Jeff Fisher

The death of physical retail has been predicted for quite some time. This sentiment has grown during the Covid-19 pandemic as e-commerce numbers increase. It is true that the pandemic has accelerated trends that were well underway prior to the pandemic; “normal” is no more. Physical retail is not dead. As we swiftly move into a new age of retail (what I call The Customer Channel), I argue that physical retail must be central to your Direct-to-Consumer strategy.

Boring retail, or legacy laggards as Bain & Co. says, was dying and is now just dying faster. Stores remain important – definitely important, but they now can play a different role in the overall direct to consumer strategy. Retailers must be empathetic and supportive of their customers in every way. Let’s focus on the ongoing relevance of physical stores so we all can understand better the changing nature of retail.

Let me state this now – The US Census Bureau News has reported that as of Q3 2020, e-commerce accounted for 14.3% of the total US retail sales. Clearly, we are still shopping in physical stores.

Does this mean physical retail remains relevant? Yes. We are shoppers. We are social. We are tactile. We are impatient. And maybe, we still need to get out of the house…

So, what’s changing? The organizational lines and silos that traditionally separated channels have blurred. Omnichannel is here. And, I venture to say we have moved beyond omnichannel, or even a unified shopping experience. We are now in the era of The Customer Channel. Retailers now seamlessly support and empower their customers to shop where and how and when they want.

AN EXPANDING ROLE

There is an online/offline connection like never before. This is a key element of the “blurring” I reference above. There’s also a lot of “unsexy” shopping that has traditionally brought us into stores. This is one area the pandemic has really impacted. Let’s take grocery. We need to eat – more than ever as we are home more than ever. Though we may be ordering online, we are often driving to the store to pick up our purchases (or, maybe it’s better to say for someone else to place our purchases in our trunk).

Kohl’s has publicly spoken about their initiatives to increase volume via “a focus on active and casual wear, increased personalization of its loyalty and rewards programs, and enhanced omnichannel capabilities.” How about this point regarding leveraging their stores for fulfillment: “Today, nearly 40 percent of the company’s digital sales are now fulfilled by its stores – this is through ship-from-store and buy online, pick up in store.”

EXPERIENTIAL RETAIL & MORE

Many brands believe physical retail adds tremendous value to their performance. Though there have been over 4,000 stores close in 2020, some retailers are still opening stores – from luxury to discount grocers. Let’s look at some examples.

Loro Piana opened a new 1,700 sqft store in Manhattan’s Meatpacking District. This is more than a store – it’s experiential. In addition to an even split of women’s and men’s collections, the store includes artist collaborations, an indoor garden, live events, knitwear personalization, made to order footwear programs and more.

“It’s a special atmosphere. We’re excited to arrive in the neighborhood. It’s so dynamic with a good mix of art and design and brands making a statement,” said Fabio D’Angelantonio, chief executive officer of Loro Piana in Yahoo!Life.

Slowear has recently opened new stores in Chicago and Brooklyn. This is one of my favorite apparel brands. Not only are their stores beautiful, comfortable, inviting and reflect their Italian heritage and sensibility perfectly, their apparel collections are first rate and their Slowear Journal represents the brand’s lifestyle.

CEO Roberto Compagno stated in Vogue Business, “The store expansion is part of the company’s broader direct-to-consumer strategy and designed to build a relationship with customers. Experience is essential. We want to test a different customer. The physical store is to give support and give service. It’s the easy way to show who you are to the consumer.”

Allbirds sells beautifully designed and manufactured shoes that are extremely comfortable – and sustainable. I can attest to the compelling storytelling, ease of purchase and to the comfort of their shoes. I wear them.

For a digitally native brand to venture into physical retail, there has to be a reason. “In terms of why we chose to come to Philly, we already had a significant e-commerce customer base in the Philadelphia area and felt that there would be healthy demand for an in-person shopping experience,” said Travis Boyce, Allbirds’ head of global retail operations recently in the Philadelphia Inquirer.

Nike continues to focus their attention on their direct to consumer strategy. Learnings from their ongoing retail experimentation seem to have directly influenced the announcement that they are opening 150-200 Nike Live stores. Their customer base, shopping habits and purchase history have influenced the store location strategy as well as store-level assortment. Talk about The Customer Channel… well, here it is at work.

Along with the continued evolution of their business that includes a significant increase in assortment offering, integration of Nordstrom and Nordstrom Rack businesses and channels and the result of success of Nordstrom Local stores, Nordstrom is the quintessential example of what I mean by The Customer Channel.

“At the heart of our business transformation is the recognition that the unique combination of the Nordstrom and Nordstrom Rack brands, along with our combined physical and digital expertise, create a powerful opportunity to get closer to the customer than ever before,” said CEO Erik Nordstrom in their recent earnings call as reported in Retail Dive.

I continue to watch, shop and applaud RH. They have proven the value that physical stores provide to a brand. Now, they are taking this idea to an entirely new level; an entire ecosystem of physical experiences in Aspen, including an RH Gallery, RH Guesthouse, RH Bath House & Spa, RH Restaurants and the company’s first RH Residences as reported in Designers Today.

A few additional brands that continue to open stores are Aldi, PGA Superstore, Tractor Supply Company, and others.

TECHNOLOGY

Let me just touch on this here, as a deeper dive in the explosion of retail technology will follow.

Technology has fueled an increased ease of researching, browsing, selecting, purchasing, returning and/or exchanging on mobile devices, tablets and desktops – let alone in store. Let’s not forget about AI-powered search and recommendations, inventory visibility, true personalization, predictive analytics, experiential e-commerce, virtual shopping, improved 3D product visualization and much more. I’d be remiss to not mention social commerce, with Snapchat a recent entry.

I look forward to diving into retail tech in future posts. This is an incredibly dynamic time in retail.

CONCLUSION

Stores aren’t going away. Well, some are. For one thing, we are overbuilt in the US. For another, it’s just too easy to shop for some things online. And, the disruption the pandemic has caused will continue to impact financial performance and viability of some retailers. Consumer shopping habits have changed.

Let’s remember physical stores still make up the vast majority of where we purchase. Today, having a clear consumer-centric direct-to-consumer strategy with physical retail playing a central role is required. We’re in era of the Customer Channel.

 

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In my first blog post, “The Relevance of Physical Retail in the Customer Channel,” available on empatheticmachines.org, I spoke about the relevance of physical retail today as well as introduced the idea of the Customer Channel.  Today, I’m going to dive into some of the technology empowering the Customer Channel in physical retail. In particular, let’s discuss how tech is transforming physical retail. I’m talking about The Internet of Things, AI and so much more…

This is incredibly exciting in so many ways…

When I say we are in the era of the Customer Channel, what do I mean? Don’t we already call this, “omnichannel”? In my opinion, that doesn’t do justice to what’s happening. We are beyond omnichannel. Today, retailers and brands need to support their customers how, when and where they want to shop. It’s seamless and can reorient around a customer’s changing needs, sometimes at a moment’s notice.

Basically, shoppers rule. They are in control. Customers (or should I say “shoppers”) don’t look at different channels. Start a transaction on Instagram? Why not.  Drive through pickup? Of course. Half shipped, half in store? Got it. Ship to store? Certainly. Shoppers look at a retailer and engage how, when, why and where they want to. This could include any one or combination of stores, catalogs, social media, the phone, online. Channels? They’re great but they are just a part of complex mélange that can be organized as needed.

Technology is at the foundation of this decade’s transformation. While the last years fueled massive improvements in researching, browsing, selecting, purchasing, returning and/or exchanging on mobile devices, tablets and desktops, the current transformation brings more intelligence and continuity to customer experiences with retailers, where the store is a fundamental part of the process.

TECH CONNECTS:  HELPING BRIDGE THE JOURNEY (five places that improve the end-to-end experience)

I like to believe tech is helping to bridge the journey because of the customer – to optimize operations, processes, procedures (back of house and front of house) across all touch points to create a connected retail experience. If it’s not, it should be.  Retailers and brands need to support, allow and empower their customers to engage with – and shop – them as the customer wants. This takes innovation and transformation.  Here’s five tech examples that are improving the experience:

1. Inventory visibility

Is this becoming table stakes? Zara has offered this inventory visibility to their customers for some time now.

2. Fulfillment

Nordstrom continues to roll out of Nordstrom Local stores where you order online and then pick up in these neighborhood locations that offer express alterations and their legendary customer service. Allbirds (via Shopify), to highlight one retailer, offers pick up in store and fulfills orders via ship from store.

3. Virtual shopping

Again, Nordstrom with their new Nordstrom Live virtual shopping experiences.  Swarovski has also played in this space.

4. Improved 3D product visualization

Can you be a home furnishings retailer without compelling 3D product visualization and customization? I think not. Virtual try on is also a relevant and compelling use of this technology that benefits and supports the customer experience. Warby Parker has used this technology in a smart customer-centric way by creating a compelling virtual try on via their mobile app.

5. Social commerce

Snapchat has incorporated augmented reality in their shopping experiences. TikTok has tested a “Shop Now” button. According to a test conducted with Levi’s and various influencers, the “Shop Now” button generated watch times twice as long as the TikTok average.

I’m just skimming the surface, sharing a few examples.  Innovation and investments are happening across the spectrum. We have a lot more to talk about.

WHAT’S IN STORE? TECHNOLOGY

Let’s focus on how this explosion of innovation is affecting physical retail. Technology is helping make physical retail central to Direct-to-Consumer strategy by providing retailers and brands with a wealth of data – especially in relationship to their physical retail stores. Retailers and brands can create the frictionless customer experience of online shopping in the store. They are “able to use the same type of rich data and high-performance analytics that retailers use to drive websites and mobile shopping trips,” according to Dan Mitchell at SAS.

The Internet of Things (IoT) is a big part of this seamless, optimized, connected shopping experience. Some call it Frictionless Retail, I call it optimizing the Customer Channel.

How does IoT work? Sensors, cameras, beacons, RFID and devices are all connected to the internet. Combining the mountains of data from these connected devices with statistical analyses and Artificial Intelligence (AI), and other data processing technologies, reduces it into actionable information.

RetailNext was early in this space and has continued to evolve and expand their technology, allowing retailers access to a wealth of data relating to their physical footprint including traffic pattern analysis, heat mapping, dwell time and much more.

When I worked at Luxottica SpA, I brought in RetailNext to perform a deep test on Sunglass Hut stores in the UK. By using cameras and sensors, we were able to create maps that showed us exactly how customers were walking through our store. We tracked people through the store, where they went, where they dwelled and for how long.

We layered this data with the merchandise layout (where each brand and products were) and even our staff schedules. We captured data over a set period of time that included changes to our front window displays and visual merchandising and messaging changes in store.

Why? We wanted to know if the time, cost and effort (corporate and in-store staff labor) to change our presentations were relevant to our customer. Did it help drive sales? Did it affect shopping behavior?

+ 25% 2020 vs 2019

Shopper Yield (Net Sales / Traffic)

Represents purpose-driven shoppers & retailers’ implementation of BOPIS & Curbside Pickup

Yes. Not only did we see traffic and dwell time shifts relating to sales, visual merchandising and marketing changes, but we also learned unexpected things like shifts in conversation rate at very specific times of day.

This was a fascinating early look into deep metrics that helped to justify marketing spend, physical store design, layout, space planning, visual merchandising changes and more.

RetailNext delivers these data points as well as enhanced connected journey analytics, better insights on what marketing programs are driving traffic and conversion, and data to best connect personalized messaging to shoppers who desire it.

“JUST WALK OUT,” OR “SHOP ANYWHERE”

Maybe the most visible representation of the power of IoT in the marketplace today is Amazon Go. Today, they have 26 locations (and growing) as well as their first Amazon Go Grocery.  In true Amazon fashion, they aren’t keeping this technology to themselves, but are licensing their “Just Walk Out” platform.  Check out Hudson Nonstop.

But they aren’t the only one in this space. MasterCard has introduced Shop Anywhere, which is supported by AI and computer vision technology partner Accel Robotics.  They are working on checkout-free shopping (with Circle K, Delaware North and Dunkin’) as well as AI-powered drive throughs (with Sonic and White Castle).

CONCLUSION

Physical retail remains relevant (let’s remember the US Census Bureau News has reported that as of Q3 2020, e-commerce accounted for 14.3% of the total US retail sales. Clearly, we are still shopping in physical stores.)  In fact, physical retail is a critical – and central – part of a robust Direct to Consumer strategy. The rich data that is now available allows retailers and brands to make smarter, faster and more informed decisions all in the service of the one to one relationship.

There are endless workstreams where retailers can focus and invest. Needless to say, retailers must be savvy and strategic today and focus their spending on where they will get the biggest return on their investment. Keeping the customer center to these decisions is priority #1.

Let’s go shopping.