“Why the Future of Retail Will Blow Your Mind” reads the title of an Entrepreneur article from nearly two years ago. The piece detailed how brick-and-mortar retailers were planning to leverage technology to improve the often mundane in-store experience and boost slowing store sales. A primary way in-store customers were going to be "mind blown" was an "immersive personalized mobile experience" which would ping them as they walked around the store with messages featuring product details, offers, discounts and even information on which celebrities were using the product.
While there are companies that have been able to implement some of these experiences, connectivity limitations and technological inconsistencies among customers have slowed the game-changing shift in shopping. As a result of these limitations, retailers have only been able to push messages via beacons to 2 percent to 3 percent of their in-store customers.
Shopping in My PJs
For the sixth straight year, e-commerce sales increased 15 percent or more, with companies like Target and J.C. Penney growing annual online revenues over 20 percent. In fact, a survey of shoppers conducted by UPS showed that for the first time, total purchases made online was greater than in-store purchases. Over time, more people have become comfortable with the idea of online shopping as retailers have improved the experience. Better product information and marketing strategies, such as flash sales and promo codes, have increased traffic and incentivized purchases. Most retailers also now offer fast and low-cost (often free) shipping to align with the expectation set by Amazon's Prime service. Difficult return processes that used to cause friction have also been alleviated via simpler processes.
Contemporary growth in online sales isn't possible if businesses aren't serious about making their e-commerce experience user friendly. Companies have been investing time and money into bridging the e-commerce gap dug by the lost benefits of the “browse and buy” model of traditional brick-and-mortar retail. The planks of this bridge are comprised of improved product information, product curation based on historical purchases, the integration of multichannel interactions and implementation of user-preference algorithms. These tools are being used by companies to provide shoppers with more personalized options.
Death of a Retail Store?
With the expected in-store advances in customer experience slow to take off and online shopping seeing double-digit growth over the last six years, surely the retail store will go the way of the dinosaur, right? Well, not so fast. In-store purchases still account for over 90 percent of all sales, and are forecast to maintain an estimated share of about 85 percent of retail sales in 2025. Still, retailers need to begin to think about how to improve agility in their business model by rethinking their brick-and-mortar strategy.
Rightsizing Real Estate
When I buy clothes, I like to look at, touch and try on the garment. These sensory experiences give me a better understanding of the product I’m considering. I get a more personal summary of the garment — e.g., how a suit jacket fits my shoulders and if the material is breathable or sturdy enough for travel. Some retailers, such as Bonobos, have created “Guideshops” where the shopper will receive individualized customer support, try on clothes, make the purchase and have items shipped to their home. This model reduces up-front real estate costs because shops are much smaller than typical retail stores, and it also reduces the cost of inventory that needs to be carried as everything is shipped from a central distribution center.
Taking the Guideshop scenario further, if the retailer can leverage analytics that provides insights into customer preferences, promoting specific styles by location will reduce the probability of markdowns by taking these varied preferences into account. Data analytics has become table stakes in the retail industry for better marketing, sales and product development efforts. The raw numbers can be leveraged to better understand customer preferences in order to better identify product features that matter. Microsoft ripped out the Kinect peripheral from the Xbox One when the higher price tag (and frankly its disappointing feature performance) was getting outsold by the cheaper Playstation 4. Microsoft evaluated the customer response and realized that the motion and voice-command features weren't worth the additional $100 to gamers. So while Kinect was an "integral and important part of the Xbox One experience," Microsoft altered course based on reality.
The Pokémon Go Effect
Adapting innovations like virtual or augmented reality (VR/AR) technology is a good way to mitigate the lost experience from the browse-and-buy model. The recent Pokémon Go phenomenon provides a twist on the classic game by allowing players to get up off their couches and "Catch ’Em All" in an AR environment. Applying mainstream technology to your marketing by using mobile apps or displays in stores can aid decision making. Just like Pokémon Go did for Pokémon, applying updated technology to older products can create a renewed customer enthusiasm via a new engagement mechanism.
Retailers need to find new ways to engage with customers to get them into their stores. By understanding their preferences and using data to unlock insights, companies can alter the in-store experience to drive growth and improve their overall delivery model.
Hamaad Chippa is the director of industry consulting at Informatica, a company that delivers enterprise data integration and management software powering analytics for big data and cloud.
Hamaad Chippa, Director of Industry Consulting, Informatica
Hamaad Chippa is part of Informatica’s Industry Consulting practice, responsible for identifying data management challenges, trends, and best practices in the manufacturing, retail, and CPG verticals. He also helps organizations understand the value improved data can have to important revenue, cost, and efficiency drivers. Prior to Informatica, Hamaad spent 10 years as a management consultant, specializing in providing leading-edge insights to help clients transform their businesses and attain high performance capabilities. He employed various methodologies to help clients with complexity / cost reduction, product development strategy, and manufacturing operations strategy, improving operational efficiency and effectiveness. Hamaad graduated from the University of Illinois at Urbana-Champaign with a bachelor degree in math & computer science and has an MBA from the University of Chicago, Booth School of Business. He’s based out of Washington, D.C. by way of the Windy City. In his free time, he enjoys biking around the historic D.C. neighborhoods and trails, sports photography, and spending time with his family, particularly teaching his son about the Star Wars universe.