Article

Andy Reid
Andy Reid 8 April 2019
Categories Ecommerce

The Modern Retail Ecosystem

It seems that every week we hear of winners and losers in retail, with industry commentators painting grey pictures of dismal, deserted high streets damaged by online shoppers. Ecommerce is blamed for their downfall -- the Grim Reaper responsible for boarding up empty stores and blowing tumbleweed through our towns.

But this doesn’t sit right with me and I know there are retailers that agree with me. Holding ecommerce responsible for the changing nature of our high streets isn’t accurate. It can only be detrimental to the retail industry, at a time when we need buoyancy and optimism – when we need people to spend. I don’t think the separation of online and offline shopping is either relevant or useful any longer.  Instead, we need to think of a single, interconnected modern retail ecosystem. 

Think about how you shop. I expect you buy some things online to be delivered to your home or office. You probably pop down to your high street if there’s something you need quickly, and I imagine you buy groceries online but do a quick ‘top up’ shop in your local grocery store. Now and again, you might take a trip to a retail park to visit a furniture store or sports superstore. Maybe you go home and order the item online to secure a discount. I’m the same, and I don’t think we’re in the minority. We don’t think about how we shop – if we need something, we just buy it through the most convenient channel at the time.

A single, commercial ecosystem

It’s time for the industry to start thinking, measuring and reporting differently -  whether online or offline, physical or digital, it’s all shopping.  In a post on CNBC, Hershey’s chief digital commerce officer Doug Straton shares this view. “Retail's not dying — it's just evolving” he says. “Let's please stop talking about brick-and-mortar stores or e-commerce. Retailing, online and offline, is one ecosystem, at least with general merchandisers”. Stores should no longer be assessed solely on the transactional revenue they contribute. 

Research shows that multi-channel shoppers spend more and have a higher lifetime value than any single-channel shopper, no matter the degree of investment in that channel. Markets with no physical store presence consistently contribute fewer ecommerce sales per capita. In addition, 96% of total sales, including 87% of e-commerce sales occur within 20 miles of a physical store.

The proliferation of pop-up stores also illustrates my point, as ecommerce firms see the value in an experiential, physical presence for brand activation. In the US, previously direct-to-consumer brands such as Boll &Branch, Allbirds and Amazon Go are opening bricks-and-mortar stores. Facebook launched pop-up stores across the US last holiday season. In the UK, Amazon launched a fashion pop-up in central London.

Why does it matter?

Thinking of online and offline shopping as a modern retail ecosystem demands a change in mindset, as the separation holds fast in the world of commerce. But it’s a change that will benefit the industry, for these reasons:

  1. As soon as we begin to think like consumers, reporting and measuring retail in this way - physical and digital retail together - we start to gain an accurate understanding of behaviours. This helps with forecasting, with inventory management.
     
  2. Retailers can track customer journeys with clarity, understand different purchasing triggers. This means they can boost customer engagement with contextual, personalised content across consumers’ preferred channels.
     
  3. They can improve the customer experience, making sure it’s relevant and timely.  
     
  4. Retailers can deliver a connected brand experience if they can connect their buyers’ channels. Retailers are currently struggling to measure the impact physical and digital channels have on each other. Often, they know there is a connection but it’s hard to bring this information together

Location: the critical success factor for a modern retail ecosystem

There is one critical success factor underpinning the modern retail ecosystem, and that’s location. Location influences a wide variety of factors, and the presence of a physical store contributes to a broader portfolio of consumer experiences and transactional and brand opportunities for any given brand.

Let me give you a few examples of how this works. We have a retail client with a very successful ecommerce business.  They found that over 85% of ecommerce business occurred from customers that lived within 20 miles of the store.  Membership exhibited the same pattern.

Wanting to boost membership, the company launched a membership sign-up campaign through their e-commerce channel, but results were poor. They took a risk and opened a handful of physical locations in markets below their established minimum population thresholds.  This would no doubt result in low revenue stores, though enough to be profitable.  The result was a massive increase in revenue and a significant increase in ecommerce revenue within those markets, easily attributed back to new members that first visited the new stores. The clear finding was that membership is driven through store locations, not online.  Membership onboarding at a physical store drives long-term e-commerce success. Online and offline integrate with each other.

The reality is that for all the benefits of digital, there are some things that no retina display can provide.  A sense of tactility; the feel of a fabric; the way the contours of a sofa align or contrast with your own body; the way a shirt – which looked amazing in the picture – just ends up making you look a bit more, let’s say “broad,” when you wear it. In person stores still maintain an advantage in this regard. 

In all of these, we don’t measure the success of the store based on its own transaction volumes, based on old metrics, but as a critical part of a larger ecosystem of customer experience.  Remove the store, and you remove a massive lever you can pull to influence the customer, to shape and define the future of their experience, and the way you compete with other brands.

Now is not the time to diminish the value of the store. Let’s forget talking about online or offline and spend more time understanding the new age of shopping.

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