Midway through the second decade of the 21st Century, the industry is beginning to shrug off the hangover of the recent recession. Retail sales in 2014 were up slightly from 2013, and fourth quarter sales, which included the holiday shopping season, were up 3.7 percent.
Much of that improvement came from e-commerce sales, which in Q4 of 2014 were up 14.6 percent over 2013 – at least the fifth-straight quarter of double-digit online gains.
But retailers who see that simply as a “good news-bad news” report are missing an important opportunity. Industry experts insist that online commerce is not the enemy.
Just the opposite, says Heather Raines, a partner at R3 Consulting Partners (Rohnert Park, Calif.). Rather, online operations should be seen as a great boon to traditional retailers with benefits and opportunities, if approached correctly.
“The Internet allows a lot of U.S. retailers to do a better job of introducing their brands and testing the waters before they open in new markets around the world,” Raines says. “It’s easier than ever to research and experiment with new products or new marketing programs. Retailers are also becoming smarter about where and how they expand, rather than simply throwing pins at a map.”
MASTERING TWO WORLDS
After years of worrying about how consumers are shopping, and whether they’re buying in a brick-and-mortar store or online, the savviest retailers understand that technology is providing them the opportunity to master both worlds.
According to a study by Deloitte (New York), the international consulting firm, it’s more than an opportunity – it ’s a necessity for survival. That’s why Deloitte calls its annual research study “The New Digital Divide.”
Even though consumers are spending more than $1 trillion in stores, “Too many retailers still think about their bricks-and-mortar and Internet operations as separate,” says Jeff Simpson, Deloitte’s director of retail practice. “They have two different staff sets: They order merchandise separately, they fail to connect the sales data, [and] they fail to coordinate the marketing efforts.”
Three years ago, Deloitte research found that 70 percent of all buying decisions were impacted by the traditional in-store cues: merchandising, signage, displays, sales assistance, advertising and store layout. In just three years, he says, that percentage has fallen to 30 percent.
The stakes are high: Simpson says consumers walking in off the street buy something 70 percent of the time. And according to a 2013 Deloitte study, consumers who use a smartphone or device during their shopping experience convert at a 40 percent higher rate.
“Retailers who focus their e-commerce activity on selling people stuff from their websites are thinking about it incorrectly,” he says. “They’re missing the fact that consumers have been formulating their decisions well before they get to the retailers’ sites. They’re looking for information that will guide them to the right store and help them with their in-store purchases.”
This is a sea change from the way retailers used to market themselves: putting ads in the newspapers and on TV and radio, sending out direct-mail and hoping for a response rate of 8 to 10 percent. “The problem was, you never really knew who opened the mail or what they looked at,” Simpson says. “If you had been able to determine that, you could have made much better decisions.”
Today, all that knowledge is easily obtainable. When a retailer posts an item online, it can track how many “clicks” that item received and which colors and sizes were most often viewed. That makes merchandising more scientific in the store, where the rubber still hits the road.
WHAT MILLENNIALS WANT
Everyone uses the Internet, from the baby boomer, scrambling to keep up with the latest technology, to the pre-teen who has grown up with a Demi Lovato-themed smart-device at the tip of her thumbs. According to a 2009 Kaiser Family Foundation report, 31 percent of 8- to 10-year-olds have cell phones.
But the primary target for most retailers’ digital efforts is the millennials, those tech-savvy 20-and-30-somethings who, according to the U.S. Chamber of Commerce, have about $200 billion in direct purchasing power and account for an additional $500 billion in indirect spending through influencing their parents’ purchases.
“They want the convenience of the technological age they grew up in,” says Raines. “In their world, everyone has a smartphone, WiFi and tablets, and they have a built-in expectation of convenience, easy access to information and the assumption of getting an immediate response.”
Millennials expect prompt and informed service, and don’t put any particular value on it.
“Even non-tech-savvy consumers who don’t launch apps are now expecting greater convenience and more product information in the store,” Raines says. “Today’s customer knows she can walk up to an associate and have an item located and shipped to her store or home.”
HOW THE STORE MIGHT CHANGE
One lingering doubt about the technology boom remains: If the inspiration and information that drives the buying decisions are coming from elsewhere, what does the store itself become? Does it become nothing more than a mini-fulfillment center for people who have already made their decisions and are coming in solely to complete the purchase?
Raines even suggests that the store of the future might devote more square footage to the backroom, where order-filling is more important than before, and less allocated for the front of the store, where merchandise is displayed.
And then, what becomes of the store planning and visual merchandising roles?
“To keep customers from viewing the store as simply a place to drive up and receive their packages, retailers must use the space to educate and inspire shoppers,” Simpson argues. “That could mean offering examples and advice on how to accessorize an outfit, or prepare a recipe, or enhance the performance of a smartphone, or offer tips on a home DIY project.”
In fact, look for smart store planning to emerge as particularly vital, whether it’s leading shoppers to the right department or exciting them with all the other possibilities available.
“No matter how good the e-commerce offering is,” says Raines, “there’s still a certain amount of excitement in going into the store. It can be convenient to search online from your sofa, but there’s an instant gratification when walking out of a store with your purchase under your arm.”