Authored by: Brian Chung, based in Singapore. (edited by Nicki)
Before I talk about the future of retail, let me start by examining the past. Retail once was very simple and straightforward compared to how the industry operates today. The core capabilities required for retailers in the past were solely focused around how to source the maximum number of products cost-effectively, and how to locate and secure the high traffic location to maximize sales.
Then, retailers started thinking about how to differentiate themselves from their competitors. This introduced the concept of merchandising, and how to identify relevant products (not just many). This required a certain level of analytics, to analyze what products consumers like, how to differentiate products assortments by store locations, how to strategically secure the suppliers, etc. From this time on, retailers started to scrutinize their operations in a detail level, and I would call this time as the “De-tail” era
Then, the retail industry experienced a new paradigm shift mainly caused by commercialization of the internet and smart devices, creating the boom of online commerce. This big shift disrupted the entire retail industry massively. Consumers became aficionados of online commerce mainly because of the ease of shopping and price competitiveness, and the newly evolving concept of “personalization”. This trend was naturally inherent in the personalized devices which the consumers were using for shopping. But for brick and mortar retailers, providing this level of personalized offerings required a new set of capabilities. Retailers needed 360 degree consumer insight to truly understand their customers. This trend turned “De-tail” era to “Me-tail” Era, which was the era which the “personalization” mattered most in retail.
Now, this brings me to the future of retail. The one word to encompass the present and future of retail is the “Channel-less” era. Not because all the channel is gone, but because consumers perceive the different, multiple channels as simply one touch point. Whether they shop in physical stores, use eCommerce, mCommerce or even social commerce, to a consumer these channels are essentially the same, in terms of their expectations around ease and convenience of shopping, interactions with associates, available information. If those expectations are not met, they know there is an alternate store with better options, elsewhere. Why? Because consumers are always-on, always-connected, and well-informed. Manufacturers (brands) now connect directly to end-consumers, bypassing retail channels. Product information that is readily available, as well as social media postings, and product reviews are all factors that influence a consumer’s buying decisions, that lie outside the direct control of a particular retailer. This channel-less ecosystem is hyper connected, and moves almost like an organic body. We are living in the era of “hyper-connected retail”.
So in this hyper-connected retail era, I would foresee the retail industry to continually shift to digitization, in which the channel-less format enhances seamless experiences, and optimized operations to secure the profitable growth. And I would prefer to call this future era “Digi-tail.”
Future of brick & mortar retail
In short answer, brick & mortar stores will still matter in the future, and as a matter of fact, I think they will play a even more critical role for retail operations going forward. Having witnessed the boom of online commerce, consumer’s heavy shift to digital shopping patterns, and many closures, I still have a reason to believe why this is not the end of brick & mortar stores.
First, from the simple statistics, the majority of retail revenue still comes from physical stores, and the data indicates that this will continue in the future. Second, I want to share a perspective on how the pure online players have been trying to penetrate into the physical retail world. Pure online players like Amazon or Alibaba have turned their focus to physical shopping recently, by opening up digitalized stores, and developing omni-channel services to influence consumers’ physical touch points or moment of truth. With this movement, we have to think of why these pure online retailers have massively invested in this way. I have two main reasons- one for complementing the shopping experiences, which only the physical stores can provide. And second, more importantly, for profitable growth.
Let’s talk about cost structure of online commerce. The costs of delivery, inventory management, change/return management, ultimately really do add up. Even in the recent pandemic situation, if you look at how Nike performed in this first half year. Not surprisingly, their online sales skyrocketed by almost 80%, year on year, which accounted for more than 30% of their entire sales globally. (Their goal for online sales to reach 30% was set for 2023, but was actually accomplished this year) However, the profit margins with this surge in ecommerce paints a more detailed picture. Not surprisingly a result of the pandemic meant their offline operations were closed down, but another large factor was the cost associated with the online sales increase, primarily around delivery and return cost. This goes to show efficient ecommerce and delivery operations, such as those of Alibaba and Amazon, are integral to support a surge in your online shopper traffic. In the absence of such operational ecommerce resources, a retailer may try to find ways to secure higher profit by bringing shoppers from online to offline stores.
The cost structure and variables for retailers in motion today imply that in the future, the question each retailer will ask will not simply be will retail happen online vs. offline. Rather, the goal will be how to find the right balance across every touchpoint, and for physical stores to play mission-critical role to complement online retail. Now that we have set the context, stay tuned for part 2 of this series, as we explore more of the details behind how cloud tangibly enables agility, efficient cost structure for retailers. Not only so, but how cloud equips retailers with the flexibility to manage physical and e-commerce retail platforms centrally.
Also, here’s the podcast I did on this topic with the Cisco marketing team. Enjoy.