E-commerce vs Physical retail. On Point September 2014
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1 E-commerce vs Physical retail On Point September 2014
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3 The rise and rise of e-commerce and what it means for traditional physical retail In the noughties, e-commerce pushed the limits, in terms of time (opening hours), catchment area and information. E- commerce completely disrupted traditional retail codes according to which store locations were studied in minute detail to maximise exposure in catchment areas. The continued rapid growth in home Internet access, the expansion in e-commerce sites, the plethora of connected distribution channels (computer, smartphone and tablet), and secure online payment solutions have all contributed to the rapid expansion and increasing success of e-commerce. Online sales continue to grow exponentially. In 2013, e- commerce generated 51.1 billion in total sales. The new element in this pattern is the role of mobile shopping, particularly on smartphones and tablets, which now accounts for 5% of sales. With ever more mobile connected devices, consumers have reshaped their spending habits. Digital and mobile have completely altered the picture. Businesses are now just one click away from the competition as consumers have immediate access to thousands of retailers. It has never been easier to ferret out good deals, get information, compare prices and buy from the comfort of our own homes. Does this mean the end of physical retail? Will Internet sales cannibalise in-store shopping? What are the impacts for physical stores? Is there a future for physical retail? 3
4 E-commerce/Physical retail: more complementary than adversarial At least, this is the finding of a recent IFOP (the French opinion poll and market research institute) survey on the five key stages of the purchase journey in France ("Le parcours d achat des Français en cinq étapes clés"). For 50% of French people, the Internet is the main source of information prior to purchase. For comparisons between goods, equal numbers of consumers go on line and to physical stores, but the purchase itself mainly takes place in the store for 62% of shoppers in France. The survey also reveals that price comparisons and product diversity are the two main advantages of online shopping for consumers. On the other hand, the opportunity to try and easily exchange goods are the two major advantages of traditional stores. Shopping is now multi-channel and this increasing diversity of options is changing the entire purchase journey. In view of these findings, the question of an Internet site for retailers is as pertinent as ever. Not only is their website their main shop window, but it also generates footfall in the bricksand-mortar store. The web is a tool that retailers can use to boost their appeal for consumers. Web-to-store: a new consumption pattern Let the web in: digital in-store Beyond the logic of cross-channel sales, the web is gaining ground as click enters bricks and mortar. The gap between the virtual and the physical is narrowing. Whereas nobody had tablets just a few short years ago, today's consumers are super well equipped and check everything on their smartphone or tablet. This phenomenon could gather more momentum with the newest kid on the block: connected devices. Consumers have completely embraced digital technology and therefore expect to find it when they visit physical stores. Faced with this technological shift, retailers must change and adapt to ensure customers can buy and communicate with ease using these new technologies. Initiatives are still few and far between, but the idea is definitely in the air. Many digital tools have made their appearance. The digitalisation of retail formats is under way as retailers revamp their bricks-and-mortar stores. Interactive catalogues at strategically placed terminals with access in real time to promotional offers, touch screens, interactive shop windows, personalised offers sent to mobile phones, product information via QR codes... the possibilities are endless. Retailers' goal is to offer customers a rich shopping experience at every stage of their journey. Solutions seek to increase interaction with customers, provide more and better product information and, of course, a wider product range. As part of changing behaviour patterns, consumers use the Internet in a web-to-store pattern during the decision-making process prior to purchase. In one case, the consumer finds the product on line and goes to the store to make the purchase. In the second case, the consumer buys the product on line and picks it up in the store. Another example is e-reservation. The consumer reserves a product on line and purchases it in the store. With no waste of time, the product is available for the consumer to buy or try. These patterns combine two different but complementary ways of shopping. They also embody shoppers' wish to have the best of both worlds, namely the ease of online shopping and the experience provided by interaction in physical stores. The two form an integral part of a new pattern. Retailers have been quick to understand that multichannel shopping is here to stay and are increasingly integrating it in their sales strategies to create marriage-values between their websites and physical outlets and to generate additional traffic in their stores. Rather than seeing digital as a competing channel, retailers now view it as an extension of their traditional business. 4
5 Close-up on three business cases that illustrate the new trend C&A, São Paulo, Brazil Based on the fact that many customers want another opinion when they try on clothes, the ready-to-wear chain, C&A, launched Facebook Likes on their store hangers. This new concept displays, in real-time, the amount of Likes each piece of clothing has received on Facebook. A highly successful campaign, it reached 8.8 million people, C&A's Facebook page had 1,000 new fans per hour, and part of the collection sold out in one day. Adidas Store, Nuremberg, Germany Adidas installed a large tactile screen in the window of its store in Nuremberg so that passers-by could scroll through the products, try different combinations of clothing and accessories on a virtual mannequin, get product information and order items directly from their smartphone. Customers first visit a URL and enter a one-off PIN code to connect their phone to the shop's system in real time. A virtual shopping basket appears on the shop window screen and the customer can drag and drop the items they want into their basket with the information appears instantly on their smartphone. They can then make changes to their basket, proceed to make their purchase or share their selection with friends by or on social networks. Hellmann s, São Paulo, Brazil Mayonnaise brand Hellmann's fitted supermarket trolleys in a São Paulo supermarket with an interactive device and a digital screen. The concept is simple. As you browse through the supermarket, the screen displays recipe suggestions in real time combining its mayonnaise with other ingredients in the vicinity of the trolley. The system will locate the ingredients needed for the recipe in the supermarket and therefore help to boost sales of mayonnaise and related products. The recipe can also be sent by directly from the touch screen. Result: Hellmann's sales surged 68% in the first month of the campaign. 5
6 The quality of the in-store experience at the heart of retailers' differentiation strategies The challenge for retailers is to stay in the game, to win new market share and retain the loyalty of increasingly agile, fickle and well informed customers. Bringing digital into the physical store is one way of tackling changing shopping habits. The instore digital experience introduces a fun and interactive element to the retail space and the act of purchase, it attracts and retains customers' attention and is a differentiated proposition, similar to initiatives to bring a theatrical dimension to the retail space. Whether used in temporary campaigns or in the longer term, theatrical décor and atmosphere to showcase products and ranges make a play to encourage spending and increase customer traffic. As more and more retailers admit, they need imaginative ways to offer customers a memorable experience in their stores, to surprise and delight and provide a break from the everyday in order to attract footfall. Faced with the inexorable rise of e- commerce, retailers must reshape the experience offered to shoppers and work on delivering a personalised service to make their store stand out from pure players. The future of the retail outlet is rooted in the competitive advantages it can offer over the Internet, namely the range of services (personal shopper, after-sales, repairs, workshops and more) or simply the fact that shoppers can interact with, touch and try the products. Another aspect of strategy is to avoid what is known as showrooming, i.e. making the store into a showroom only, where shoppers will go to look at the displays, but will ultimately buy the product on line. In this environment, the role of the salesperson is also changing. Sales personnel are 2.0-connected advisers, brand ambassadors and experts. Their goal is to build customer loyalty by demonstrating know-how, and offering added value through the personalised service they provide. There can be no question but that the Internet has transformed shoppers into savvy and battle-hardened professionals, who expect more information, assistance and choice when they visit bricks-andmortar stores. 6
7 Lastly, it is important to remember that the store remains the main physical point of contact between a retailer and its customers, and is the ideal interaction space. It remains an essential stage in the customer journey. While customers have become adept users of online shopping and self-service, when they enter a store they want contact with people, excellent service, and consideration of their needs. This means that the physical store is an opportunity for retailers to materialise and humanise the sales relationship by providing a social link and human contact. It brings shoppers back to the real world. Moreover, some pure online players are now opening bricksand-mortar stores: Google opened its first Google store in the United States this year in Soho (New York). Samsung and Microsoft where a little ahead of Google in creating a physical retail presence. In conclusion, the rise and rise of e-commerce does not signal the end of physical retail. In 2013, Internet sales accounted for 8% of all retail sales (excluding food), with the remainder being generated in physical stores. What is clear, however, is that the large-scale democratisation of the Internet has reshaped how customers and retailers interact. Not all the old consumption habits have been swept aside by the advent of the net, but digital has blurred the lines between traditional distribution channels and online channels. To fully embrace this digital revolution instead of passively reacting to it, retailers must change, update their current technologies and revamp their customer relations strategy and approach. As a result, the explosion in e-commerce will have reshaped the retail landscape and put the focus on the customer to provide a shopping experience that can range from fun to practical. Technologies are developing rapidly, and mobile technologies are becoming increasingly commonplace. In response retailers must have a mobile commerce strategy aligned with these new consumer patterns. The combined use of online and physical shopping seems to be the dominant trend for retail in the future. Multichannel and cross-channel shopping is here to stay for the foreseeable future. Off-line and online sales are tending to converge and complement each other in the new retail environment. 7
8 JLL s offices Paris rue La Boétie Paris T: +33 (0) F: +33 (0) Saint-Denis 3 rue Jesse Owens Saint-Denis T: +33 (0) F: +33 (0) Le Plessis-Robinson La Boursidière - BP Le Plessis-Robinson T: +33 (0) F: +33 (0) La Défense Le Berkeley, 19-29, rue du Capitaine Guynemer Paris La Défense Cedex T: +33 (0) F: +33 (0) Lyon 55 avenue Foch Lyon T: +33 (0) F: +33 (0) Marseille 2 place Sadi Carnot Marseille T: +33 (0) F: +33 (0) Our new address from 01/01/15: Tour Coeur Défense esplanade Charles de Gaulle, Paris La Défense Cedex Sophie Rozen Research Manager Research Department Paris +33 (0) sophie.rozen@eu.jll.com Nathalie Razafine Retail Leasing Manager Agency Department Paris +33 (0) nathalie.razafine@eu.jll.com Khokha Mansouri Retail Investment Manager Investment Department Paris +33 (0) khokha.mansouri@eu.jll.com COPYRIGHT JONES LANG LASALLE IP, inc All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.
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