The Store is Dead; Long Live the Store!

In a recent blog post titled “Retail in EMEA: The Perfect Storm,” my colleague Lee Gill posits that the omni-channel revolution has left the retail industry facing the single largest disruption to its business model. Omni-channel retailing centers providing a seamless shopping experience with every channel working in sync to deliver a unified, albeit a customized, shopping experience to the customer. This is a change that “no retailer can afford to ignore,” Lee rightly argues; that this change is not a matter of “if,” but “when.”

Against this backdrop, there is another debate going on in retail about whether online shopping is making brick-and-mortar stores obsolete. Has Amazon.com endangered the role of a store in the future retail business model, ask the skeptics? The answer could come from shoppers themselves. Shoppers like my wife.

My wife is a digital strategy expert and is the head of ecommerce for a hotel chain. Not surprisingly online shopping is a big part of her shopping journey. When she purchases online with home delivery, she reserves the option of returning unwanted merchandise to the local store. She likes to collect some online orders at the store as that allows her to try the merchandise on our kids right there and then, and return the ones she doesn’t want. Sometimes she purchases directly at the store. For her the store is therefore a fulfillment center, a return center, a showroom and a place where she transacts business. Whatever the reason, by her own admission, her shopping experience requires a physical store she can visit. She is not alone. A recent Accenture study concluded that “customers are increasingly opting to shop in-store.” While this suggests that any obituaries of the stores are premature, their role in omni-channel retail does deserve some scrutiny. The critical question to ask is how these retailers would withstand the “Amazon onslaught” and keep stores relevant?

Amazon’s strategy is to offer a wide variety of assortments on its website and to offer a platform from which third party retailers can sell their merchandise. Its fulfillment strategy rests on super distribution centers and partnerships with logistics providers such as UPS to ship orders. Amazon is also trying to get close to its customers through Amazon lockers placed in easily accessible locations. I believe this is where traditional retailers have an advantage over Amazon: through their stores they already are close to their customers! But in order to drive home this advantage, retailers must redefine their stores to meet the demands of the newly enabled shoppers:

Stores must be entertainment centers. Retailers will have to become creative with showrooming in order to attract customers and lock in sales at the store level. Stores have to become social venues and this requires a transformation of their brand engagement. Offering food outlets, bank tills, children’s play areas, etc. are some of the ideas already being pursued by leading retailers. Stores should offer free Wi-Fi not only to provide shoppers the ability to self-shop, compare, and be socially connected, but also to have the ability to know which customers are in store and target offers at them. Most importantly, the store must have up to date information on assortments, inventory, and pricing at all times, taking into account recent orders and returns to maximize their selling opportunity.

Stores must be fulfillment/return centers. Increasingly retailers are using their stores as fulfillment centers for online orders and are investing in in-store picking technologies. By offering same-day delivery or collection at a local store, and by allowing returns at local stores, retailers are providing a significant convenience to their customers – something Amazon cannot. While these create supply chain planning challenges, the upside is customer satisfaction and loyalty.

Store associates must be all-rounders. In addition to such usual tasks as receiving and replenishing, every store associate must also become a brand ambassador. They must be knowledgeable about their products, inventory and prices in real time, and understand how best to serve shopper needs. People buy from people, so a wonderful experience delivered through a knowledgeable sales associate will go a long way in building customer loyalty.

Store-level execution must be planned. A retailer’s pre-season planning process must now include store planning to decide on questions such as how much space should be set aside for shoppers vs. how much for returned goods that may or may not have originated at the store. Assortment planning must be linked to in-store picking to enable lowest cost in-store fulfillment, including the ability to offer same-day delivery or collection at a store. What-if analyses must answer such questions as what kind of labor must be employed and how should their tasks be planned at the store. Should in-store picking be considered a task for a store associate or should dedicated associates be assigned for that? These can no longer be considered execution level decisions and must be planned upstream.

Lee is right; retail is facing a transformational change with customers demanding a seamless shopping experience. Retailers must stop thinking in silos, measure operational performance regardless of channel and strive towards being a seamless organization with redefined stores at the center of their transformation. Evidence that perhaps retailers are paying attention came from the UK retailer Asda, who just announced that they plan to open 290 stores, 1,000 click and collect points and create 12,000 shop-based jobs over the next five years. Paraphrasing Mark Twain, I believe the reports of the stores’ demise are greatly exaggerated. What do you think?

Photo courtesy of Pavel L Photo and Video

 

  5 Comments   Comment

  1. “People buy from people, so a wonderful experience delivered through a knowledgeable sales associate will go a long way in building customer loyalty.”

    Excellent point. The attitude and tone your employees take with customers in the store directly influences how your customers act. No one wants to stick around in a store that makes them feel rushed or pressured into buying. And if there is no one there to help why bother coming in at all?

    Reply
  2. Alex Bhattacharya

    Mr. Medepalli,

    I enjoyed your post regarding the bright future for brick and mortar locations, especially how you pointed out the advantages that come with visiting and shopping at a physical store. However, home delivery online shopping is still an emerging market place, with companies like Walmart looking to grow in this sector. There are several items I buy regularly where it is more convenient for me to purchase online and get them delivered to my house. What do you think historically physical retailers should do in regards to the distribution of products ordered online? You suggest in your article that stores should act as fulfillment centers, but will stores have the capacity to hold both online ordered items as well as products available for in store purchase? Do you think it will be a better solution for companies like Walmart and Target to build additional fulfillment centers designed to only service online deliveries?

    Reply
    • Anand Medepalli

      Hi Alex
      Thank you for your note and I appreciate your comments.

      To your point, I believe online commerce will grow in volume. And stores have fixed capacity so it is not reasonable to believe that they will become the sole fulfillment centres catering to both online and store demand.

      My point however was for retailers to leverage stores also as fulfillment centres and plan towards that. If you know that a customer has ordered an item from a certain locality and the store in that locality has that item and knows that it can release that inventory, it’d be smart to let the store fulfill that order. However this also means that upstream planning processes where assortments are being planned and inventory is being allocated to the store & subsequent replenishment processes take this online demand into account.

      If Wal-Mart and Target feel there is enough online demand then they should either expand their existing store networks or build fulfillment centres. In the UK Tesco and Sainsbury’s have invested in dark stores to purely cater to online demand, especially during peak periods. And companies such as Chico’s have invested in state of the art automation in their DCs that accommodate both store allocation and online orders.

      Clearly each retailer will make the decision that is best for their business, but intelligent fulfillment is a clear and present need in this Omni-channel world.

      Best regards
      Anand

      Reply

Leave a Comment