Role Reversal: Online & the Future of Retail

To state the obvious, consumer behaviour has shifted drastically since the introduction of online shopping. With a large portion of Australian consumers preferring to make their retail purchases online, retailers are making moves to differentiate themselves and maintain market share.

In March 2018, the Australian Bureau of Statistics reported that in February, the Australian retail sector experienced 2.7% growth compared to the same period last year. The majority of this growth was underpinned by online shopping services across the sector. Fiscal year-end online sales growth was at approximately 7.6% in 2017, indicating that transactions predominately migrated from brick and mortar to e-commerce stores (NAB, 2017).

Changing consumer behaviour

In the early noughties, consumer perception indicated that the greatest barrier to online purchasing was the perceived risk to consumer privacy.

A recent Accenture Interactive study indicated that 56% of consumers are more likely to shop with an online retailer that recognises them by name. While this may ring true for the e-commerce journey, the same insight cannot be applied to in-store experiences. Rather, consumers are partial toward enhanced in-store experiences that re-iterate the brand’s online persona, making it a familiar destination (NAB, 2017).

Brands are needing to bridge their online to in-store experience, highlighted by the insight that 70% of smartphone users who bought something in store, first turned to their phone for information on that purchase (Google, 2017). It’s also widely accepted that familiarity directly correlates to increased revenue; consumers who actively search for products before entering a store are twice as likely to make a purchase and will spend on average 10% more as a result of their familiarity (Google, 2016).

Bringing the online experience in-store

Nest Bedding, an American based retailer, capitalises on these consumer nuances through its established online-offline business model. Nest’s model achieves unparalleled cut-through in an oversaturated mattress market. While revenue is skewed to online sales, the 11 stores that Nest operates across the United States are highly profitable in their own right, exceeding both revenue and growth targets (Liffreing, 2018).

The secret to their success is the seamless translation of on-site to in-store experiences. This breeds the familiarity that consumers subconsciously act upon, acknowledging that the first exposure to the brand occurs online. This successful translation draws on unconventional details, using a mural of the website’s background on walls within the showroom and replicating the website imagery, language and semantics in all store collateral. .Throughout the showroom, consumers will also find screens that scroll through Nest’s mentions on Twitter, Facebook, Instagram and Pinterest in real-time, embodying and extending the brand’s robust earned media strategy, allowing the most effective advertising medium, word-of-mouth, to play a pivotal role in-store during those final moments that lead to a purchasing decision.

CEO Joe Alexander firmly believes the omni-channel approach has paved the road to success for the brand, which estimates it will close out the year with a 22% increase in sales ($27 million), with a notable 40% being attributable to brick and mortar locations (Ibid.).

Correlation modelling for mutual effectiveness

Correlation models are another way that marketing strategy can bridge the divide between online and offline channels and leverage familiarity to increase in-store sales. Correlation analysis is in its simplest form, identifying how closely related two variables are and can account for seasonality, political and economic events and social trends amongst other factors when designed and integrated correctly

British retailer John Lewis uses correlation models to their advantage. John Lewis marketing analysts have drawn correlations between environmental factors and products, cold weather and sweater sales for example (Ibid.). While this might seem nominal, the company accredits much of their success to activation of these correlation models in their brick and mortar merchandising strategy. For example, if the correlation mandates a sweater appearing on the homepage of the website, the entrance to the store should also display a sweater. This is a simple way that retailers can influence consumers.

Negating compressing margins

However, the elephant in the room, continued compression of margin, still exists.  Depending on cash-flow and profitability, it begs the question of whether paying the rising costs for retail space is financially viable. The Iconic is one brand that has made the decision not to invest in brick and mortar in order to re-invest their assets into innovation.  With low-risk refund and return policies, the fashion vertical has overcome tangible ‘try before you buy’ attitudes that face many online retailers. By reducing the overhead of having retail storefronts, the brand has been able to boast the largest software engineering team in the industry (Ibid.). Their investment has allowed for a better understanding of their customer base and to innovate. This has influenced the conception of unique propositions, like their Universal Sizing Tool, which reduces the confusion of comparing a multitude of global sizes across their ever-growing catalogue of inventory.

Breaking into the physical realm

Despite The Iconic’s success, some stores require a tangible presence to enter a consumer’s consideration set. However, those capitalising the most from this are using minimalist concept stores to reduce costs and offset margin compression. In essence, your store becomes your showroom, an extension of a retailer’s online presence, but is used to showcase higher-involvement goods to demystify the product that you may not otherwise purchase without having laid sight on. Everlane is a perfect example of this shift in retail; whereby previously physical retailers have then tried to establish themselves online, e-commerce stores are looking to establish a secondary presence in the physical world to garner trust and authority (Miller, 2016). Again, Everlane is transcending the divide between omni-channel presences, the minimalist approach to brick and mortar maintains consistency across brand-aesthetic and invites consumers to hop between channels without friction (Ibid.).

Taking business to the web

How do you build familiarity from the brick and mortar to online? William Sonoma Inc. is a retailer that has kept their physical expansion into Australia minimal. However, they have used their preexisting brand equity and in-store experience to familiarise the audience with their e-commerce competencies (Halzack, 2017). Electronic catalogues and show-room displays entice transient shoppers to make purchases, which employees then input this as an e-commerce purchase, creating the user an account and walking them through the purchase process. This sales strategy is one that bolsters the online presence and brings the online to an offline audience, creating confidence and building new connections (Ibid.).

So, despite the current bleak outlook, how can retailer’s future-proof their brick and mortar stores? If successful brick and mortar retailers have taught us anything, it’s that there is a new paradigm; one that is led by the digital experience. Today, the point still stands, the customer is always right. A company needs to shape their online presence around the way that customers want to consume and how they consider the offering. The current lean towards online shopping shows no signs of slowing down, so retailers have to work within these parameters. By fostering a positive online experience and mirroring this in-store, retailers will be able to capitalise on the shift in customer shopping tendencies for years to come.

 

  1. Accenture Interactive. “Making It Personal: Why Brands Must Move from Communication to Conversations for Greater Personalization.” Accenture Interactive, 2016.
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  3. Halzack, Sarah. Williams-Sonoma Built To Thrive Amid Home Goods Turmoil. Bloomberg, 22 Sept. 2017, www.bloomberg.com/gadfly/articles/2017-09-22/williams-sonoma-built-to-thrive-amid-home-goods-turmoil.
  4. Liffreing, Ilyse. “Why Nest Bedding Redesigned Its Store to Mimic Its Website.” Digiday, 3 May 2018, digiday.com/marketing/nest-bedding-redesigned-store-mimic-website/.
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  6. “Main Features – Key Economic Indicators.” Australian Bureau of Statistics, Australian Government, Mar. 2018, www.abs.gov.au/AUSSTATS/abs@.nsf/mf/1345.0?opendocument.
  7. Miller, Meg. “Everlane’s First Brick-And-Mortar Shop Is A Minimalist Wonderland.” Design, Co.Design, 2 May 2017, www.fastcodesign.com/3057993/everlanes-first-brick-and-mortar-shop-is-a-minimalist-wonderland.
  8. “The Future of Retail.” Sept. 2017, pp. 1–28.
  9. Wang, Na, et al. “Study on the Influencing Factors of Online Shopping.” Proceedings of the 11th Joint Conference on Information Sciences, 2008, pp. 1–4.

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