also one of the topics of the SAP Retail Forum to be held at the same time in Dallas, Texas. It will likewise look at how retailers can offer their target audience a one-stop, integrated shopping experience across all channels.

1.  From Amazon to Zalando: Online business is putting pressure on retail stores

Ordering books, clothing, or wine over the Internet is nothing new. But e-shopping is changing the face of trade in a big way. According to the IFH, the share of fashion items purchased online in Germany surged from just under 5% in 2007 to nearly 17% in 2012. “The meteoric rise of online shops like Zalando was a wake-up call for all retailers,” notes Hudetz. For his part, Healey, from TBR, predicts that “Those who can’t keep up with retailers like Amazon probably won’t be in business for much longer.” The one industry that might be able to withstand this phenomenon for a while longer is the food industry. In a recent survey by KPMG, for example, only 21% of all consumers in Germany said they could imagine buying groceries over the Internet. The situation is similar in the United States, where foodstuffs had the lowest positive response rate compared to other goods segments.

Fear of self-cannibalization

Still, it is unlikely that most consumers will soon do all of their shopping exlusively online via tablet in the comfort of their own home. According to the “Trends in Retail Industry 2020” study by KPMG and the EHI Retail Institute, local retail stores will remain the first port of call for consumers in the foreseeable future. That being said, retailers would be well advised not to ignore the online trend completely. “A lot of retail stores are afraid they’ll cannibalize their business if they go online as well. But studies disprove this. And those who don’t do any business at all online will lose out in the end for sure,” says Mark Sievers, head of Consumer Markets at KPMG.

2.  Cross-channel trade: Order online, exchange in-store

But it’s not enough for a shop owner to simply set up an online ordering platform to boost sales. Customers expect a “dovetailing” of options, says Sievers. In other words, a one-stop shopping experience. Hudetz calls this the cross-channel approach – in contrast to multi-channel trade, where a retailer operates an online-only sales platform in addition to their stationary store location.

The difference in the two approaches is made clearer in Accenture’s “Seamless Retail” survey of 6,000 participants from eight countries including China, Germany, Great Britain, and the United States. Consumers expect to shop without barriers: four out of five respondents, for example, expected retailers to have the same assortment available in-store as in their online shops. And consumers want an absolutely seamless link between the online and offline worlds. In effect, the study described what’s known as the “Web rooming” phenomenon: 88 % of all respondents admitted they had surfed the Internet for products in the last six months but ultimately bought those products onsite in retail stores. The reverse behavior is also true: Consumers often try on shoes in the store, for example, and then order them online.

Silo mentality is an obstacle

The study by KPMG and EHI suggests that this consumer behavior is more likely to encourage traditional retailers to make a foray into the online world than prompt e-commerce retailers to open up conventional stores. But it is the kind of goods being offered that determines how well online and offline presence complement each other. A local store could, for example, serve “exclusively as a showroom, which is quite common in the United States,” notes Sievers. Customers seek advice or pick out products on-site – and then order online for home delivery. For Sievers, this is an ideal model for home hardware stores: “You go to the store for advice on what tools and materials you need for a certain project, but of course, you don’t want to drag around big bags of cement, so you order everything online and have it delivered to your home.”

Another customer, for example, might want to exchange a sweater she ordered on the Internet for one in a different color at a local franchise of the same retailer. Accenture’s survey of 60 global retailers, however, found that none were capable of meeting such customer needs and expectations in full. Internal silo structures often prevented them from offering their consumers a truly seamless shopping experience, Accenture said. Hudetz concurs, adding “A lot of companies do in fact adapt their structures, just not from the customer’s point of view.”

3.  Consumers visit local stores for advice and for a unique shopping experience

Retailers should keep precisely that in mind, the experts warn. The authors of the KPMG study call on modern stores to “appeal to all the senses of today’s customers and offer them tangible added value.” As for Sievers, his greatest wish is for a “shopping experience that is stimulating.” TBR’s Healey sees the situation as an opportunity rather than an obligation for shop owners: “The local retailer actually benefits from being able to offer more than just a product,” he points out.

For Sievers, it’s not so much service and advice that helps stationary stores get a leg up on online trade. Because in times of the Internet, where consumers can research products and read customer evaluations online, consumers often know as much if not more about a product than the sales staff in-store. Instead, Sievers believes stationary trade benefits from the ability to combine the products with certain services. He cites supermarkets that have things like integrated show kitchens and counters where pasta is freshly prepared on site. Or shoe stores that offer on-site repairs or extended warranties.

Emotional appeal at stores like Apple and Tiffany

In Matthew Healey’s opinion, shops that offer high-quality products while providing extra details that appeal emotionally to the customer are at least “a little immune” to the trend of online shopping. “Think of Apple stores or Tiffany jewelry shops – visiting a store is connected with far more emotional impressions than browsing online,” he says.

4.  Smartphones, tablets & co.: Mobile devices in-store

As an additional perk, shop owners could perhaps offer services for mobile devices, such as Google Indoor Maps, directly on-site. Customers can zoom in on a shopping center in Google Maps, for example, to find out where specific stores carrying a certain product are located, even in multi-level malls. Google Indoor Maps are currently available in a number of IKEA stores in Germany and in the United States. Another option, says Sievers, could be for retailers to send consumers special price offers via smartphone after they’ve been in the store for a certain length of time, or perhaps when customers are scanning product barcodes with their smartphone to display recipes or food allergy alerts for that product. Industry experts calls this approach “extended packaging.”

iPads as mobile terminals in the store

Other mobile devices are increasing in importance for retailers as well. iPads, for example, are ideal as mobile terminals in stores, explains Hudetz. For one thing, they allow customers to “shop autonomously”: If no sales person is available, the customer can simply check the iPad to see whether a certain size is available, or alternatively order the product in the retailer’s online shop. And secondly, sales staff can use the tablets as “sales assistants,” for example to present or demonstrate products that are not currently in stock.

5.  IT budgets on the rise

Retailers will need to exploit the possibilities of IT if they want keep pace with the changing demands of their customers. The retailers in North America that TBR spoke to are this year increasing their IT budgets by an average of 5% compared to 2012. The market expert is also expecting increasing IT budgets in other mature markets.

6.  Analytics: Staying on top of customers with Big Data

Figures released by TRB indicate that retailers spend roughly 9% of their budget on analysis software. The motive behind this: to collect and analyze data to find out more about their customers and their behavior. Amazon, for example, has been doing this for quite some time now, offering tailoring product recommendations based on a customer’s previous purchases. The practice has since caught on. Big Data platforms need to work hand-in-hand with CRM systems when evaluating customer testimonials in social networks, says Accenture. Completing the equation are the mobile apps used for online purchases: integrating these apps with the data services in effect creates a “data supply chain” within the retailer’s organization. The tricks and techniques used by big and long-time e-retailers are now slowly becoming mainstream, says Hudetz. “A lot of companies are only just beginning to understand the strategic value of analyzing customer behavior with Big Data. So Big Data is no longer just a subject matter exclusively for IT developers,” he remarked.

Optimizing cross-channel trade models

At the same time, he’s observed that retailers aren’t just using customer data to help market and sell additional products – they’re also using it to optimize their cross-channel trade models. Seeing as there’s no blueprint for efficiently meshing online and offline strategies, we’re sure to come across a lot of enterprising experiments soon.

Nicolas Zeitler

About Nicolas Zeitler

Nicolas Zeitler is a Senior Editor at fischerAppelt. His specialties include digital media, news writing, digital media, PR, publishing and online journalism.