Retailers must go offline to improve their bottom line

Alibaba has taken time out this last year to pour $4.6bn into the bricks-and-mortar electronics chain Suning and strike up a partnership with KFC China, all with a view to beefing up its offline presence. It’s proof that even China’s online marketplace cannot guarantee consistent returns.

Close rivals Baidu and Tencent have mirrored Alibaba’s online-to-offline shift, marking a turning point not just for China but for retail overall. While online sales have been accused of strangling bricks-and-mortar’s development, the relationship is becoming a more complex – and complementary – affair. Internet companies are only now beginning to realise that the offline experience brings benefits to shoppers that online simply cannot.

Offline shift
“The long-promised multichannel or omnichannel environment is finally upon us”, said Ray Hartjen, Director of Marketing and Public Relations at analytics company RetailNext, “and it’s a blend of various branded touchpoints – stores, online sites, kiosks, mobile apps, catalogues, call centres and more – literally every way a retailer can connect and engage with shoppers.”

The dawn of e-commerce saw countless bricks and mortar retailers take to the web for survival, but until recently, there had been few instances of online retailers doing the opposite.

“Smart online retailers see the opportunity to reach shoppers who value personal service, the ability to see or try products, or the convenience of buying a product and taking it home right away”, said Bill McCarthy, CEO of EMEA at ShopperTrak.

Greg Girard, Programme Director of World-Wide Omni-Channel Retail Analytics Strategies at IDC Retail Insights added: “They want to give customers more choices for shopping, experience, and fulfilment, greater exposure to the brand, and direct interaction with the product.”

Even Google opened a physical store earlier this year, complete with a ‘doodle wall’ and interactive map. Amazon also opened its own shop, albeit with an emphasis on student services. All things considered however, the shift is in its early stages. Retailers would do well to temper their enthusiasm for brick-and-mortar, and any decision to focus on the physical and only physical is to ignore the larger transformation at hand.

“I think that a proportion of online retailers will want a few stores, but the idea that lots of online retailers will go offline as well is a bit of a fantasy”, said Professor Joshua Bamfield, Director of the Centre for Retail Research. “Apart from anything else, it ignores the role of culture in the people who run online businesses. Alibaba has some logistics purpose in its purchase of Suning, and I would be surprised if they extended much further into offline – but of course it does have a lot of money to spend and you don’t need to read Oliver E Williamson to know that cash can produce non-rational decisions.”

More than a return to offline, this newfound receptiveness to physical stores marks a response to weak consumer demand, changing consumer behaviour, rising occupancy costs and the fracturing of the business model. It has taken some time to set in, but it has finally hit.

“Retailers are coming to the realisation that each channel has its own inherent advantages”, said Hartjen, “and that, when tied together to deliver a seamless, branded experience, they deliver value to the shopper throughout their entire shopping journey.”

Omnichannel experiences
Analysts once made all sorts of predictions about the death of brick-and-mortar, and a string of studies into changing consumption patterns and shrinking demand appeared to suggest the physical was falling foul of digital.

Not content to lie down and concede these losses, bricks and mortar retailers have made a decent fist of improving their competencies online, while also incorporating elements of the digital experience in-store. The integration of on- and offline platforms has brought a new breed of retail to the masses, and in today’s hyper-connected marketplace, anything less than an omnichannel experience is inadequate. “The ultimate goal of a retailer is to realise their brand promise no matter how they interact with a customer”, said McCarthy.

Going by the results of a recent Forrester survey, conducted jointly by the market research company and the National Retail Federation, 76 percent of CIOs felt the integration of selling channels was among their top three priorities for 2015 (up from 64 percent in 2013).

A shopper’s best experience anywhere sets his or her minimum expectation everywhere

“Consumers don’t shop channels, they shop retailers”, said Girad. “Omnichannel retail represents the mature capabilities to converging all of a retailer’s channels into a singular consistent experience. The fundamental truth is that today’s shopper (remember millennialism is a lifestyle and a set of habits, not an age cohort) expects every retailer to engage him or her in an omnichannel sort of way. A good way to think about this is that a shopper’s best experience anywhere sets his or her minimum expectation everywhere. They see something and ask: ‘Why can’t (retailer X) do that?’ So omnichannel is table stakes.”

In-store innovation
It’s no longer enough to offer customers the anytime, anywhere approach, and in place of a focus on digital has come another mode of retail, where the winners are the ones who bring something closer to a multichannel approach. Bricks and mortar businesses have spent years playing catch up and online retailers must now boost their offline competencies.

“Technology has enabled both the retailer and the shopper”, said McCarthy. “Shoppers have much more information on products and prices before they even arrive at a physical store. That makes shoppers more efficient with their time and money. Fortunately, retailers are also more knowledgeable and efficient, as their technology solutions help them understand their customers better. This in turn means that they can deliver the right level of service, offer the right products, and provide convenient shopping choices both in the store and online.”

Meanwhile, the influence of technology can be seen in store, and, as a growing number of retailers work towards an omnichannel experience, we’ll likely see a host of changes sweep the in-store environment.

“We’re only in the early stages in how technologies will fundamentally change the in-store experience, so it’s really more about how technology ‘is changing, will change’ not ‘has changed’ the store experience”, said Girard. “A few areas stand out: 
engagement of consumers via location-based, in-context text messages and alerts;
insight into store operations and performance
insight into customer behaviour in the store;
better execution of in-store processes (customer-facing and operations, e.g. keeping products on the shelves); and
improving customer-associate interactions.”

Expect to see the word ‘omnichannel’ crop up a fair few times in the months and years ahead, as online retailers, for whom growth has come easily up till now, get to grips with the offline experience. “Retailers are now able to develop deep insights on shoppers and their shopping behaviours, and as a result are able to make data-driven decisions on everything from store design and merchandising, to store operations and staffing”, said Hartjen. More than that, however, the introduction of tech-savvy retailers to physical retail could give brick-and-mortar the pick-me-up it so desperately needs, as digital-first brands pull the physical experience into the digital age.