Store of the Future — Ray Writes

How the COVID-19 Pandemic Brought Us Closer to the Store of the Future

The COVID-19 pandemic hit a retail industry already in the throes of its most dramatic transformation in more than a century.

150 years ago, retail sales occurred in small neighborhood shops in which shopkeepers personally selected products for their shoppers based on an encyclopedic knowledge of their limited inventory and localized customer base. As the concept of the supermarket took hold in the early 20th century, the salesman shopkeeper transformed into a merchant warehouseman stocking thousands of products on shelves from which shoppers anonymously made their selections. The point of sale shifted from the encounter between shopper and retailer in the store to an encounter between shopper and advertiser, often taking place outside the store. Today, retailers make profit not through their knowledge of products and shoppers, but by making available to shoppers the products that have already been sold to them.

COVID-19 blurred the lines between bricks and clicks retail.

Meanwhile, the number of products sold in stores exploded. Competition among manufacturers for limited shelf space has led to brand-on-brand mayhem in the aisles as retailers referee a constant war of trade promotions such as price discounts, coupons, in-store displays, and sales contests. As increasing numbers of brands and product options fight for limited attention, manufacturers and retailers are left with little time or interest in focusing on the shopper.

The integration of bricks and clicks – combining the vast selection, easy purchase, and personalized selling of online shopping with the immediacy and 360-degree experience of brick and mortar stores – promises increased profits for retailers and manufacturers by returning their focus to the shopper. While it could take another 20 years of innovation to fully realize this potential, the COVID-19 pandemic may have accelerated the process, bringing us closer to the shopper-centric store of the future.

The pandemic introduced an element of necessity that drove retailers and shoppers to quickly adopt ecommerce channels in new ways and large numbers. Since March, households using click-and-collect services increased by 33%[1]. Engagement with shopping apps was up 40% year-over-year[2]. In May, total online spending was up 77% year-over-year[3]. Research suggests that the pandemic may have accelerated ecommerce growth by 4 to 6 years[4].

As we emerge from lockdown into a new normal in which greater numbers of shoppers are familiar with online shopping, some retailers are poised to thrive in a more integrated bricks-and-clicks landscape. Here, we examine retailers who have developed tools and practices that will help define the post COVID-19 industry.

Amazon

Before the pandemic drove shoppers online, Amazon was already the established ecommerce leader. The 2nd largest retailer in the US[1], Amazon offers shoppers the convenience of purchasing everything from groceries to snow tires from their home with quick and cheap delivery options.

As the pandemic took hold, Amazon ramped up operations and hired 175,000 additional employees to meet increased demand[2]. Its website traffic grew by 65% in March compared to the year before[3].

Amazon embodies the two biggest advantages of online shopping: an enormous selection and ease of purchase. Amazon offers more than 12 million products not including those offered by third party vendors. The easily navigable “one-click” interface quickly and efficiently secures purchases by guiding shoppers through that vast inventory to the products they want, providing a digital personalized sales service.

Online retailers like Amazon have reintroduced elements of the personalized retail sales service of a century ago through prompts such as “shoppers who bought that also bought this”, recommendations based on customer profiles, and providing product reviews and information. These sales techniques help online shoppers navigate the vast inventory and quickly identify and purchase the products they want. Amazon and other leading retailers are working to bring these online personal selling advantages to the bricks environment through innovations such as Dash Cart and Amazon Go.

Amazon’s selection and interface have made it the standard in online shopping, comprising 49% of all online spending in the US in 2018[4]. But the virtual experience cannot compete with the two biggest advantages of bricks retail: the 360-degree experience and immediacy of delivery.

Walmart

On average, six in ten shopping trips can be defined as a “quick trip” in which shoppers purchase a small number of items they need within the short-term[5]. These are spontaneous purchases for which shoppers are unwilling to wait on delivery, no matter how fast or cheap it may be. Bricks retailers that put their stores within easy access to shoppers benefit from the bricks advantage of immediacy.

Walmart’s nearly 5,000 stores across the US put the 140,000 products on their shelves within easy reach of most shoppers whether they are online or in the store. But a key disadvantage of bricks retail is that the select few items shoppers purchase most often become lost in a sea of brands and product lines fighting for limited space on the shelves. Just 20 percent of the products offered in the supermarket make up 80 percent of the store’s sales[6]. While a healthy selection of inventory might entice shoppers through the door, it can also suppress sales by confusing, frustrating, and slowing shoppers overwhelmed by choice.

Shoppers have made it known that they want options as well as the convenience of finding those options in one place. It is reasonable to conclude that the shopper’s desire for options drove the explosion of flavors, colors, sizes, and features we now see on store shelves. In 1975 the number of products in an average supermarket hovered around 9,000. By 2008 that number had burst to nearly 47,000[7]. But, did shoppers ask for 20 types of toothpaste?

We think of choice as a good thing. But too many choices can be overwhelming. Most shoppers do not have the time or inclination to consider 80 options of salad dressing. Research has shown that shoppers confronted with a wall of options can become frustrated which results in lost sales. A Consumer Reports survey found that when faced with too many choices 5% of shoppers walk away without making a purchase[8]. Conversely, research shows that the more quickly and easily a shopper finds the item they want the more items they are likely to buy (Kantar).

Store shelves overstuffed with brands and multiple lines within each brand are driven by the competition among manufacturers for shelf space, not out of an effort to provide shoppers with the products they want. The more products a manufacturer has on the shelf the greater the chance a shopper will pick one of their products over a competitor that has fewer options and less shelf space.

Bricks retailers offering a large selection mirror the advantage of their online counterparts such as Amazon, who shoppers recognize as a one-stop-shop for anything. They lack, however, the advantage of the online interface and personalized selling that quickly and efficiently guides shoppers to exactly what they want. Bricks retailers who can replicate that clicks advantage in their physical environment and help their shoppers effortlessly connect with the products they want will bring us closer to the store of the future.

Costco is an example of a successful retailer bucking the trend of “more is more”. Compared to the average supermarket’s inventory of 47,000 products or Walmart’s 140,000, Costco, the nation’s fourth largest retailer, offers a paltry 3,600[9].

Costco’s 100 million member shoppers can find everything from jeans to diamonds to frozen shrimp on the shelves. But the warehouse giant offers fewer options within each category than its competitors, usually limited to a choice of 3 including its popular in-house brand, Kirkland. This enables Costco to offer lower prices by negotiating better deals with manufacturers eager to be featured on their shelves[10]. And, in a call back to the personalized selling of small shops a century ago, Costco’s limited inventory makes selecting products a more efficient process for shoppers who trust Costco to offer the best value regardless of the number of options[11].

Kroger

With 2,757 stores, the nation’s 3rd largest retailer[12], Kroger, offers the most locations of any supermarket chain in the US[13]. Kroger’s strategy is to offer different store formats – warehouse, supermarkets, department stores (Fred Myer), and convenience stores (Kum & Go) – in each market to meet all their shopper’s needs and preferences[14]. This strategy has positioned Kroger as the de facto neighborhood pantry capitalizing on the immediacy advantage of bricks retail.

But, in response to the pandemic, Kroger has shown that there is room for clicks in the immediacy arena. The company announced that its online sales grew by 92% in the first fiscal quarter which ended May 23. An expanded online product selection, additional online pickup slots, and testing of an online grocery only pick up model helped fuel this growth[15].

cover_image_1604435462.jpg.760x400_q85_crop_upscale.jpg

Conclusion: What Will the Store of The Future Look Like?

We are already witnessing the potential of online personalized selling through tools that tap into the shopper’s habitual purchases such as online shopping lists and smart refrigerators that automatically place online orders as frequently purchased products are used[16].

But, retail has barely begun to explore the potential for shopper engagement and personalized selling through online and mobile, both inside and outside of the bricks store. Online video, photos, product information, reviews, ratings, and comparison charts can be a sales force multiplier for any brand or retailer, putting a personalized sales associate in the pocket or on the desk of any shopper whether they are at home, at work, or in the store[17].

As shoppers become more comfortable with and expectant of online shopping options such as click and collect, the bricks store of the future will need to adapt to better capitalize on the advantages of immediacy and the 360-degree experience. Integrating online shopping technology in the physical store to help shoppers quickly and efficiently find the products they want among the thousands on the shelves will increase sales. Innovations such as mobile apps that guide shoppers to the items on their lists and digital shelf displays that clue shoppers to the items they seek are already in development.

Amazon recently received a patent for a device that intercepts network requests, such as product searches on competitor’s websites, over the in-store Wi-Fi. The retailer can use this information to send shoppers price comparisons, coupons, and offers for in-store products. It can even determine the shopper’s location in the store and upsell on nearby items[18].

Amazon is at the forefront of cashier-less stores that use a combination of sensors, scanners, and deep learning which enables shoppers to pick the products they want off the shelves and walk out of the store skipping the lines at the registers, bringing the convenience of the online “one-click check out” advantage to the bricks environment. The online giant currently operates 26 Amazon Go stores and is licensing the technology, called Just Walk Out, to other retailers[19]. Chinese e-commerce giants JD.Com and Alibaba are also developing cashier-less stores.

Some innovators are making exciting advances toward an integrated bricks and clicks environment. Shopper Scientist LLC has developed a suite of patents designed to help retailers sell like Amazon in their bricks stores[20]. Some of these innovations use sensors, video, and tracking technology to better understand and predict shopper behavior in the aisles. They enable retailers to actively sell through subtly targeted triggers, increasing sales by helping shoppers find their selection more quickly and efficiently.

For many shoppers, the pandemic has been a period of discovery as they ventured online to shop for everything from pasta and orange juice to clothing and tires for the first time. As the world reopens for business, those shoppers will return to their brick stores with new expectations of convenience, service, and efficiency. Retailers who seize the potential that the integration of bricks and clicks offers to focus on their shoppers and provide personalized selling will thrive in the store of the future.

[1] https://nrf.com/resources/top-retailers/top-100-retailers/top-100-retailers-2019

[2] https://fortune.com/2020/05/18/amazon-business-jeff-bezos-amzn-sales-revenue-coronavirus-pandemic/

[3] https://www.nbcnews.com/business/business-news/amazon-has-been-indispensable-during-pandemic-it-s-clear-who-n1197341

[4] https://www.nchannel.com/blog/amazon-statistics/

[5] Sorensen, Inside the mind of the shopper

[6] https://www.consumerreports.org/cro/magazine/2014/03/too-many-product-choices-in-supermarkets/index.htm

[7] https://www.consumerreports.org/cro/magazine/2014/03/too-many-product-choices-in-supermarkets/index.htm

[8] https://www.consumerreports.org/cro/magazine/2014/03/too-many-product-choices-in-supermarkets/index.htm

[9] https://www.fastcompany.com/3025312/the-choreography-of-design-treasure-hunts-and-hot-dogs-that-have-made-costco-so-succe

[10] https://www.fool.com/investing/general/2015/04/26/why-does-costco-have-less-merchandise-on-its-shelv.aspx

[11] https://moneywise.com/a/how-costco-fools-you-into-blowing-your-budget

[12] https://nrf.com/resources/top-retailers/top-100-retailers/top-100-retailers-2019