Online retailers were once expected to destroy their bricks and mortar cousins. Instead, the two worlds have merged, and that has created a challenge for both.
For many years the bricks and mortar (physical) retail world was seen as the old guard, the quaint shops of yesteryear set to be mercilessly swept away by the trendier, faster moving and more efficient e-commerce start-ups. The current shape of the retail market, however, makes it clear that this is not the case.
Online giant Amazon has already opened a physical bookstore and has unveiled plans for more, including supermarkets. China’s Alibaba has announced a physical store strategy.
The once purely online custom shoe maker Shoes of Prey made headlines in 2014 when it opened “design studios” in Australia’s David Jones stores and Nordstrom in the US. Then, seemingly just as quickly, the business announced in late 2016 that it would be closing its physical studios and returning to online only.
Uber-cool online wine retailer Vinomofo also dipped its toes into the physical world, with a pop-up bar in its Melbourne warehouse opening for three days before Christmas 2016.
“Over the Christmas period, you get delivery guarantee cut-off dates in the online world,” explains Vinomofo co-founder Andre Eikmeier.
“The traditional bricks and mortar liquor stores have great trade over those couple of days before Christmas. It’s fantastic for us to be able to trade during that period.”
“People who run stores complain about the overheads and think that it’s free to run an online wine store, but it’s not free,” Andre Eikmeier.
Where physical retailers have often envied their online counterparts in the past, Eikmeier says the feeling is now mutual.
“People who run stores complain about the overheads and think that it’s free to run an online wine store, but it’s not free,” he says.
“We are envious of their permanent physical location. You have to work hard to stay in people’s minds when you’re on the internet. You’ve got to spend a lot of money and make a massive effort to keep the conversation going – but a building you drive past every day on your way home? That’s good stuff!”
How e-commerce and physical retailing are merging
Internationally respected retail expert Dr Alexis Mavrommatis, director of the Centre for Retail Leadership and associate professor, Marketing, Operations and Supply at EADA Business School in Barcelona, says one value that physical stores will always have is touch.
“This can never be substituted by technology,” Mavrommatis says.
“For this reason alone, e-commerce could never replace physical stores.”
He says we are no longer in an environment of “bricks versus clicks”.
The retail world has realised that success comes via a blend of both, but few players are getting that blend right.
E-commerce retailers are having a difficult time proving they have the capacity and capability to make a real difference in the physical world, as the Shoes of Prey example proved.
The challenge works both ways: most physical stores are struggling in their attempts to revolutionise the online arena.
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Online and physical stores merge to give total customer experience
Total customer experience is now the sum total of the in-store shopper experience and the online user experience.
“We should never see this as black and white. It is a grey area,” Mavrommatis says.
“The future is about total customer experience. A couple of years ago you could say a single channel strategy, such as only having a physical retail store, was the norm. But given that consumer shopping behaviour has changed, multi-channel is now the norm.”
Online trading creates more competition
What of the supposed battle between online and physical? Did it cause any changes?
Jason Pallant, associate director (research) of the Australian Consumer Retail and Services Research Unit at Monash Business School, says online retailing has clearly created challenges for physical stores.
The National Australia Bank’s Online Retail Sales Index for July 2016 reports that online now earns 6.8 per cent of all retail spending in Australia. The percentage may seem small, but when you consider that it adds up to A$20.4 billion a year, it’s a healthy chunk of revenue.
“Online has created a lot more competition, both locally and internationally. You can’t argue with that,” Pallant says.
“The great retailers have evolved in the way they think about their physical stores. Stores used to be thought of simply as a way to get products to customers, but what the good retailers have done is begun to think about their stores as showrooms.
“Stores are places to tell a brand story and engage with customers while you’ve got their attention. We’re seeing stores reduce the number of products they show and creating a more appealing space.”
Retail stores are becoming more creative
Safe in the knowledge that they can also sell online, physical retailers are becoming more creative with their spaces.
Clothing stores once packed with racks now boast couches and artwork. Staff can spend time with customers to size them up correctly, offer a few garments to try on, and then direct them to the website for a greater range of colours. Bookstores are opening in-store cafés. Technology brands run in-store courses.
Shopping centres themselves are transforming into true destinations. The recently refurbished Chadstone Shopping Centre in Melbourne has fewer stores and more space as well as artwork, sometimes a live DJ, dessert bars, relaxation areas and more.
“People go to Chadstone and take selfies,” Pallant says.
“If you’re after an experience then the stores will always win. But if you’re after ease of purchase and personalisation then online wins. So success is now a blend, and for that blend the industry buzzword is ‘phygital’.”
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