Retailers Face Radical Change ... And So Should Their Boards of Directors, Part 1
Of the many industries being turned inside out by digital transformation, retailing may face the most radical change. However, it's also the industry with the greatest number of breathtaking new opportunities for success. In this two-part article, I survey the new digital and market forces facing the retail industry, and then detail why fresh leadership (starting at the boardroom level) is needed if you hope to ride this rocket.
The pressures traditional brick-and-mortar retail chains face are obvious and increasing. Many of these have been self-inflicted. The U.S. has far more per capita retail square footage than any other country (six times as much as the U.K., for example). In the U.S. alone, 6,700 retail stores are expected to close in 2017.
Meanwhile, the stats for online retail are exploding in ways that both excite and trouble those of us in the sector. U.S. e-commerce sales hit $360.3 billion in 2016, and are expected to reach $462 billion next year. A poll of U.S. shoppers found 60 percent prefer to avoid crowded malls and stores (which, of course, makes them less crowded), and 71 percent believe they’ll find the best deals shopping online. Forty percent of men and 33 percent of women 18 to 34 say that ideally they’d like to buy everything online.
Those of us who watch the numbers, monitor the trends, and set strategy for retail businesses know they offer an incomplete, even misleading picture of where the industry in America is headed. First, digital trends are leading us toward a hybrid retailing model built upon both the online and in-store channels, but takes them in wholly new directions.
First-generation e-commerce was shaped by desktop computing models that are rapidly being outclassed by the rise of mobile commerce. Most growth in online retailing now comes through mobile. Currently, 66 percent of the time U.S. customers spend in retail interaction is on a mobile device. This is higher still in Asia and Europe, pathfinders for this retail innovation. Mobile isn't a supplement to a retailer’s online presence; it's now the primary mode, and obsessing over how well your customers can browse, shop, buy and pay through their smartphones is crucial.
Even that approach is too limited today. Smart competitors (some you may not even realize are competitors) are shaping “omnichannel” digital and hybrid retail models that will surprise and disrupt you tomorrow. Amazon.com and Google invent new ways to source, market, sell and deliver goods on an almost daily basis. Stitch Fix offers a new apparel retail model using algorithms and artificial intelligence to deliver wardrobe items customized to your profile. Warby Parker brings a similar online shakeup to the staid world of optometry and eyeglasses. Ikea supplements its physical locations with a virtual reality viewer option that lets you remotely browse its stores. Retail spaces will become where shoppers go to learn about products, to be inspired. Retailers will need to sell a story within their store — consumers are demanding experiences as much as purchases.
Pop-up stores, with their temporary, mobile, high-traffic approach, let both mainline and new retailers test products, messages and locations with low cost and high sales per square foot potential. This new $10 billion segment delivers for shoppers seeking seasonal trendy and unique items.
These shoppers are now spoiled. They expect browsing, ordering, payment and delivery to be painless, fast and cheap no matter how they buy. They want and demand omnichannel service. Every time Amazon innovates another “free delivery” model, you face more pressure to meet the online leader head on. Day-to-day purchases will soon offer "self-replenishing" fulfillment. Connected homes, cars, appliances and products will communicate and transact on their own. Light bulbs, detergent, copy paper and dog food will order their own replacements, and these meta-service providers will naturally evolve to add other products as well.
The newest hybrid retail innovations bring online and in-store experiences together in fresh ways. More than half of in-store shoppers check prices on their smartphones before buying, and “showrooming” (using local retailers to browse products later bought online) has become the norm.
But online and in-store buying are still tied together. Though 72 percent of younger buyers shop prices online before buying in a physical store, the store is still where they purchase. Over half of shoppers surveyed prefer buying from a source with a physical store presence over an online-only one. Savvy retailers combine bricks and clicks in new ways, such as online purchase options within the physical store, or free delivery of items bought in-store (who wants to lug items around the rest of the day?).
These changes in retail will create a dislocation of retail employees. Some 4.6 million Americans work in retail, making it the country's No. 1 employer. Automated warehouses, drone delivery, robotic customer service staff and "bot-staffed" call centers will replace the store clerk of old. Companies either must invest in robots right now, or prepare to pay more for the best employees.
Betsy Atkins is a serial entrepreneur, three-time CEO, corporate governance and growth expert, and on the boards of directors for Volvo, Cognizant, SL Green Realty Corp, and HD Supply. She is the founder and CEO of Baja Corporation.