In retail, the pandemic has forced home a crucial message: shopping in a physical store is no longer a necessity.
But despite this realization, the reign of brick-and-mortar stores is far from over.
Between Q4 2019 and Q4 2020, e-commerce sales in the US rose from 11.3% to 14% as a percentage of total retail sales, according to the US Department of Commerce. So while the pandemic boosted the growth of ecommerce, physical stores are still the dominant channel and an important part of the customer journey.
Their role, however, is evolving.
To understand how and find out what retailers can do to capitalize on this evolution, we spoke to two of Netguru’s retail experts. Jinder Kang, Innovation Consultancy Lead, has more than 15 years of experience across the spectrum of innovation and design and has spent eight years specifically involved in the retail sector. Katarzyna Kalwak, Strategic Design Consultant, is a master of loyalty and gamification solutions.
Nat: The fact that COVID-19 has accelerated digitalization is beyond question. Do you think it would’ve been the case if it wasn’t for COVID-19?
Katarzyna: I think the tendency toward digital transformation started a long time before COVID-19, but the pandemic certainly enhanced it. It’s also worth mentioning, though, that the in-store experience can provide things the online channel can’t. For example, you can hold a product in your hands and evaluate its overall look, feel, and quality.
Also, we're going to the store for socialization. You have the opportunity to see other shoppers, and that’s connected to a natural need for human interaction.
As retailers, we can use digital tools like AR and VR to compensate for the lack of physical store experiences, which is especially important for millennials.
So how will the customer experience in brick-and-mortar stores change over the next five to ten years? How should we design it?
We should focus on providing meaningful experiences.
Using solutions like gamification and loyalty tools, we can achieve various goals, such as increasing sales, brand awareness, and customer loyalty.
Science proves that people are naturally competitive, which allows us to motivate them easily.
Jinder: In physical stores, we’ll see an emphasis on digital enablement to reduce friction and much more integration between online and offline channels. And there will also be a focus on meeting consumers where they are.
We've seen the rise of malls in major European cities and global cities because that's where the people are. But it has become increasingly difficult to adopt a ‘build it and they will come’ business model, which was popular in the 80s and 90s.
We'll see the rise of pop-ups – being able to have temporary experiences where the people are – because it's important for brands to remain in the mind of shoppers.
We’ll also see a rise in modularity and brands being able to change the look and feel of stores very quickly alongside the idea of live experimentation directly with the consumer. One example I like to use is museums. The concept of changing exhibitions is going to be similar to the idea of why you would come to a retail store in the future.
Jinder, you mentioned we’ll see greater integration between online and offline channels, so we have this “phygital” concept – blending physical and digital experiences. How can retail brands make this work?
Jinder: If we go down the route of creating experiences and, on the other side, using the Internet of Things to capture data, not every single item you sell will be in the store. You'll carry a selection of sizes and colors, but then customers will be able to interact with things like virtual try-on within the changing room.
So I could try on a green jacket and see that green isn’t my color, try it in different colors virtually and order it there and then. The biggest pain for many people is queuing up to pay, so the ability to pay from anywhere would be a massive improvement.
Ultimately, digital should allow the reduction of friction within the store and the creation of experiences. If we go back to the idea of modularity and exhibitions, digital is a great tool to allow us to bring in AR and VR with our devices and create digital experiences within the physical space.
For example, back in 2017, Farfetch launched its Store of the Future. Part of the concept was an augmented reality display where you could design your own shoe, something we call tweaking. It’s a very basic element of co-design, but it makes the consumer feel empowered and allows them to create a personalized style that's unique to them.
The pandemic forced many brands to transform from physical to digital. Some have thrived, while others have gone bankrupt. What can retailers do to stay relevant and competitive now?
Jinder: You need to reduce the friction you previously had on your online channels. That said, some were created on purpose to encourage webrooming. So you have showrooming where people look at stuff in-store and buy online, and then you have webrooming where you try to subconsciously pivot people into the store so you can take advantage of impulse buying.
Also, we saw a massive rise in social commerce during this time, such as the ability to buy through Snap and Instagram. Snap, in particular, is working very hard at the moment on virtual try-on, which has been accelerated but still isn’t utilized by many brands as the fidelity isn’t quite there.
Social commerce helps to keep you in mind with your core customer segments.
When you think about your decision journey as a customer, you look at your initial consideration set and have your pre-evaluation criteria. During that phase, you discover more brands and learn about their reputations, and so on. Then you purchase the product and finish with your post-purchase experience, which, if it's good, will create a loyalty loop. So next time there's a trigger, you go straight to purchasing that particular brand.
A lot of brands are trying to get themselves into that initial consideration set as quickly as possible so that when there’s a trigger, they immediately come to mind.
So if brick-and-mortar stores become showrooms or places to experience the brand, what will happen to employees? Will they become redundant?
Jinder: I don't think we can get around the fact that reducing costs is going to be important for a lot of retailers. And we’re not just talking about the employees in stores but within the entire supply chain. Having said that, I think those towards the customer experience side are probably safer.
The one thing that digital doesn't do is empathy. Understanding. That’s still going to play a major role. So there may be a reduction in certain segments of retail, but in a lot of it people still want to speak to a human.
Also, if physical stores become deserted, brands will have to increase their customer services online. And while automated chatbots are good for frequently asked questions, if you want to avoid irritating someone, you need to know when to pass them over to a human.
While shopping in a physical store may no longer be a necessity, it remains an integral part of the retail shopping experience and will continue to be for the foreseeable future.