The Future of Retail Rests on Brick & Mortar's Evolution

Posted by Mark Hardy on August 7, 2018

blue-red-painted-brick-68510As the world’s largest e-commerce market, China is nearing a tipping point when it comes to online retail. “Nearly half of the population there is actively making online purchases, leaving little room for growth,” according to a recent report from BI Intelligence. China may very well be reaching the point of saturation when it comes to online sales, at about 20%.

Which means 80% to 90% of commerce is still done in the physical store. Last year, Amazon and Alibaba opened or acquired more brick and mortar stores than most retailers in the world. Similarly, online-only brands, like Bonobos, Warby Parker, and Harry’s, have also started to see the huge impact of creating a physical store presence.

The real “retail apocalypse,” if there is one at all, applies to stores that waited too long to reinvent their shopper experience, such as Sears and Toys R Us. Major chains like these are becoming victims of this new retail landscape—in debt and unable to find their way out of the “same old” mentality. But the fact is, projected vacant leasing for retail is on a downward trajectory, as stores that were quick to embrace change (TJMaxx, Marshalls, and Dollar Store for example) are opening in their places. 

It’s good news for those worried about the state of retail, but it also means more competition among the brick and mortar set. Brands and retailers can expect dramatic changes to the in-store experience. They need to focus on continually evaluating what that looks like for shoppers, while also learning how to leverage a digital approach to cater to a total shopper experience. 

Embracing Digital and the “New Retail” Mentality

Stores will be the centerpiece of a unified commerce strategy for all retailers in the future. But to do so, physical retail will have to mirror the “test and learn” speed and agility of the digital world. It will need better data for faster decisions, without the cost inefficiencies that exist today when it comes to bringing innovation and change to market.

Alibaba calls this the age of “New Retail,” which integrates e-commerce and conventional retailing. The company has shelled over billions of dollars in brick and mortar acquisitions over the past 5 years, as well as an investment in its own chain of supermarkets called Hema. Likewise, Amazon’s $13.7 billion acquisition of Whole Foods made huge waves last year, most recently rolling out in-store discounts for Prime members.   

But it’s not just online retailers finding the value in leveraging physical store space, or even brick and mortar stores making sure to have a web presence. It’s aspects of both of those—understanding how digital and physical can become more unified in all facets of the trade, from supply chain to marketing. How can we move faster, be more agile, but still give customers convenient and engaging ways to buy, and shop?

New Technology is Leading the Charge

Right now in online retailing, changes can be made almost instantly. There are no aisles, shelves or inventory, so digital stores don’t need to worry about product placement—and a price change, new item, or store-wide sale can be conveyed to shoppers in a few clicks. Physical stores don’t have that luxury. They have to think about how shoppers navigate the store and approach products at the shelf. They have to think about if new packaging will pop, or where to place in-store promotion signage. But the way they go about doing that has evolved with new technology. Our focus here is on mixed reality (MR) solutions for retail.

Mixed reality—also known as Extended Reality (XR)—encompasses a spectrum of virtual and augmented reality capabilities, and is being leveraged by stores and brands to view concepts and in-store changes instantly. Virtual and augmented technology creates immersive visuals and has the ability to make designing and iterating on new concepts faster and easier because everything resides within a digital space.

InContext Solution’s enterprise collaboration and decision-support platform—ShopperMX™—enables brands and retailers to digitize the demand chain to optimize retail merchandising, and test and learn time frames measured in days rather than months. Retailers and brands can mine better data in less time, for less money than traditional methods, and it’s a way to bring online thinking—that is, the ability to be agile and make changes quickly—into the physical retail processes.

For example, one leading retailer wanted to evaluate 3 different category layout ideas in order to drive growth and provide a better shopper experience. To do so, they would need to secure and implement the ideas in all 50 stores, and then interpret the outcome of each based on sales data after 4 months. However, we know that 85% of the time a retailer touches the shelf for resets or cut-ins, there is no category growth, costing each individual store around $30,000/year in unproductive labor.

Instead, the retailer decided to leverage ShopperMX™ to visualize and test those same 3 concepts with real shoppers using virtual simulations. They were able to:

  • Mine sales data along with shopping behavior, attitudes and full demographics, all within 5 days.
  • Gain sales data that was within 3% delta vs. physical in-store test.
  • Publish the concept at the push of a button to a tablet at each store, in order to give a realistic visual of the layout to better explain implementation, ensuring faster and higher compliance.

With virtual, the retailer had time to iterate on potential ideas and to test and learn, while eliminating risk and costs.

Optimizing Commerce Through Innovation

There’s no reason physical stores can’t enjoy some of the speed and agility we see with online retail. In fact, they should be employing these techniques and solutions right now in order to stay at the forefront of retail innovation. The pressure remains to introduce new products and modify assortments, but unfortunately $17,000 to $40,000 of shelf-labor expense is wasted per store, per year, by retailers and manufacturers blindly making changes that will not have any measurable impact.

Mixed reality technology is a groundbreaking solution allowing brands and retails to make quick, insights-driven decisions, enabling them to save time and money, and change their cost structure. Perhaps more importantly, leveraging a digital approach to brick and mortar means companies are getting closer to a true unified commerce experience.  

This article was originally published on LinkedIn by CEO Mark Hardy.

Mark Hardy

CEO, InContext Solutions

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