By Howard Meitiner, Managing Director
Retailers have coped with disruption and change for decades, from the rise of shopping malls, the advent of online shopping, the introduction of social media, and the emergence of contactless payment. However, the speed and scale of change today is unprecedented. The developments in e-commerce and artificial intelligence (AI) are pervasive and revolutionary, touching all corners of the retail industry and reshaping retail strategies and consumer behavior. The landscape will undergo an even more significant transformation in the coming years.
Rethinking Brick-And-Mortar Stores
Online sales are growing at a rate roughly 4x faster than brick-and-mortar stores. As technology makes online buying easier and easier, stores will need to rethink their reason to exist. Historically, large stores were essential for housing merchandise. Now, that logic is changing. Retailers no longer need to carry every product’s size, color, or variation in-store. Retailers implementing an integrated omnichannel strategy allow customers to try one size or style in-store and easily order a different colored product to be delivered to their home the following day.
Today, customers are drawn to stores because they offer convenience or an in-store experience that cannot be replicated online. In a world where convenience and speed are paramount, physical stores must offer something beyond what digital shopping can provide.
Elevating In-Store Experience
In-store technology can significantly enhance the in-store experience, making shopping more personalized and engaging, and ultimately strengthening the brick-and-mortar proposition. Here are some innovations that retailers should consider incorporating into their storefronts:
- Smart Shopping Carts: “Smart carts” essentially place the self-checkout kiosk on wheels. The carts use integrated technology to help shoppers find items, manage lists, and pay for items, combining convenience, speed and personalization for busy shoppers.
- Interactive Displays: Interactive kiosks and touchscreens allow customers to peruse in-store and online offerings, review additional product information and scan reviews, helping customers make more informed decisions and adding an element of fun and engagement to their shopping journey.
- Smart Mirrors and Fitting Rooms: Smart mirrors can let customers virtually try on clothes, makeup, or accessories. This innovation bridges the gap between the physical and digital shopping experience, saving customers’ time and adding excitement to the often-dreaded fitting room experience.
- Scanning and Monitoring Systems: In-store scanning and monitoring systems can track products, manage inventory, enhance replenishment timing and accuracy, and improve product analysis and planning. These tools also monitor customer behaviors and interactions with product displays, providing retailers with valuable insights to support overall operational efficiency.
Sephora’s recent decision to renovate all its North American stores over the next five years underscores a strategic shift toward integrating advanced technology within the in-store experience. In-store technology is crucial for retailers, and those who fail to adopt and utilize these innovations risk being left behind by competitors who are fully embracing this tech-driven era.
Focus on Profitability
E-commerce has become an essential component of a retailer’s business model. Despite the significant growth of e-commerce, it still faces substantial profitability challenges, with many digital standalone brands like Warby Parker continuing to report losses year after year.
Customer acquisition retention costs, the expense of offering free delivery, managing returns, and handling unsold or unreturned inventory are heavily impacting the profitability of online retailers. In particular, free shipping and unrestricted returns can make businesses unviable. These challenges are further amplified by the need for in-store innovation, and enhanced experiences designed to drive customer visitation, which requires an incremental investment.
Given these pressures, retailers must prioritize profitability to ensure their business models are viable. To prevent financial instability and liquidity and debt issues that have plagued department stores over the last decade, they must reexamine their ability to generate cash flow and refine their strategies in response to changing customer behavior and the disruptive nature of technology on the competitive environment.
Optimizing Retail Footprint
To counteract profitability challenges and adapt to changing consumer behavior, retailers must reexamine optimal store footprints over the next five years. These footprints will vary from retailer to retailer.
Retailers will need to renegotiate their leases, close unprofitable stores, or repurpose some stores to regional distribution centers. This reassessment will help lower rental and labor costs while boosting stock turnover, ultimately allowing retailers to invest in the technology and the in-store experiences essential for meeting customer expectations and profitable business margins.
Rethink the Status Quo
The retail industry is undergoing a significant period of transition marked by the evolution of e-commerce and the application of artificial intelligence. Given these strong headwinds, retailers need to rethink the status quo and elevate the in-store experience with an appreciation and understanding of technology. Retailers should prioritize “experiences” and improved in-store customer service to offer a refreshing alternative to the often-monotonous habit of online screen browsing. “Winners” in the retail industry will strike the correct balance between in-person interaction and technology, driving store visitation and providing the simplicity, efficiency, reliability, convenience and escape that customers increasingly need.
