The New Retail Reality: Part 2 – Disruption

Over the past several years, the Retail industry has undergone significant disruption.

The retail industry cannot continue to operate as if it has separate channels. Customers no longer find value in shopping that way and will avoid retailers who persist in forcing them to shop “the way it’s always been done.”

The integration of online shopping into the buying cycle has introduced numerous factors that must be reconsidered for retailers to prosper. Four of the most significant are:

• The hyper-educated consumer
• The death of “browsing”
• The inability to differentiate on convenience
• The dominance of showrooming in physical retail

The Hyper-Educated Consumer

In the traditional retail model, shoppers came to specialty stores for advice from knowledgeable associates and to have a broader and deeper merchandise set to consider. For larger purchases this might have involved numerous visits to multiple physical locations to develop the consideration set, to cross-reference the knowledge imparted by sales people, and to allow for time to discuss with friends and family. These factors would contribute to a rise in traffic numbers…
As retailers became aware of the nature of the buying cycle, shelves and queue lines began to feature smaller, inexpensive “impulse” items that might capture dollars during a “non-purchase” visit. As online retail evolves, it offers a wider and deeper set for consideration, with instant price comparisons, deep product knowledge and reviews from other shoppers that cannot be matched by the physical store alone. By the time a shopper enters a store for any destination purchase, they are either at the “Purchase” point and are ready to satisfy their need, or they need to experience the tangible element of the “Research” step and are in the store for a very specific reason. Often, by the time the consumer arrives at the store they are far more knowledgeable about the product than the associates in the store and know the lowest price for which the product can be bought. This makes it very difficult for physical retailers to differentiate based on expertise or offering.

The Death of “Browsing”

A secondary impact of the ability for consumers to complete nearly all the first three stages of the buying cycle without leaving their homes is the death of “browsing”.
As the need for multiple visits to develop a consideration set and research alternatives evaporates, the number of physical visits required to make a purchase shrink. This means that the ancillary smaller purchases that might have occurred on these “pre-purchase” visits also diminish. There are fewer shoppers that are just “browsing”. This erosion of smaller purchases might show a false positive in the retail equation. Conversion and Average Transaction might increase with the decline in traffic, but the health of the physical location erodes as traffic declines. It is important for retailers to understand the lower-level dynamics as they evaluate the business. Not just how many are shopping, but WHO the shoppers are.

Convenience Is No Longer a Differentiator

As mentioned before, the traditional retail model relied on convenience to attract shoppers to physical locations. Department stores collected a wide breadth of product into a single location. Specialty stores added depth of assortment and expert knowledge previously unavailable. Malls added to the availability and convenience of the shopping experience by congregating multiple retailers under one roof, eventually adding a social aspect. Lifestyle centers further expanded on the social aspect, making an experience that moved shopping to a secondary position, but still included shopping in the mix. The introduction of online shopping has diminished all these factors for retailers. As Chris Anderson writes in his book, The Long Tail: Why the Future of Business is Selling Less of More (2006), online offers infinitely more depth and breadth of product than any single physical location could ever offer. The role of the store in terms of the traditional offering is obsolete. Retailers must redefine the role of the physical outlet to survive.

Showrooming is King

The role of the store must consider that it is not a part of the “Consideration” or, to a large part, the “Research” cycles. Again, Best Buy is a great example of a company who recognized the permanent shift in buying dynamics and adapted its stores accordingly. Consumers will continue to have a tangible need to touch, feel and see product, especially product that is new or cutting edge. While fulfilling this need physical retailers also have an opportunity to showcase product in an environment where the integration or supplementation of other product may enhance the customer experience in ways that were not considered during the online shopping “Research” phase. This is the new reality of selling. It is no longer about product features and benefits, but rather about lifestyle integration. To that end, associates have a new role in the selling cycle. Their knowledge can no longer be about individual products, but rather must be about the broader integration of that product into the life of the consumer.
The new reality may seem daunting, and the challenge is very real. Transitioning is difficult for large, public companies, but transition is required for survival. In the omnichannel world stores have a primary function to support the online purchase, not the other way around. While subtle, the difference is a significant departure from the traditional mindset for most retailers. This has direct implications to the operating model of physical retailers, but resistance is futile. Change is necessary for survival in the new reality.

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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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