Retail is beginning to wake up
I recently stopped by a Southern California shopping mall and (to my surprise) found that the parking lots were full of cars and masked shoppers were streaming toward shops. After months of hibernation, demand is pent up, people are itching to get out of their homes, and retail looks like it’s ready for Spring.
However, COVID is still with us, and its effects will likely be felt for years. The ways in which customers shop are markedly different than they were pre-pandemic, which is forcing retailers to refine their approach to brick and mortar. As an experiential marketing house, EWI follows retail trends closely, as they unquestionably color the canvas upon which we work.
In an ongoing series of posts, we will examine some of the changes that we see shaping the future of retail and discuss some of the ways that we think retailers can adapt to provide their customers with world-class experiences in retail’s new normal.
eCommerce and brick and mortar go hand in hand
The pandemic was a boon to eCommerce. Research from Mastercard shows that eCommerce sales went through the roof in May of 2020, right as the COVID-19 pandemic was ramping up in the US. For the rest of the year, eCommerce raked in record profits while many physical shops shuttered. Brands like J Crew and True Religion filed for bankruptcy, and doomsayers claimed that brick and mortar’s days were numbered.
Except that they weren’t.
Recent research by data analytics company GlobalData clearly shows that eCommerce still hasn’t replaced physical retail — and probably won’t any time in the forseeable future. The company conducted a thorough examination of the pandemic’s effects on shopping habits among consumers around the world and found that “transactions made through online channels (desktop and mobile point of transaction) did not exceed 30% of total retail sales at the peak of lockdown in any country covered by the study.” Furthermore, the study found that sales penetration of wholly online channels had fallen in recent months. So the idea that eCommerce has finally, unequivocally eaten brick and mortar for breakfast is pure fiction.
Rather, data suggests that the success of online retail is increasingly linked to brick and mortar — especially now that customers have begun to expect omnichannel service (digital, in-store, BOPIS, curbside pickup, etc.). The GlobalData’s study found that “During the pandemic the best online channel growth rates were achieved by those retailers employing multichannel services; this included many traditional retailers like Best Buy, Target, Dick’s and Walmart – as well as small retailers supported by services like Shopify. Many of these retailers are now growing at a faster clip than more online focused retailers like Amazon.”
For an example of omnichannel done correctly, look to Target. Admittedly, Target’s focus on omnichannel retail goes back to way before the pandemic; the company had been investing in an omnichannel strategy for years (updating dated infrastructure, investing in fresh, new digital experiences, and connecting the dots between the two.) But Target’s balance between physical and digital in its retail presence is driving crazy growth. In Q2 of 2020 Target posted the largest quarterly sales increase in company history — at the outset of a pandemic that put some legacy retailers out of business. , but their example should inspire other companies to do the same.
CEO Brian Cornell was quick to point out that Target’s brick and mortar stores were responsible for this growth: “Our stores actually drove more than 90% of our second quarter growth, given that they enabled more than three quarters of our digital sales and an even higher percentage of our digital growth. Store based fulfillment… aligns with our merchandising approach, which is based on curation, both in our stores and online assortments. As a result, the majority of our digital demand is driven by items that are already available in our stores, which positions us to efficiently rely on those locations to fulfill the demand.
“Among our store enabled digital fulfillment options, we continue to see the most rapid growth in our same-day offerings, in-store pick up, drive up and shipped. These services offer speed, reliability, convenience and value to our guests. Their digital capabilities enhanced by human interaction, even though they’re contactless. This explains why they generate some of the highest levels of satisfaction of anything we provide.”
Brick and mortar retailers should strongly consider how to integrate their physical stores into part of a bigger multi-channel retail strategy. Customers expect an appropriate, helpful, engaging experience no matter where they turn — whether it’s online, in-store, picking up items in the parking lot, or some other combination of touchpoints. Every touchpoint (online UX, POP, in-store displays, fixtures, signage, etc.) needs to play nicely with others to reinforce brand promises and win enduring customer relationships.
Digital-native brands should consider the benefits a physical retail presence could have on their bottom line. Recent research from Harvard and Wharton has shown that digital retailers who have opened physical stores have reaped valuable benefits. For example, mattress retailer Casper has been opening stores in targeted locations throughout the country. While their boxed mattress business has shaken up the tired mattress industry, their Sleep Stores give the brand a place to educate customers and even let people schedule a “nap appointment.” And Allbirds, the eco-friendly and super-profitable online sneaker brand, has continued to open new physical stores — even in the midst of a global pandemic.
All retailers need to stop thinking about digital and physical customer experiences in silos. The notion of separate, self-contained “physical” and “digital” retail has always been fundamentally flawed. Modern shoppers increasingly use a mix of physical and digital and swap between them as effortlessly as they scroll through a newsfeed on their phones. Competition between “digital” and “physical” is a false construct. The only competition that matters exists between brands.
And increasingly, these brands are using any and all tactics available to them (digital, physical, BOPIS, etc.) to connect with and serve customers. Those that don’t recognize omnichannel as retail’s new normal run the risk of going the way of the dinosaur.