How Physical Stores Can Survive the E-Commerce Revolution
By Tim Scargill
Is it inevitable that one day we'll do all our shopping online? As Bloomberg recently reported, stores in America are closing faster than ever, as e-commerce sales continue to grow. But the situation is more complicated than that, and there are still ways for the physical retail space to survive and indeed thrive in this brave new world.
The E-Commerce Threat
It's certainly true that the popularity of e-commerce solutions has put the pressure on traditional retailers. Over the last couple of years big names like Walmart, Macy's and JCPenney have all announced major store closures, while department store sales in particular continue to suffer, having been in decline since the early 2000s.
It's not all doom and gloom though; 78% of consumers say they still prefer to shop in-store, and the average spend per month is much higher there than online. Stores are actually more profitable too, and that's why we're seeing e-commerce giants such as Amazon and Alibaba (as well as many smaller retailers) investing in physical locations.
All signs point to an increasingly 'omni-channel' future of retail; many of us like to research or buy products online, but complete the transaction in person. The challenge then for stores is to provide a seamless connection between virtual and physical experiences, to make that transition as smooth as possible - and of course once a customer is in-store, to use that space to trigger additional purchases.
Every retailer is different, so first understanding how customers use your store is key to providing them with the experience they want. For example, we can look at footfall and sales to evaluate the success of marketing strategies across different locations, and by studying online customer profiles we can boost campaign effectiveness - research shows that 54% of companies using customer analytics extensively have higher profits than average.
There are more sophisticated techniques to employ too. We are now able to analyze a customer's path through a store, including the time they spend in different areas, which can be used to inform the placement of promotions, signage and overall layout. It even helps with staffing decisions; when and where are your employees needed most, and what type of interactions are most successful?
Finally, as well as customer analytics, the most successful retailers are those who also use analytics to manage their stock. By looking at sales, you can know how many of a particular item to hold without taking up unnecessary space, down to the individual store. Maybe there are two items that many customers seem to buy together - perhaps you could put them on the same shelf to make their shopping more efficient?
Now you know where customers spend most time in your store, what about making that space into a memorable experience for them, something they will tell their friends about and that will inspire them to make additional purchases? The latest technologies like augmented and virtual reality can be used to create eye-catching displays, like Nike's customizable sneakers or Toms' 'virtual giving trip'.
They can also provide customers with the information they need to purchase with confidence; augmented reality mobile apps that automatically provide product details, promotions or price comparisons when you hold the camera up to the shelf are likely to grow in popularity as more smartphones incorporate the required technology. Virtual reality is even helping secure a future for physical travel agencies, customers now able to don an in-store headset to preview a destination.
Social media should not be forgotten either. It's a big influencer when it comes to purchasing, so perhaps video displays might share products currently trending on social media, or posts related to certain products. Younger generations in particular are likely to be online in-store, so make sharing what you've bought both easy and fun with features like Snapchat geo-filters.
The speed and ease of buying something online is one of the main drivers behind the growth of e-commerce; even if we prefer shopping in store, we don't want to waste time waiting in long, slow lines. In order to compete, retailers have to streamline the payment process with features like self-checkouts and mobile transactions - Target has actually developed its own mobile payments system, presumably so it can be more integrated with their existing app. And if customers are just collecting something, maybe the use of technologies like geo-fencing could detect when they arrive, to ensure items are ready and waiting for them to pick up.
Amazon plans to go a step further with its physical stores. 'Amazon Go' aims to operate a cashier-less system by automatically detecting what's in your cart when you leave, using a combination of computer vision and sensors. As the Wall Street Journal reported back in March, the full rollout has been delayed by technical glitches, but such is its potential for both customer and retailer (this kind of set-up would really lend itself to those in-store analytics we discussed earlier), we're likely to see other companies take a similar approach in the coming years.
Other Fintech Solutions
The integration of technology into financial services has been a game-changer for retailers, who now able to offer a wide variety of payment options from Apple and Android Pay to Paypal to Bitcoin. But that isn't the only innovation that could help bring customers into stores; one of Hong Kong's top five e-wallets TNG Wallet has partnered with 7-Eleven to provide cash pick-up points, with the latter saying they believe it will improve its customers' in-store experience.
Another development in fintech could provide a lifeline to small and medium-sized businesses, who may be most at risk in such a changeable, competitive climate. Peer-to-peer lending can provide more accessible capital than traditional banking, with the process typically accomplished faster and with a lower interest rate. This kind of support is vital because many of the recommendations we have discussed do not come without significant investment; physical stores may well need to make major changes to their infrastructure now to reap benefits further down the line.