The retail industry is currently undergoing a massive transformation driven by digital technology innovations that are fundamentally changing the way retailers interact with consumers. This shift is forcing retailers to rethink and transform their approach to how they do business going forward.
In this blog post I will explore the nature of that change, the new Millennial shopper who is driving it, and how retailers must evolve to survive and thrive in this new environment. In part two of this blog, which will publish on Thursday, Sept. 5, I will discuss the three key areas where retailers must evolve their businesses as well as provide an overview of how to get started.
Retail in the Digital Age
Retail in the Digital Age is fundamentally different from anything that came before. The “push-based” foundation of brick-and-mortar retail has been swept away by a new consumer demand-driven shopping paradigm. In the process, retail has gone from a single channel to multi-channel and now to all-channel, which is to say, the concept of channels has been replaced by a consumer engagement model that simultaneously and seamlessly serves the consumer regardless of the multiple touchpoints they use to interact with your brand. Similarly, there is no more e-commerce or m-commerce or s-commerce—it is all just commerce because that is how consumers see it.
Therefore, retailers must evolve their business models and approach to customer engagement to serve this new consumer, aided by new digital technologies, who are driving retail transformation. Or retailers can continue to operate the way they always have and see their market share continue to decline.
Who is this new consumer? Millennials—those born between 1981 and 2000. After 50 years of retailers catering to Baby Boomers, there is now a new demographic even more numerous (80 million vs. 76 million in the U.S.) and they have tremendous purchasing power. By the year 2020, Millennials are projected to spend $1.4 trillion per year. What’s more, while Baby Boomers are becoming empty-nesters, downsizing and retiring, Millennials are just coming into their most productive years. They are starting to buy houses, raise families, build careers — all of the things that made the Baby Boomers the desired demographic in the past. And they are doing this in a more affluent society, which means they have more purchasing power and influence than Baby Boomers ever had.
But the significance of Millennials, a diverse and digitally savvy demographic, is not just their growing numbers and purchasing power. How Millennials shop is dramatically different than how Baby Boomers shop. Retailers must understand this difference and respond accordingly or become marginalized to an ever-shrinking marketplace.
Millennials were raised in the Digital Age. Laptops, tablets and smartphones are as native to their experience as transistor radios and Walkmans were to Baby Boomers. They are the first generation that can write code, but not cursive. They would rather text than talk to someone. How they leverage the digital tools at their fingertips is what makes these technologies so disruptive.
Millennials live in a world of 24/7 news, music and communications. Therefore, they have learned to tune out extraneous messages such as advertisements. In the midst of this digital onslaught, personalization is paramount. To reach them, your message must relate directly to their personal interests. Social media is one way to learn about those interests and engage them in mutually beneficial conversations.
Millennials are inherently social beings. They live on Facebook, Instagram, Kik, Tumbler and whatever the next hot social app is. They want to be engaged, build relationships and make a difference in the world. But they don’t want to be sold. That’s why retailers who thought social media was another sales channel have missed the mark. Even social networks like Twitter who have tried too hard to commercialize their networks have lost favor with Millennials. Social networks are not about transactions, but about building relationships and trust. Millennials are interested in social causes, commitment, and values, so engaging them on price, which has been the primary retailer tactic online, will be less affective. Retailers must understand these values in order to engage Millennials in meaningful ways. Don’t sell to them, engage them.
The Digital Evolution
Millennials’ position as the new target audience and their innate use of disruptive technologies require retailers to embrace new approaches and transform their operating models for gaining and measuring profitability. The old push-based models focused on products, but this is no longer adequate in a consumer-driven world. Retail selling models built on products must evolve to instead focus on consumer engagement.
This shift from a product-focused to a customer-focused operating model is transformative, as it impacts every aspect of how retailers will do business going forward. For example, stores will remain the most important channel for brick-and-mortar retailers, but will evolve from pushing products to being the centerpiece of the all-channel consumer engagement process. This has profound implications for how retailers design, lay out, stock and staff their stores. Simply visit an Apple store to get a picture of what this can look like. Apple stores are always crowded. They have lots of hands-on displays with little on floor stock. They have tons of knowledgeable, friendly staff waiting to help you, as well as numerous customer service and training options in-store. Their focus is squarely on customer engagement and the results are impressive.
Obviously, each retailer will follow their own model to customer engagement, but the Apple example provides some insights on where to start examining your operations. To achieve this type of customer engagement, retailers must evolve in three areas: merchandising, supply chain and customer experience. In part 2 of this blog I will explain how.