The Rise of the O-Tailer

April 6, 2017 Neil Egan

Vinod Kashyap, Director-Product Management, IoT and Indoor Positioning Solutions with Acuity Brands

Here is a bold, and perhaps counter-intuitive prediction: “In the near future, there will be no purely brick and mortar (B&M) or e-commerce retailers.”

How can this be? There is a steady drum beat that claims B&M retail stores are dying, and that e-commerce is the wave of the future. E-commerce paired with mobile commerce is surging. Amazon has grown its footprint significantly into areas once dominated by B&M retailers. Similarly, retailers who are also pushing e-commerce hard are seeing double-digit growth in their revenue streams. Even traditional B&M retailers that have seen overall sales decline have had double-digit growth in e-commerce sales.

And yet, the idea that the key to survival for B&M retailers is to become better e-commerce retailers is shortsighted and ignores the drawbacks of an e-commerce-only retail strategy. Traditional retailers pursuing e-commerce undoubtedly experience the same online fulfillment and fraud challenges that plague their strictly e-commerce counterparts: high shipping costs, large budgets for fraud prevention, and revenue loss due to overly rigid fraud prevention rules (known as false declines).

Further, B&M stores have numerous benefits e-tailers can’t offer. A retailer with store locations can engage all five of the shopper’s senses. It can also satisfy the “get it now” desire so many consumers pursue on their shopping journey. The physical and sensory experiences of B&M shopping are a big reason why 85 percent of consumers say they still like to shop in stores [1]. The belief that e-commerce alone is not going to win in the future is validated by the fact that Amazon is testing the B&M store business model, with its announcement of a concept B&M bookstore, and the AmazonGo quick-service store.

Who will win in light of the dramatic changes the industry faces?  It’s safe to say that some B&M retailers who fail to adapt are going to fade away and some e-commerce companies that ignore the high-touch benefits of physical stores are going to struggle. Without a doubt, the Internet and the mobile device will be recognized as a major catalyst that helped kill off many retail dinosaurs. However, the industry metamorphosis is being driven by periodic technology changes, and future disruptions will produce a different set of winners and losers. No one knows when the pace and direction of change will shift or what that new status quo will look like.

One thing that seems certain is that from the change, dominant retailers will emerge with new business models. They will be able to handle all customer channels: online, on their mobile phone, through social media, and simply by walking in the store, all in an integrated and seamless fashion. These will be the new breed of omnichannel retailers – the o-tailers - that have figured out how to simplify and “pleasure-fy” the shop, order and fulfillment experience in every channel. 

To make this possible, retailers have to rethink the store itself. One way to do this is to create a seamless digital experience in the store. This means embracing and providing all of the experiential benefits digital and mobile technology offer. In-store navigation should be as easy as the GPS navigation we use to find destinations outdoors. No matter where they are, shoppers should be able to get help as easily as calling an Uber driver. They should be able to learn about products in the store using search terms just as they are able to search "food near me" on the Google maps app.

In the o-tailer world, success will go to those retailers that allow shoppers to digitally manipulate their experience via their mobile devices. Today, there is one technology that makes this possible: Indoor Positioning Systems (IPS). IPS allows the online and physical store to become digitally accessible on a shopper's mobile device. IPS is similar to the GPS technology we use in our cars. IPS technologies use fixed location transmitters or beacons, a mobile device, digital indoor maps, and a mobile loyalty app, to provide shoppers with location and navigation within the store.

IPS has emerged as a powerful tool to engage and assist in-store customers, at the exact point-of-purchase decision – the aisle and shelf. Through IPS, customers can find items faster with blue-dot directions, get in-the-moment promotional offers on the products they are looking at on a shelf, navigate easily through new stores and enjoy an immediate, seamless omnichannel experience – with the ability to purchase off the shelf, via their mobile device or pick up an item purchased online.

Beyond the customer experience, IPS is making its mark in other ways that bolster business for B&M retailers. Advanced data analytics, using location data, paired with point-of-sale and inventory data can improve layout, and drive more effective shelf and display strategies. Further, merchandise can be quickly restocked or redeployed based on shoppers’ actions. It can help streamline pick routes for buy online, pickup in-store – strengthening the omnichannel experience. IPS can also help optimize operations by allowing managers to monitor and balance coverage patterns and associate-to-customer ratios in real time. Imagine never having to call a cashier to open a register or a locked case; an automated signal could identify any such need based on in-store traffic patterns. This “just-in-time” assistance goes a long way toward satisfying customers.

To thrive as an o-tailer, retailers should not just be focusing on winning online and in-store. They need to think about what could be next. Pushing retail organizations to create new shopper experiences allows them to drive that consumer experience, rather than catch up to shopper expectations.

Retailers that rethink digital and physical strategies and invest in new technologies that create new and improved customer experiences will become the winners in a new era in which the giants will be the ones with the smartest retail stores.  

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