It’s hard to overstate the importance and impact of retail. The US retail sector is directly responsible for 3.8 million businesses, employs 29 million people (16% of the US workforce), pays out $820 billion in wages and benefits, and, at $1.2 trillion, is the third largest contributor of the national GDP.
It’s equally hard to overstate the impact of the digital tsunami on retail incumbents. Many incumbents have made significant investments to stay competitive. Walmart has invested over $3.5 billion in eCommerce acquisitions since 2016; Target acquired Shipt for $550 million to improve its same-day delivery capabilities. And in the next five years, Nordstrom plans to invest $3.4 billion in technology investments. Incumbents who haven’t invested in areas like mobile commerce, personalized marketing, and faster distribution have suffered. Six of the top 10 retailers in 1992, as ranked by revenue—Kmart, Sears, American Stores, JC Penney, A&P, and May Department Store—either dropped out of the top 10 after being outpaced by the competition or ceased to exist altogether. In 2018 alone, over 25 retailers (e.g., American Apparel, J.Crew, RadioShack, and Toys “R” Us) filed for bankruptcy or closed a significant number of stores.
In this blog post, we will look at three ways in which incumbent retail brands can match the evolving expectations of shoppers and hopefully stay relevant: omnichannel, personalization, and immediacy.
Shoppers today are channel agnostic, with the desire to engage with brands on their own terms. A study with 46,000 participants showed 73% of shoppers use multiple channels during their shopping journey, while only 7% and 20% are online-only and store-only shoppers, respectively. Omnichannel—defined as a multichannel approach to sales that seeks to provide customers with a seamless shopping experience, whether they’re shopping online from a desktop or mobile device, by telephone, or in a brick-and-mortar store—is rapidly becoming the standard operating procedure for thriving brands. The omnichannel trend is most pronounced among millennial shoppers: nearly half report that they buy online and pickup in-store more than 40% of the time; over half say they switch between buying online and physical stores on a weekly basis; and nearly a third use retail subscription services.
Omnichannel shoppers are also more profitable for brands, spending 4% more when shopping in-store and 10% more when shopping online as compared to single-channel shoppers. Businesses have consequently invested in omnichannel capabilities to increase shopper loyalty. Amazon Prime offers benefits such as free 2-day shipping and free same-day delivery to attract over 90 million members, who shop twice as often and spend twice as much as non-Prime members. Restoration Hardware’s paid members’ program, where members pay for perks such as 25% off all full-priced merchandise, accounted for 95% of the company’s core business while also reducing returns and increasing inventory accuracy.
Shoppers expect personalization at any stage of engagement with a brand. This expectation starts right from marketing, where, according to a McKinsey study, shoppers are looking for five key things:
- Give me relevant recommendations I wouldn’t have thought of myself
- Talk to me when I’m in shopping mode
- Remind me of things I want to know but might not be tracking
- Know me, no matter where I interact with you
- Share the value in a way that’s meaningful to me
Beyond marketing, product personalization is a growing expectation of consumers. According to shopper research, 42% of consumers want technology to customize products, with about half of that cohort saying they would pay a 10% premium for customization. Retailers are also investing in personalizing the retail experience, with over 70% attempting to merge the “white glove experience of Nordstrom with the data driven shopping habits of Amazon.” Consumers expect more from the brands they purchase and require a compelling reason to visit physical stores. The end-to-end experience is key, and, according to a Capgemini study, 80% of consumers are willing to pay more for a better shopping experience.
Yet, personalization is often a mixed experience for both in-store and online shoppers. In-store, more than half of consumers want a personalized experience, but only one in five shoppers get the personalized experience they are looking for, according to a State of Personalization Report. Brands such as Target have been leading the way with in-store personalization. Target acquired a company called Power Analytics to enable mobile services in order to personalize the store experience through navigation, recommendations, and offers. Online shoppers have set the bar even higher, with more than 75% expecting personalization but finding that only 23% of the stores they shop at deliver on that expectation.
When shoppers are ready to buy, they want the product immediately. Leading retailers such as Target and Walmart, as well as many vendors on Google Express, have all started offering “free” two-day delivery. While free shipping has become table stakes at this point, with 91% of shoppers saying that it would make them a repeat customer, brands are now competing to get the consumer what they want as quickly as possible. In Google search trends, search interest in “same-day shipping” has doubled in the past two years, while search interest in “open now” has tripled. In fact, PwC’s Global Consumer Insight Survey for 2018 showed that 41% of shoppers are willing to pay extra for same-day shipping, and almost 25% are willing to pay for a 1–2 hour delivery window.
And there’s more to immediacy than just speed. In a recent survey of US shoppers (2017), 43% expect companies to deliver faster than the year before, while 75% want a more professional delivery service, and 88% want real-time tracking. Consumers don’t want to wait for shipping, and they also expect to be able to find what they want in a physical store. Eighty-one percent of consumers say it is important to be able to check the in-store availability of an item before going to the store.
As we discussed in our earlier blogpost, “Why are digital firms getting physical?”, eCommerce firms will inevitably go physical. This is mostly driven by their advantaged technological know-how, integrated experiences, and distribution challenges in existing industry structures. Case in point, Best Buy is no longer Amazon’s “showroom,” as they are now equipped to match Amazon prices on the spot and have deployed omnichannel tactics such as buy online, pick-up in store (BOPIS) to get the consumer what they want faster.
To combat legacy retailers’ competitive advantage from physical stores, eCommerce leaders such as Amazon and Alibaba have already started investing in their own brick-and-mortar. Vertical eCommerce retailers like Casper/Warby Parker are finding that they need to open stores to target the customer segment that wants to touch and feel the product. These digital natives will also need to learn and maximize the human element of selling in physical stores, something AI still can’t match. For incumbents, offering an omnichannel experience, personalization, and immediacy requires a massive and urgent investment. To fully leverage the power of digital, Nike has completely re-imagined their consumer relationship through a connected consumer experience, investing heavily in a platform that spans physical and digital touch-points. Nike is creating an indispensable “logged-in” consumer relationship, allowing the brand to provide truly personalized services at any time or place by better understanding consumers’ individual needs.
As challenging as that may sound, it’s infinitely better than slowly becoming obsolete.
We would like to thank Daniel Altobello, Director of Digital Guest Experience & Innovation @Disney and a guest lecturer at USC Marshall School of Business, for generously donating his time and insights to this blog post. We would also like to thank Stefan Olander, Founder @BrandNew, Narayan Iyengar, SVP eCommerce & Digital @Albertsons Safeway, and Catherine Lepard, Global Retail Practice Leader @Heidrick & Struggles, for their comments.