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Will the future of retail be without physical outlets?

I had a very interesting discussion with a new client last week. Like many CPG companies, they are considering online retailing. They are already selling a little online, but haven’t seriously considered it until recently.

However, with the move of most major supermarket chains to offer online stores too, plus a few successful online only stores, such as Amazon in the US and Ocado in the U.K. they are now reconsidering just how big they could or should grow their online business.

 

I remember participating in heated arguments in the past, between sales teams and retailers, about online stores. Retailers thought that it was unfair competition and threatened to delist a manufacturer’s products if they sold directly. No wonder my client had been scared to develop this area, as in fact are most other CPG companies.

 

Fast forward a decade or so, and supermarkets are scrambling to catch up as start-ups in many developed countries are giving this new type of freedom to consumers. So what is a poor manufacturer to do?

For me, it’s not so much a question of whether, as much as the how and when? With Amazon muddying the waters by testing their new Fresh delivery and Go bricks and mortar offer and Walmart retaliating with a competitive online offer of fast service and free delivery, this is a battle that has already begun. Whether CPGs like it or not, they need to join in or get seriously left behind!

 

The case for bricks & mortar stores

An excellent article published last month in Forbes entitled “Five Signs That Stores (Not E-Commerce) Are The Future Of Retail” concludes that physical stores are more valuable.

Of course, for me, planning for the future is simply a matter of taking the consumers’ perspective and what they (will) want. Am I being naive? Maybe, but I’m not so sure.

Personally, I’m happy to order my usual brands online and have them delivered, especially when they’re cumbersome, like pet food, drinks, tinned and paper products. However, for some items, particularly fresh produce, I like to be able to pick the leanest meat or the freshest fruits and vegetables.

Customers will always need to see and try before they buy in numerous categories. Offering free returns may work for apparel but not for electronics. In several industries, consumers will want to see, compare and appreciate items before they purchase something.

Several home improvement brands and stores are already offering apps which allow customers to see their potential purchases in their homes. Or their paint and fabric choices “in situ” but actually virtually. So are retail outlets really essential for every category?

Brian Solis wrote a great article on “11 Trends Shaping The Future Of Retail” based on a presentation he wrote back in 2015 – an eternity these days!

However, they remain as true today as when he wrote it.

He says that retail continues to suffer from what he calls the new “Kodak Moment.” This, he claims, is the moment when executives fail to see how customers and markets are shifting.

 

The new Kodak Moment is when executives fail to see how customers & markets are shifting #retail Click To Tweet

 

Here are the trends Brian mentions:

1. New (human) perspective is needed to see the actual future that is playing out.

2. Cater to “Accidental Narcissists” as I call them and compete in the on-demand economy.

3. Compete for customer experience…not CX…there’s a difference and one is customer-centered.

4. Become payments agnostic. Don’t impose false standards to compete against other systems to reduce fees. Be open.

5. Understand social commerce and design targeted initiatives that drive shared experiences, reviews and referrals online.

6. Invest in the trust economy, be transparent, and earn reciprocity through the facilitation of open engagement and commerce.

7. Balance web rooming and showrooming by investing in mutually-beneficial experiences and outcomes on both sides.

8. Explore new technologies to reimagine the in-store/online experience blurring the lines between digital/brick-and-mortar.

9. Study the digital and specifically the mobile customer journey to uncover friction, update ageing touch points and cater to mobile-first and mobile-only customers.

10. Invest in innovation teams or innovation centres to discover new competition and possibilities to test and learn in more rapid prototyping programs (outside of risk-averse culture).

11. Take a fresh look at space and consider it a blank slate. Ask yourself and your team, what if we could build a physical store that brought the digital and real-world together to deliver intuitive and indispensable experiences? That’s what Amazon is doing.

What I love about this list is that in the end it can be summed up very simply. It is essential to both know and understand your customers. It is fundamental to a business to treat the customer as you want to be treated. Isn’t that what business has always been about? And life too, come to think of it! So why should retail by any different?

 

The future of retail

What is sad, in my opinion, is that the vast majority of retailers – and CPG companies too – are playing a “wait and see” game. In so many areas, they think that adding a few technical gadgets or an app or two will enable them to continue to attract customers. Things have gone far beyond payment options or mere personalisation of the shopping experience.

I, therefore, decided to summarise some of the key changes which I believe are essential to answer customers needs already today, not just in the future:

Convenience: customers have busy lives and prefer less and less to go for the large weekly shop in out-of-town shopping malls and hypermarkets. This is why smaller stores in strategic localities will develop faster in developed markets.

There will also be a clear differentiation by category. The customer will decide on their personal preference between what they value most in terms of their time, price and convenience. For some products, and not just the more expensive ones, they will make an effort in choosing, for others very little.

This has always been the case and is the reason why manufacturers strive for 100% distribution. But in the future distribution should be linked to convenience for the customer, not just mass presence.

Experience: while some shopping malls are in decline, especially in the US, those that survive will shift the emphasis from purchasing to experience. By incorporating cinemas, bowling alleys, cafes and restaurants, malls are hoping to attract customers by differentiating themselves and driving more traffic to them. But just how different they can be is relatively limited.

However, the retailers themselves also need to start selling differently. Apple, Nike and a few others have already done this. But most outlets appear to be oblivious to the change in their customers’ desires for experiential connections with brands.

Most outlets are oblivious to the change in their customers' desires for experiential connections with brands #retail Click To Tweet

Delivery: Whether we buy online or in-store, one thing is clear; we want it NOW! Fast these days is two-day or same-day delivery – if ordered before a certain time. In the very near future, we will want our purchase to be waiting for us when we get home. Already a quarter of shoppers, according to some L2 research said they would abandon their cart if same-day delivery was unavailable.

Why should shopping be any different from transport today? ]

Forget about standing on street corners in the hope of finding a taxi driving by. The success of Uber and Lyft lies partly in the fact that the customer can call a car and immediately know the waiting time based on a live map of their surroundings. They also know the plate number, driver’s name and what others think about the person. All this delivers trust in the experience.

Another aspect of delivery that is changing is its timing. As Lin Grosman says in her article The Future Of Retail: How We’ll Be Shopping In 10 Years: “Of course, that’s just the beginning.  Two-hour drone delivery is coming in the foreseeable future, and Amazon is already talking about  30-minute drone delivery.“

Talk about near instantaneous gratification!

I’m not sure that this is a great direction for humanity. We all know that we value things more if we have had to work or wait for them. Is this the start of a new type of consumerism?

We value things more if we have had to work or wait for them #consumer #value Click To Tweet

Choice: We now all know what is available around the world, thanks to the internet. Our desires are no longer limited by what is available in-store or even in our own country. We want to have the choices that others have, wherever in the world we live.

Customers are already ordering online from far and wide; pet care from Australia, fashion from France and technology from China. It is then up to them to compare not only prices but delivery costs and timing.

According to research conducted by Walker, by the year 2020  customer experience will overtake price and product as the key brand differentiator.

From that perspective, outlets have arguably an easier task to make the shopping experience more enjoyable and memorable. But will they? I believe they have to because no longer will it be faster.

Values: Both manufacturers and retailers are being held to higher standards that have far more to do with their values than their products and services. Millenials, in particular, are basing their choice of brands on things such as social responsibility, sustainability, transparency and authenticity.

Corporate reputation is being scrutinised and evaluated at each mention in the press or on social media. Organisations that don’t walk their talk will be rapidly found out and publically discredited.

 

Conclusion

So where is the future of retail? In the stars or in the cloud? With some retailers banking on the first and others on the second, it’s going to be an interesting ride. And the customer has everything to gain, at least in theory. Bigger choice in products, services and prices, for sure, but perhaps not always better. I believe that this is why organisations are pulling back their finance departments and care centres from India. And why China is in a race to transform itself from the manufacturer of the world to a global innovation hub.

Retail has always been about making sure that “the right product is in the right place at the right time at the right price.” The right place at the right time appears to be gaining ground over the other two. What do you think?