Back to the retail future

Not so long ago, physical retail space was viewed by many analysts as an anchor weighing down brick-and-mortar retailers. How could they hope to compete with all that real estate in an increasingly digital world.

What a difference a pandemic makes. As more and more people opt to buy online, the increase in e-commerce orders and constraints on timely fulfillment from distribution centers is having a significant impact on conventioal retailers. Without question, there has been a decrease in store traffic, a trend that accelerated during COVID-19 as stores were initially forced to close or reduce store traffic and shoppers turned to the web. For instance, between March and May 2020, when many stores were shuttered, online commerce increased 21{8c54160eed80eb00ac4f5d74c8785e95142d89daf570f201b81dc7fdc31059f3} from March 2019 to March 2020; that was accompanied by a 45{8c54160eed80eb00ac4f5d74c8785e95142d89daf570f201b81dc7fdc31059f3} rise in online purchases that used to be in-store purchases. In the view of many analysts, those behavioral changes may be permanent.

If those predictions turn out to be correct, and if consumer expectations about the timeliness of Order fulfillment experts and delivery, that physical space may turn out to be an asset rather than an anchor, enabling retailers to convert “dark stores” that have been shuttered or a portion of the floor space in still operational stores into mini-, or micro-, fulfillment centers that can fill and ship e-commerce orders – including orders for same-day and next-day delivery – as well as buy-online and curbside pickup orders.

In this article, we’ll analyze the concept of converting existing retail stores to mini-fulfillment centers. Done right, we contend the conversion can enable small and medium sized companies to compete with the big players and take advantage of the opportunities presented by digital retail.

Facing the challengeFigure 1 shows that retail store closures in the U.S. have grown significantly, with a 100{8c54160eed80eb00ac4f5d74c8785e95142d89daf570f201b81dc7fdc31059f3} increase in 2019 to 18,600 retail closures. Furthermore, due to the COVID-19 it is estimated that retails store closures will exceed 25,000 in 2020, a record.

Figure 1: Retail store closures from 2017 to 2020 (estimated, based on Business Insider data)

At the same time global e-commerce has experienced substantial growth as shown in Figure 2.

Figure 2: Global retail e-commerce sales 2014-2023 (Statistica (2020)

Increased e-commerce and the Amazon Effect has caused a change in the consumer’s shopping experience, forcing retailers to change the dynamics of the traditional business. Consumers’ demand for integrated multi-channel experiences is another challenge. Multi-channel experience refers to the satisfaction of customers by offering a complete experience across different purchase and service channels. Among omnichannel consumers, showrooming and webrooming stand out as significant shopping trends. Webrooming consumers look for information about the products on the Internet and then go to a retail store to purchase them. Showrooming consumers go to the store to evaluate a product but buy it online.

It is necessary to analyze customer interactions across multiple channels to understand showrooming and webrooming trends. The channel preference in the purchase process depends on the benefits customers are looking for in the different stages before, during or after the purchase. Retailers can take advantage of showrooming by enhancing the in-store experience with online resources. Further, the trend of showrooming has changed over the years as customers tend to buy online with their phones even as they are inside the store. Retailers must provide customers with enough information about their products and being able to offer useful and creative content in customer’s mobile phones.

How to competeWhile buying online has several advantages, retailers can compete by providing unique and memorable in-store experiences as a point of differentiation, through a combination of proper human resources, products and services. Another strategy is to become a brand that offers a differentiated and unique value proposition. One example is UNIQLO, a retailer that offers high quality laidback clothes at an affordable price.

Another option is to reward clients through loyalty programs by offering discount coupons, loyalty cards or rewards for shopping in a store. For example, Ulta Beauty offers its customers “Ultimate Rewards.” For each dollar spent, customers receive points they can redeem on their next shopping trip or in beauty services. An app allows customers to check the balance on their points and receive special offers based on their preferences.