Some interesting developments have been taking place in retailing globally. For example, owners of Sears, the legendary US stores with over 100 years of history, have recently announced bankruptcy. Last year the largest number of stores in history closed down in the US. At the same time we can hear that the internet is the future and that the revenues of Jeff Bezos, founder of Amazon, are increasing. Does it mean that we can write off the physical stores under the heading of ‘things taken over by the internet’? Bezos would urge not to hurry and would remind you that Amazon bought Whole Foods, a grocery chain.
Let’s put it in the context. We have already understood that physical stores are closing rapidly. This year’s data are not yet available, but last year in the US alone, over 7,000 stores closed down, while the number of bankruptcies in the retail sector increased by a third. In addition to Sears, other famous brands are also closing their stores, for example, American Apparel, Guess or Abercrombe&Fitch.
The online behemoths must be happy. Perhaps, but at the same time they invest in physical stores. Last year, Amazon paid USD 14 billion for Whole Foods. Bonobos, eBay, BirchBox or even Google also invest in physical store chains.
What is going on? Online retailers, who are often more flexible, think about the future and at the same time count their cash. eMarketer estimates that for some time growth in online trading has slowed down – the sales growth forecast for this year is 23.3% and for next year – 21.5%. The figures are still in double digits, but no one dares to predict the return of 2014 with more than 26% growth.
Another telling figure is that online trade still accounts for only a tenth of the global trade. This trend will not change soon, so it is natural that Amazon and other giants are not enthusiastic about the failure to reach 90% of the potential market. They are not happy about other things too. For example, you can maintain 2–3% conversion rate online rather successfully, whereas at a physical store it is as high as 20–30%. In addition, in physical stores the buyers purchase 1.5–3 times more products than online. The situation is familiar where you drop by to buy a few staples for dinner, but leave the store with a full bag of unplanned shopping.
An answer to the question ‘who will win – the internet or tradition?’ could be that the boundaries between the internet and physical trade will simply disappear and this has been taking place for some time now. The mighty customer with his habits is at the forefront of it all.
Two interestingly sounding concepts – webrooming and showrooming – are the evidence of this. The first means the consumer practice of researching products online before buying them in a physical store, and the second means the opposite. The research by Forrester shows that 73% of consumers wish to buy online and collect in a physical store, 86% wish to return the purchase made online to a physical store, and 75% would feel better if the goods displayed on the shelves were marked as to whether they can be purchased online.
All this leads towards omnichannel retailing. This is an important buzzword among retailers. Briefly, the concept means a fully-integrated approach to commerce that provides shoppers a unified experience across different shopping channels irrespective of whether the buyer is shopping online, at a physical store or by making a call to the call centre. Sounds simple, but in reality it is a complex and serious change. But let’s leave all the technical details to retailers. We must just understand that today online and offline shopping cannot be treated as two separate channels.
What does this mean for consumers? A broader shopping experience. We have a very good example from the retailer C&A Brazil. They combined the online shopping experience with the experience of shopping at a physical shop by introducing electronic clothing hangers. Each such hanger is connected to the internet and has a screen showing responses to the product from Facebook users: likes and other indicators. In this way the hesitant buyer not sure whether the garment suits him, can rely on the common opinion of the public about the product.
In the future, with online retailers arriving to physical stores, we will see a conceptual turning point. The physical stores will no longer be as they are today with mountains of goods and people queuing. There will be a move toward showroom type premises where buyers will come for the sake of the experience which can only be gained at a shopping centre.
Such a turning point creates many problems in measurements. Retailing is an area where everything is measured. Until now, sellers at physical stores have used simple indicators: sales volume and value per square meter, sales volume and value by the number of customers, return on investment, etc. Imagine an online retailer who arrives with more indicators to measure rather accurately why the buyer chose one or another product, how he found out about the product, etc. In the context of this revolution, in terms of consumer experience, the old measurements used by physical stores will be meaningless, instead, the principles of online data collection and analysis must be in place.
We have worked in this direction in Lithuania for several years and combined our experience and know-how by developing the Stovendo start-up. We help businesses with online and offline sales channels to consolidate trade processes and to monitor systematically the sales data, untapped potential and customer expectations in all retail channels. This summer we have taken one step further. Together with the researchers of Kaunas University of Technology we are creating models which, like online, would help analyse and forecast why the buyer looked at a product, but did not buy it and to understand other indicators related to the Buyer’s experience.
As far as the Lithuanian market is concerned, we can see progress, but there is still much to be done. Major retailers start to understand that physical and online stores are not two separate units. We can see examples where online retailers open physical stores to offer similar experience across all channels. Data collection and analysis, however, are for them still grey areas. It is not surprising to see a cashier scribbling notes in her notebook when a new client enters a store.
The trends from the US and other markets will slowly come to Lithuania. Large retailers unable to prepare and adapt to changes will face the same fate as Sears – they will simply be gobbled up by fast and flexible online retailers who constantly think about the experience of customers and measure everything using correct indicators.