The Evolution of Retail
Redesigning the Way You Shop
Any such strategy must start by acknowledging reality. Executives in the retail industry must accept that new technology will advance in speed, cost, and versatility. They must anticipate the impacts and predict the likely digital density in their categories. What should I change right now if I think digital retailing will eventually account for 20% of our sales and will have a significant impact on 80% of our sales? Should we even be opening new stores? If so, how much should they differ? How should we adapt to a world with more obvious prices? What happens if our stores’ traffic-boosting categories move online and stop bringing people in?
Such circumstances necessitate radical, all-encompassing innovation. How to Solve Tomorrow’s Crisis via Idealized DesignRussell L. Ackoff, a co-author, describes a comparable turning point that occurred in 1951 at Bell Labs. The group was requested to list the company’s most significant contributions to telephone communications by the vice president in charge of the labs. The VP emphasized that all of them, including the telephone dial and coaxial cable, had been developed and put into use prior to 1900. He pushed the group to start from scratch and presume that the phone system was broken. How would it appear? How would it function? The scientists and engineers at Bell were soon hard at work researching brand-new technologies, and they developed ideas for push-button phones, call waiting, call forwarding, voicemail, conference calls, and mobile phones. Retailers require the same mindset of starting over.
Every day, more details emerge about how multichannel retailing should be designed. Customer demand is broad. They desire the benefits of going digital, such the wide range, detailed product information, and user advice. They desire the benefits of physical stores, like the individualized attention, the capacity to handle goods, and the opportunity to treat shopping as a special occasion. (Notice to online vendors.) Although different customer segments will place varying values on various aspects of the shopping experience, all are likely to desire flawless digital and physical integration.
A retailer’s challenge is to develop innovations that realize the goal, impress the customers, and produce profitable growth. Let’s examine what this might signify in real life.
Why will digital retailing keep expanding so quickly? Why won’t it reach its peak soon or perhaps disintegrate as it did previously? Anyone who has done a lot of online shopping is at least partially familiar with the solution. Although the selection is large, searching is remarkably simple. The costs are reasonable and simple to compare. It’s practical: You can do it without burning gasoline or snarling up parking spaces at home or at work. Consumers in the United States now receive free delivery on 50% of their online purchases, a 10% increase over the previous two years. Additionally, many returns are free. There are numerous product evaluations and suggestions. It is hardly surprising that online shops like Amazon have an average American Customer Satisfaction Index score of 87, 11 points better than traditional discount and department stores.
Traditional stores, meanwhile, are severely behind. Less than 2% of Walmart and Target’s revenue comes from online sales. Traditional retailers aren’t either leading the way in digital advances in their most crucial channel—physical stores—or in other channels like call centers and mobile purchasing.
More than they probably realize, Amazon and other online sellers have affected traditional retailers. When volume and sales per square foot begin to decline, the majority of businesses almost automatically react by reducing staff, cutting costs, and compromising service. But doing so only exacerbates the problem. As there is less service to distinguish the stores, customers focus more on pricing and convenience, which accentuates the advantages of online sellers.
Traditional retailers must shift the one significant advantage that online retailers lack—stores—from a liability to an asset if they are to survive. In the near future, stores will still be around, and they can be useful tools for rivalry. According to research, physical stores encourage internet purchases: For instance, one European retailer claims that it only accounts for 3% of online sales outside of the areas where its physical stores are located while capturing over 5% in those locations. Online and offline activities can compliment one another.
However, the conventional store won’t be adequate. Too many individuals view going shopping as a chore they must endure; if they can avoid it, they will. But what if going shopping were thrilling, enjoyable, and emotionally stimulating? What if it was just as enjoyable as going to the movies or going out to dinner? What if you could interact with items in a way that isn’t possible online?
This is not inconceivable by any means. Jordan’s Furniture, a New England chain, uses themed “streets” within its stores, a Mardi Gras show, an IMAX 3-D theater, a laser light show, food courts, a city made of jellybeans, a motion-simulation ride, a water show, a trapeze school, and special charity events to achieve some of the highest furniture sales productivity in the nation. In addition to having some of the best websites, Cabela’s and Bass Pro Shops also have some of the most interesting physical stores. The cost of creating these shop experiences is high. Could digital technologies more affordably enhance the shopping experience for customers?
In actuality, it already is. With the help of digital technology, dull storefront windows may be replaced with vivid, interactive screens that change with the seasons and the time of day and can even make suggestions or take orders when the store is closed. Customers may be able to create goods or put together costumes, then display their works in prominent places like Times Square. It can design entertaining activities that draw clients, entice them to remain longer, and compensate them for contributing creative ideas.
Digital technologies, such as tablets, may also provide sales representatives with virtually endless information about clients, describing how they prefer to be approached and building accurate models of their homes or body types that allow for the best decisions. It has the ability to properly and quickly alter pricing and promotions. It may offer personalized recommendations. By linking clients with reliable friends, virtual mirrors speed up and brighten up the changing room experience. Technology can speed up returns, file rebate claims, eliminate checkout queues, and capture transaction receipts. A call center agent may have complete access to a customer’s history of purchases and complaints.
I’m not trying to list every conceivable innovation here. It is intended to demonstrate how digital technology opportunities are just as plentiful and viable for use in physical stores, mobile devices, contact centers, and other channels as they are for websites. Additionally—and this is crucial—retailers across many categories can connect these channels and technologies to build an omnichannel strategy with storefronts that is superior to a purely digital one.
Applying these advances early, regularly, and widely enough to alter consumer perceptions and behavior is one effort. Three years after the competition does, implementing successful technologies is unlikely to generate any attention or traffic. Of course, a lot of digital inventions will fail, and it will be difficult to measure the effects of others. So improving test-taking and learning abilities to 21st-century standards is the second objective. In the past, it was difficult to predict the consequences of changes in price, improved store layouts, or newspaper vs TV advertising. (Recall John Wanamaker’s well-known complaint that he was aware that half of his advertising budget was being wasted but didn’t know which half?) Those test-and-learn challenges seem easy in an omnichannel world. Retailers must now evaluate the effects of new strategies and third-party innovations, including SCVNGR, a location-based social network game, on both physical and digital channels (which include mobile apps as well as the internet). These strategies include paid search, natural search, e-circulars, digital displays, email campaigns, and other new techniques.
Modern businesses are starting to apply science to this task, including PetSmart and the UK pharmacy chain Boots. They are testing digital and physical innovations using clinical trial-style methodology, using sophisticated software to create control groups and eliminate random variation and other noise. Although all of this is expensive, it’s difficult to see how merchants can stop doing more of it.
A version of this essay was published in the Harvard Business Review’s December issue.