February 16, 2015

Is 2015 the Year of Retail 3.0?

Mobile devices and the digital experiences they offer have established themselves as complementary to in-store purchasing. Retailers that accept this future, and deliver uni-channel experiences in response will build customer loyalty and emerge stronger from the transformation wave hitting big box retailers today.

Until very close to the turn of the 20th century, shopping used to be an experience completely controlled by physical retail stores. Retailers decided the product selection in each store, their inventory levels and how products were stocked across changing seasons. When a shopper walked into the store, he or she had to make a selection based on the available set of alternatives, and the only information available to make the decision was written on the product labels. Analysts have labeled this form of commerce the Full Service Model, also referenced as Retail 1.0.

During the second half of the 20th century, we saw a big shift towards acceptance and proliferation of digital storefronts through the .COM wave. Digital commerce vendors that became successful did so by revolutionizing the shopping experiences. Shoppers kept coming back to these online storefronts because of the ease of access of comparative data about products, pricing transparency, ease of purchasing, and customer friendly shipping and return policies. The success of larger merchants such as Amazon.com overshadowed physical store retailers, and those that couldn’t re-invent themselves found themselves going out of business. Examples include Borders, Circuit City, Blockbuster and others such as Best Buy and Barnes & Noble are in precarious positions. Analysts have called this era of commerce the Self-Service Model, also referenced as Retail 2.0.


Looking at this trajectory of commerce, the future of physical storefronts seems bleak. Even putting knee-jerk gut feelings aside, there are some aspects of online commerce that present definite advantages on this channel. Examples include the following:
The economics of centralized distribution warehouses based supply chains trumps those of physical stores. The latter are weighed down by heavier inventory holding costs due to less inventory consolidation.

From a demand perspective, it is clear that certain products have greater online purchase affinity. Consumers prefer purchasing repeat items as well as smaller items that don’t require them to test and/or see the product in person fall into this category.

So is the future all bleak for brick-and-mortar stores?

Industry leaders don’t think so. We’re seeing several data points to support this.
Per a recent statement by Terry Lundgren, CEO of Macy’s, physical stores will continue to exist well into the future and they aren’t going away anytime soon. He even predicted that any major company that only sells online today will have brick-and-mortar stores in five years.

Retailers such as Amazon and Warby Parker have now opened physical stores to complement their online presence.

Amazon and other online retailers have a few good reasons for going this route. Firstly despite the huge success of online purchasing, eCommerce still represents a small fraction of total commerce. By small, we’re talking <10% of total retail sales. Secondly, some items just can’t be sold online. Consumers need to touch them, feel them (jackets and their textures), try them on (ladies pants), smell them (perfumes), drive them (cars), see them (televisions), sit on them (sofas), lie down on them (mattresses) etc. – the list goes on. People may choose to buy these online, but there will always be folks that want that experience before they make a decision. Physical stores will continue to exist for those people.

That said, stores will definitely evolve in time. They will stop being places to hold inventory, and become places to experience goods and products. Customers have also come to expect first class mobile experiences to complement their in-store visit. They’d rather not have to go looking for a sales associate just to see if an item is in stock at that location, or have to look for a price scanner because the product price was not labeled in an accessible place. This is where mobile commerce has a role to play – consumers have their mobile phones on them when they’re in the store, and they’re whipping those out to answer the product questions they have in their mobile moments. We’re going to see mobile commerce assume this role in being complementary to physical stores. It’s already happening today and analysts call it showrooming.

Analysts are calling this phenomenon of the convergence of digital and physical commerce Retail 3.0. It’s happening today, but the retailers’ journey to provide mobile optimized experiences that deliver into these mobile moments is just getting started. We expect that 2015 will be the year where we’re going to see an upswing in its adoption.

At Mobile World Congress industry leaders, visionaries and innovators will explore the trends that will shape the evolution of mobile in the years ahead and anticipate mobile interactions that will shape customer experiences.

We look forward to evaluating the future of retail and applying innovative mobile strategies to achieve the metrics that make our clients successful. At PointSource, we help clients evaluate their customer engagement goals and craft mobile strategies that achieve their business objectives. By studying the user journey we identify the mobile moments and create meaningful contextual engagement across devices. With that focus we have developed mobile solutions that increase user engagement and conversion rates for clients that include Finish Line and h.h. gregg, and why we developed PointSource Currency, a best-in-class mobile commerce solution. Contact us to discuss your mobile strategy.


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