The New Retail Reality: Part 1 – Get Over It.

A Reexamination of The Customer Buying Cycle in the Omni-Channel World

Over the course of the last several years, one of the most-discussed topics in the economic world has been that of the “Retail Apocalypse.”
The theory goes that the Amazon Effect has diluted brick-and-mortar retail sales to the point where many retailers cannot maintain solvency. This has been attributed, in large part, to the decline in retail traffic. In truth, traffic has shifted from brick-and-mortar to online. However, the retailers that are being most damaged by this trend are those that see the two (online and physical businesses) as separate and competing entities. It is necessary to re-consider some of the assumptions about the nature of traffic to adapt to this new reality.

Consumer demand is healthy…

Even after adjusting for price inflation retail demand has increased steadily since the economic downturn of 2008. Consumer spending habits are diminishing, as shown if Figure 1. This means that if brick-and-mortar retailers are doomed the spending must be shifting away from stores and into the cloud.

Figure 1 -Retail Trade Spending, Source: United States Census Bureau

It is true that e-commerce as a percentage of total retail spending is increasing. E-commerce as a percentage of retail spending has increase from less than 4% in 2008 to over 9 percent in 2018, as shown in Figure 2. Expert projections have this increasing to as high as 17.5% by 2020.

The rise of the importance of e-commerce is undeniable…

Figure 2 – E-Commerce Penetration, Source: United States Census Bureau

However, this is tantamount to arguing that because the rich are getting richer that the poor are worse off. Even after adjusting for inflation and removing all e-commerce sales (which includes Amazon), from 2009 through 2017 brick-and-mortar sales have increased at a 2% compound annual growth rate, as shown in Figure 3. (This trend held true again in Q1 of 2018.)

Figure 3 – Retail Spending Growth, Source: United States Census Bureau

If the macro argument that sales are shifting en masse to e-commerce does not hold true, then what is behind the fear of the “Retail Apocalypse”? To answer this, we must re-examine the nature of traffic in the customer journey.

The Customer Buying Cycle…

If we consider the traditional consumer buying cycle, it looks something like this.

Figure 4 – The Consumer Buying Cycle

The way that shoppers satisfied the phases of the cycle has changed over time:

  1. Traditional retail provided the consideration set, the research facilities and the purchase point
  2. As retail became more sophisticated stores took steps to make the cycle more convenient for shoppers.
  3. Department stores offered a “one-stop” place to consider, research and purchase goods.
  • A wider breadth and depth of product was available for consideration.
  • The staff were experts who helped to educate consumers.
  • The product could be touched, tried on, and evaluated in real world conditions.
  1. Eventually malls came along to further broaden the breadth and depth of product available, and the addition of offerings that would entice more people to shop were added.
  • The food court became the focal point of the social life for generations of teenagers.
  • Stores began to compete for their share of the traffic and the purchase dollars of the shoppers coming to the mall.

The retail industry may have competed internally on service and quality, but the traffic became a given, and was driven predominantly by the CONVENIENCE of the having a “full” consideration set of product and service in one location.

With the advent of online shopping this dynamic has changed. The reality of the omnichannel world of today is that shoppers no longer need to leave their seats to develop a broad consideration set, research the options and make a purchase.

However, all is not lost for today’s retailers…

The need for “showrooming” can be a boon. Companies like Best Buy have realized that instead of fighting this trend, they need to embrace it. The one thing that cannot be satisfied in the virtual world is the tangible element. Shoppers still need to touch, see and feel product. This means that retailers need to accept the new reality and reconsider the role of physical stores in the eyes of the customer.

Let us consider this new world!

Next week, visit our blog for The New Reality: Part 2 – Disruption.

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Andrew Taylor has over 20 years’ experience running operations at Fortune 500 companies. He is now a Senior Director at Connors Group. Andrew leverages his deep experience in retail strategy and operations and consulting to craft innovative solutions for clients. He can be reached at [email protected]
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