Re-Purposing Retail Stores: The New Frontier of Shopping
If you've walked into a retail store over the last few years, you'll notice the shopping experience isn't what it used to be. Showrooms are sparsely stocked and associates lack knowledge of customer needs, making the thought of going to malls and department stores a daunting and frustrating endeavor. As a result, many large retailers have begun to feel the pain as their sales continue to decline sharply. In fact, over 8,500 retail stores are expected to close in 2017. That's 37 percent more stores than were shut down during the Great Recession. This may sound surprising, given that the economic conditions are much improved since, but consumers are prioritizing bigger-ticket items, such as cars and appliances, as well as spending on vacations and entertainment.
However, there are certainly other forces at play here. The biggest catalyst of the decline in store foot traffic has been the growth of digital sales channels. Online stores have made it extremely convenient for consumers to research and make purchases without stepping into a store. Over the past three years, online sales have increased 31 percent and are expected to reach 20 percent of total retail sales by 2020. Most of this growth has been and is expected to continue to come from Amazon.com, which last year accounted for 53 percent of the total growth in online sales. Amazon’s ability to provide a wide variety of products, hold a captive audience through its Prime membership program, and offer fast shipping and excellent customer service continues to be a valuable differentiator in today’s economy.
Traditional retailers are scrambling to catch up to avoid being deemed obsolete by consumers. As evidenced by Wal-Mart’s $3.3 billion acquisition of Amazon’s clone, Jet.com, and PetSmart buying Chewy.com in the biggest e-commerce acquisition this past April, retail companies are beginning to understand this shift in consumer behavior and are making large investments in e-commerce. By no means is this the end of in-store shopping, however. In fact, over half of consumers still prefer to touch and feel items before making purchases, regardless of how convenient the e-commerce experience is. Recently, Bonobos, a men’s fashion e-tailer, opened “guideshops” to offer a more hands-on experience for suit fittings and alterations, with its sights set on improving conversions.
With sales dwindling and online activity increasing, traditional retailers would be best served to reformat store layouts to improve the customer experience, driving additional foot traffic. This may include:
- opening pop-up shops within the store through partnerships with trendy e-tailers;
- creating a more local vibe by testing and carrying local brands; and
- incorporating artificial and virtual reality capabilities.
This would allow customers a unique touchpoint with their favorite brands, all while providing traditional retailers further insight into consumer needs.
In addition to repurposing physical stores, retailers must invest in their digital capabilities to capture the shift to e-commerce shopping. To put the shift in perspective, $2.1 billion worth of goods were purchased on mobile phones and tablets on Black Friday and Cyber Monday alone. Investing heavily in an improved mobile shopping experience will pay dividends as millennials rely more and more on their smartphones for everyday decision making. This includes allowing consumers to research and purchase products directly from social media feeds and offering customer support via chatbots that can provide real-time answers to consumer questions. One important reality that consumers must address is the waning attention span that's inherent with this mobile generation. Currently, online cart abandonment sits at 75 percent. By reaching shoppers through targeting and personalized “nudges,” retailers can remind consumers to finalize purchases, or incentivize them with expiring offers.
To repurpose stores and improve digital offerings successfully, retailers must better understand their customers. This requires deep knowledge of a customer’s historical relationship with the retailer, including:
- basic contact information;
- demographic details;
- lifetime spend;
- preferred shopping channel; and
- favorite brands and products.
This means retailers should have integrated customer and product data across their business lines, from retail to e-commerce, sales to marketing, and purchasing to operations. Investing in data capabilities upfront will help inform more trust in important decision making, like which stores to divest from, what products to stock stores with, and how to personalize marketing campaigns. A major fashion-focused department store is planning on shutting down over 60 retail locations in 2017, instead focusing investments on improved digital applications as well as prioritizing customer data analytics to create a more personalized marketing outreach. The retailer recently reported a 20 percent year-over-year increase in e-commerce sales, though it's seriously lagging competitors in overall online sales as a percentage of total sales by a third (4 percent compared to 12 percent). This renewed focus will work to quickly close this gap, while shifting resources to better service customers.
Getting the data right will help prioritize which digital capabilities will be successful as consumers become increasingly fickle in this rapidly changing, experience-driven retail environment.
Hamaad Chippa is the director of industry consulting at Informatica, an enterprise cloud data management company.