The Future of Physical Retail Might Not be About Shopping

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2018 has been filled with gloomy news for retailers. Many have been quick to point the finger at e-commerce titan Amazon for monopolising shopper attention, squeezing margins and driving historic brands into irrelevance.

The big challenge facing physical retailers is the ongoing rise of e-commerce and online shopping. This will only accelerate as homes fill with smart devices that begin to order products and ‘shop’ on our behalf (ensuring we never run out of things like cereal, loo roll and cat food).

Already more enlightened brick-and-mortar retailers realise that they can’t compete with the likes of Amazon on range and price, so are trying to play to their ‘experiential’ strengths: making stores more like showrooms and placing an emphasis on personal service and knowledgeable sales staff. Given this, the future for physical retail may not be about shopping, it may more be about brand experience – with the actual transaction occurring through online channels.

However, this advantage may be short lived as Amazon further up-skills its digital assistant Alexa, and potentially develops immersive shopping experiences in virtual reality. Although a recent report in The Information states that only 2% of people with Alexa enabled devices have made a purchase via voice so far in 2018, growing distribution and improving user experience means that the penetration of voice commerce is only going to increase.

…only 2% of people with Alexa enabled devices have made a purchase via voice so far in 2018…

We have already seen Amazon open physical stores without cashiers: where customers can just walk out with their shopping and have their account debited automatically. But whilst this removes queues, it also removes jobs. Behind the scenes, increasing automation of supply chains (from warehouse to delivery vehicles) will also have serious implications for the labour market.

One advantage of having brick-and-mortar stores staffed by real people is being part of a genuine, real world community. Deep local understanding, relationships and relevance is a strength that’s hard to replicate at a distance. The most under-leveraged resource is the human resource and more retailers should be giving their staff the skills and tools to better reach out and support the communities in which they operate. (For example, in the UK it’s great to see brands like Barclays using their branches as a space where they help people through their Digital Eagles and Life Skills initiatives – with activities like these help them acquire customers as a result.)

In a world where brand trust is a growing challenge (according to Edelman’s Trust Barometer report, the credibility of employees is higher than that of CEOs as well as Boards and Directors) there’s value in further empowering in-store staff, especially as employee engagement strongly correlated with customer satisfaction. According to the UK Customer Satisfaction Index, every 1-point increase in employee engagement generates a 0.41 increase in customer satisfaction – as and all the upswings in commercial performance that entails.

But perhaps the brightest future might be for producers who become retailers themselves and go direct – ending the current wholesale-to-retail model. Having a direct relationship with consumers is not only more profitable (with no middle man eating into margin) but it also brings first hand access to customer data. This will help these companies better understand their customers and develop better, more compelling products, services and experiences.

Speaking at the IAB engage summit June, Keith Weed, Unilever’s CMO, talked of building a billion “one-to-one relationships” with consumers by investing heavily in its own data and “building out the muscles” of its direct-to-consumer strategy. Weed asks: “If you’re creating more engaging brands, why wouldn’t you want to sell them direct-to-consumer as well?”

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