Opinion: Retail and adaptive strategies

Amazon-books2Although e-commerce is growing quickly on a global scale, physical stores will continue to play a key role in retailers’ overall omnichannel efforts. In 2015, 90 per cent of global retail sales were from store-based retailing. While many retail purchases are now digitally influenced, the role of physical stores is evolving instead of declining in significance.

In the future, shopping in physical stores will likely be done less frequently because of e-commerce, but the stores themselves will become more experiential and social. Retailers should strategise to maximise the instore experience by leveraging their physical stores as places of transactions, branding tools and even as fulfilment centres.

As customers increasingly engage in channel hopping, retailers must be prepared for all types of transactions in stores Although many retailers are investing in enhancing their online presence, many customers are completing their purchase process in physical stores. Many shoppers are webrooming, which is the practice of researching a product online before making the purchase at a physical store.

Shoppers will webroom most commonly when considering expensive purchases, such as electronics, that often demand a great deal of research and comparison before ultimately making a purchase. Furthermore, with the rise of e-commerce, customers are making more purchases online, but relying on physical stores for returns and exchanges. To achieve omnichannel proficiency, retailers must be prepared to offer a consistent, seamless shopping experience by accepting returns and exchanges of online purchases in their physical stores. Consequently, it is becoming increasingly important for retailers to have inventory management systems for online and offline platforms that communicate with each other. Retailers should leverage their physical stores for branding efforts.

Physical stores are the principal channels available to shoppers to engage with a retailer’s brand. These stores are increasingly becoming a place for experiential shopping (versus transactional shopping, which is being claimed by online channels as they often offer greater convenience).

The shopping experience uniquely offered by physical stores explains why many digitally-native retailers are investing in physical stores. For example, e-commerce giant Amazon, is opening physical stores – both pop-up and more permanent fixed bookstores. The retailer understands the role that physical stores play in building its brand in ways that it cannot online. Additionally, Amazon will leverage these stores to showcase its own hardware products that are not sold by many other retailers.

By building its own stores and using them to showcase its hardware products such as the Amazon Kindle and the Echo, the retailer can tightly control its brand and help customers understand how the products work.

Apple Inc. is another example of a company successfully leveraging its network of brick-and-mortar stores to build its brand. Retailers like Apple demonstrate how important it is to maintain a strong network of physical stores to build its brand by showcasing its products and creatively interacting with its shoppers. Meanwhile, some retailers, such as Lululemon, are using their physical stores to build community centres. In addition to selling fashionable athleisure apparel, the retailer also hosts community-centred events such as Run Club and in-store yoga. These events serve as brand-building exercises, and enable the retailer additional opportunities to engage with its customers. (Some) retailers can leverage their network of stores to meet rising demand for fast, convenient fulfilment.

As customers increasingly demand quick fulfilment of orders, some retailers can leverage their physical stores as fulfilment centres for services. This strategy is not for all retailers, as fulfilment strategies depend on business models. For example, Bonobos, an apparel specialist retailer, utilises its physical stores as “guide shops” for shoppers to simply browse through and get their products fitted to purchase online for delivery. Bonobos’ stores will therefore keep very little inventory.

Meanwhile, other retailers are utilising more of their store space to keep inventory for more efficient, faster fulfilment. An example of a retailer implementing this strategy is Home Depot. In FY2015, the retailer rolled out its BODFS (Buy Online, Delivery from Store) feature. The retailer will leverage what it believes is a sufficient network of stores and seeks to increase their productivity by integrating its online business with its offline stores. Retailers should keep in mind that this initiative will likely benefit only those that already have a large store footprint.

Retailers must continue to invest in physical stores in ways that best support their business model As the implementation of omnichannel strategies change the retailing landscape, the role of brick-and-mortar stores is quickly evolving. The exact role of physical stores will differ depending on the retailer and its current set of assets and objectives, but physical stores will remain core to the omnichannel shopping experience and retailers must continue to invest in them.

Michelle Malison is a Retailing Analyst at Euromonitor International and can be reached at michelle.malison@euromonitor.com.


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