The retail industry continues to evolve. But one principle still defines the critical success factor of this industry: customer convenience. In the 1950s and 1960s, some poky corner shops could survive the competition of bigger stores by opening practically all hours and charging a small premium for the round-the-clock convenience they offered to customers.
Times have changed. Today the holy grail of most management consultants is convince their clients to digitalise retail services. E-commerce has made impressive inroads in the retail industry to the extent that many predict that digital stores will dominate the future.
In the US this year, 20 per cent of sales will be made online. But are physical stores likely to disappear anytime soon? This is not likely. In the US, there is only one online retail company, Amazon Inc. It ranks only seventh in retail sales after competitors like Walmart, Costco and Walgreens. This does not mean that the threat of digitalisation of the retail industry to traditional physical shops can be taken lightly.
Current research on the way that physical stores are dealing with online retailers is revealing. Brick-and-mortar stores in the US are increasingly buying out online retailers that are too small to compete. At the same time, Amazon is acquiring physical stores like Whole Foods to offer its customers a choice on how to procure the goods they need. It is becoming more evident that a successful strategy for the future of retail is one that combines online with offline services.
Today marketing gurus speak about enhancing customer experience rather than emphasising superior quality products. Physical retail shops allow customers to go through an entirely different experience that is still not available to those who prefer to shop online.
Many visit physical bookshops when in London and elsewhere because they cannot resist the particular smell of new books that can never be experienced when buying books online from Amazon. Smells, sounds and the human interaction that can be found in a store are hard to replace. They are undoubtedly a driving factor for brick-and-mortar survival.
Online retail companies will continue to grow
But online retail companies will continue to grow because of the convenience they offer to customers. As virtual reality and artificial intelligence tools improve, online retailers can provide real-world experiences that increasingly replicate that of visiting a physical store.
Buying clothes online, or even a new pair of spectacles, is less intimidating than it used to be. The ability to visualise how pieces of clothes would look on you or how a particular pair of sunglasses will look like on your face is tempting many to opt for online shopping for such items.
Another factor contributing to the success of online retailers is fast delivery. Going to a physical store often involves driving in heavy traffic and searching endlessly for a parking slot in our congested roads. Online retailers like Amazon have improved their delivery service and, in most cases, keep shipping costs down by investing in logistics efficiency.
So is it reasonable to expect that online selling will become the dominant platform of the future? Very much depends on the type of product customers want to buy. Consumers buying a car will always want to have a physical experience with their preferred model before signing on the dotted line. But buying toothpaste, beef steaks, and canned tomatoes is easier done online.
Today consumers are becoming accustomed to ‘instant and regular’ shopping of certain items. Goods are delivered regularly or on demand in the comfort of your home. The pandemic experience has shown how many retailers adapted almost overnight to the way they serve their customers. I know of cases where expensive white goods were purchased online and delivered within a day or two to customers who would not have dreamed of not visiting a store before committing to buying such expensive household goods.
We can expect businesses to begin moving in this direction, and consumers willing to accept this method of buying. Convenience and cost savings, especially as newer generations become accustomed to living in a digitally connected world, will shape the future of most retail businesses.
Those retailers who want to stick to brick-and-mortar outlets are exploring new ways of attracting customers. They often opt to leave the city centre to open up shops in shopping malls where they exhibit a range of their products to customers who enjoy the retail therapy experience.
Ultimately the digital experience will demand retailers, physical and digital, to adapt to survive and prosper.