The Future. of the Retail Store A RETAIL DIVE PLAYBOOK

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1 The Future of the Retail Store A RETAIL DIVE PLAYBOOK

2 The retail ecosystem isn t what it used to be. Retailers from a decade ago are in sharp contrast to what you see today: There were more stores, regular foot traffic and a vast amount of square footage per customer. Today s retail landscape is still made up of brick-and-mortar stores though fewer of them but now includes myriad options that allow consumers to wield their purchasing power without ever setting foot in a store. According to a 2015 U.S. online shopping report from Mintel, nearly 70 percent of adult consumers shop online at least monthly. 1 About 33 percent shop online weekly. These numbers can be expected to climb, as retailers make it increasingly convenient for consumers to do the bulk of their shopping online, without ever setting foot in a store. With the increase in online shopping, are brick-andmortar stores doomed to extinction? downswing, and online options are on the upswing. In fact, a recent Wall Street Journal article, citing research from Green Street Advisors, notes that retailers would need to close hundreds of stores if they want to see the same levels of robust prosperity that they saw in Despite the increase in online shopping, some retailers are increasing their brick-and-mortar presence 3 while others are taking a hard look at where they can improve on the in-store experience, or reinvent themselves as a distribution hub for consumers who want to combine their online and in-store experience. Stores are now serving multiple purposes, and new purposes are constantly being imagined, says Adheer Bahulkar, partner in the retail practice of A.T. Kearney, a global strategy and management consultancy. Stores are points of sale, distribution centers, they are showrooms, they are event or brand experience centers, and they are entertainment hubs. Each of these purposes can entice a different set of customers to the stores. Nearly 70 percent of adult consumers shop online at least monthly. 1 About 33 percent shop online weekly. Not likely, although the rapid changes in retail technology have redefined how retailers need to strategize their success for the future, where physical stores are on the 2

3 The Retail Store as an Experience Though a large portion of consumers is taking to apps and websites to shop, shoppers still want to see and touch the merchandise they re considering. That said, savvy retailers are upping the ante on in-store offerings to entice and increase foot traffic. Stepping foot inside a store today isn t just about browsing the merchandise, it s a full-on sensory experience. Retailers like Rebecca Minkoff are using local events, like yoga classes, as well as the latest amazing technologies such as virtual showrooms, to create unmatchable event and brand experiences that build loyalty and create a destination for customers, Bahulkar says. Changing the experience of a store doesn t just mean offering new services, but also new conveniences. Vicki Cantrell, senior vice president, communities, and executive director of Shop.org for the National Retail Federation, nods to grocery giant Kroger as a retailer that has put the money and research into figuring out how to give their shoppers as frictionless and convenient grocery shopping experience as possible. 3

4 There s a disconnect between what a consumer gets in terms of a merchandising and sales experience online, and what they get when they walk in a store. - Jennifer Sherman, vice president of strategy and product for Kibo They have put a ton of money and technology in place that helps understand the checkout line, Cantrell says. They re reduced it by leaps and bounds. Through technology they figure out how many people they have in line it s a very automated way to get customers through the process in the most seamless way possible, and has, in fact, reduced the time to such a degree that customers have noticed. And that builds loyalty. What s more, an increasing number of retailers are using augmented reality or virtual reality to entice consumers into stores, and ratchet up the fun of in-person shopping. 4 Shoe entrepreneur Toms offers shoppers a chance to slip on a virtual reality headset and experience a Toms shoe distribution part of their one-for-one mission statement in remote parts of the world. Makeup retailer Sephora offers consumers an augmented reality experience that allows them to try on different shades of lipstick via their app, which can then be purchased in store or through the app. These technologies are still budding on the retail scene, but, says Cantrell, they re catching on faster than originally thought. The early adopters are doing the development work [of these technologies], she says. But once these technologies are nailed down, they ll be more ubiquitous throughout retail and more turnkey. But where retailers are still need to innovate is in combining the in-store experience with the details often gleaned from online shopping what a consumer is searching, what s in their cart, what they ve bought in the past for a more personalized, intimate shopping event. There s a disconnect between what a consumer gets in terms of a merchandising and sales experience 4

5 online, and what they get when they walk in a store, says Jennifer Sherman, vice president of strategy and product for commerce software provider Kibo. That offers a tremendous opportunity for savvy retailers to empower their retail associates with the technology to learn who the customer is, rather than try to figure it out based on what the customer may have in hand or is perusing at the in-store moment. Store associates armed with the mobile technology to see a holistic view of the customer s online and in-store shopping history, including past purchases, shopping habits, cart abandonment and more, would be able to make much better merchandising suggestions and offer a better shopping experience. That, Sherman says, is what will convert in-store traffic to actual purchases. A.T. Kearney s Bahulkar notes that virtual trial rooms automatically transfer items that that the customer is interested in trying, and advanced mirrors can recommend overlay and matching items at the ease of a touch screen, while tablets and kiosks allow consumers to browse and complete transactions in-store. The trick is to let technology disappear and focus on storytelling, Bahulkar says. Blatant attempts to push sales via discounts and coupons are usually not effective. Carefully curated recommendations and thoughtful ways to convey the brand and product story to a customer at the right time can have huge impact on converting a sale. Further, reading the customer, employing the right analytics, and having the store associate with knowledge of product availability guide the customer to the sale, are all required to create the right immersive experience, he notes. 5

6 The Retail Store as Distribution Center Besides offering new features and services, retail stores today are also showcasing to consumers just how well they can cater to convenience needs. Consumers, after all, have always, and will always, clamor for convenience. Same day delivery, in-store pickup, ship-fromstore: All of these new delivery options provide that convenience, and retailers are experimenting with the best options. Wal-Mart, says Bahulkar, recently partnered with Uber and Lyft to deliver groceries to consumers doorsteps. CVS, he adds, is looking at curbside pickups to give customers a convenient alternative to in-store pickup. But these offerings also come at a cost, one that consumers and retailers alike are still trying to decipher. Customers are still trying to figure out what convenience matters to them and what convenience they would be willing to pay for, Bahulkar notes. Retailers are also trying to figure out the cost impact of providing convenience, and at what point it becomes a losing transaction. Creating a brick-and-mortar store that can double as a distribution center, however, hinges on one precise combination: Having the technology that can properly track inventory and offer robust omnichannel fulfillment functionality, and having an employee base that pays attention to it. Technology is principally related to inventory control, says NRF s Cantrell. And that s really important because if you have retailers who have, based on their heritage, multiple channels store, online, catalog or wholesale channels having the technology to see inventory across your channels, is being able to have inventory visibility across potentially different systems. Cantrell cites electronics retailer Best Buy s in-store pickup process as one that has the combination of technology and manpower in sync. When a consumer orders something online, the technology checks to ensure it s in store and can be ready by a specific time. Customers are still trying to figure out what convenience matters to them and what convenience they would be willing to pay for. - Adheer Bahulkar, partner in the retail practice of A.T. Kearney 6

7 An in-store staffer, then, is paying attention to the request, acting on it and communicating it, Cantrell says. And when the customer comes in they have a great experience because they walk up to a staffed location, their package is there, they have an easy checkout, and they get an incentive of some sort to either stay in the store or shop at a future time. But inventory accuracy is not enough if the retailer doesn t have the technology infrastructure in place to efficiently route and optimize all fulfillment channels. To effectively offer omnichannel strategies such as ship-from-store and in-store pickup, retailers need a flexible distributed order management solution that routes orders the most efficient way possible, whether that be by location, cost or customer preference, said Kibo s Sherman. To effectively offer omnichannel strategies such as ship-from-store and instore pickup, retailers need a flexible distributed order management solution that routes orders the most efficient way possible, whether that be by location, cost or customer preference. - Jennifer Sherman, vice president of strategy and product for Kibo. 7

8 Competing No Matter the Size Implementing and employing the technologies needed to take retail stores from a dying breed to the place to be is often a tall order, both in capital and manpower. For larger retailers, absorbing the cost and time to take on such a task is feasible. Even though small- to mid-sized retailers might not always have the same capabilities, they don t have to be left out of the loop. No matter what size you are, you have to operate to your strengths, says NRF s Cantrell. And for small- to mid-sized retailers, that strength lies in relationships. She adds that while popular media is awash with stories of big retailers losing foot traffic, it s not the same story for smaller, community retailers. It doesn t matter what technology you have, if you screw it up once the customer gets in the store, or you haven t built the relationship, or you haven t given them a great experience, the customer is not going to come back. What helps smaller retailers compete is their flexibility. The advantage that the smaller retailer has is they can be more agile, Kibo s Sherman says. It s a segment that allows for experimentation, and allows them to much more nimbly change business models, providing they have equally nimble retail technology. Instead of trying to tackle all of the new technologies out there, it s better for smaller retailers to single out those technologies that best fit their brand, and invest in that, says A.T. Kearney s Bahulkar. He cites apparel retailer Bonobos, which has an e-commerce-based direct-to-consumer delivery model. Even when the retailer opened up physical stores, they didn t try to deliver products to consumers in store. While the transaction may occur in the physical store, he notes, the delivery still happens through their e-commerce delivery model. Cantrell adds that in today s environment, retailers of any size can start a business with little to no investment, consigning or drop-shipping from another retailer. Think it, and they can do it. There are a lot of options there never were before. 8

9 Conclusion When it comes to the retail experience, retailers have to determine how they want to meet those consumer demands either through the experience aspect of a shopping trip or enabling consumers to do the bulk of their shopping wherever they may be, in-store or not. By focusing on their consumer and the needs of their brand, and applying the right technologies, they can navigate the ever-shifting retail environment. 9

10 About Kibo is the strategic merger of industry leaders, MarketLive, Shopatron, and Fiverun. With a combined 40 years of innovations, Kibo joined forces to help retailers and branded manufacturers unify the consumer experience. Kibo is a complete omnichannel commerce platform, delivering the lowest total cost of ownership and the fastest time to market. With predictive technologies and enterprise performance, we can help you achieve increased sales. No matter the challenge, Kibo powers your success.

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