It’s the End of Retail As We Know It: How Can Marketers Adapt?

Hal Conick
Marketing News
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Key Takeaways

​​What? Bricks-and-mortar retail is in trouble. Shops are closing, businesses are going bankrupt and consumers are shopping online.

So what? Marketers may be able to help by taking control of the ever-evolving customer experience. 

Now what? Look to leaders such as Bonobos and Best Buy, which have elevated their storefronts to showrooms and made online-to-in-store conversion seamless.

​Sept. 1, 2017

The rise of mobile devices has ensured retail will never be the same. Companies must deliver a new customer experience or risk falling into the retail chasm.

 

“Apocalypse.” “Meltdown.” “Disaster.”

These are the words used by analysts, journalists and industry professionals to describe the retail industry in 2017. In the first three months of 2017, five department stores—Macy’s, Kohl’s, Dillard’s, J.C. Penney and Nordstrom—collectively lost $4.6 billion in market value, per analysis from Bloomberg and Financial Times. Nordstrom was downgraded by J.P. Morgan after executives at the retailer said bricks-and-mortar sales hadn’t been so bad since 1972.

In addition, industry stalwarts Macy’s and Sears have closed hundreds of retail shops. Nine companies filed for bankruptcy in the first three months of the year—tied with 2016’s year-end total— The Atlantic reports. Meanwhile, e-commerce—namely Amazon—has boomed, making life easy for the casual shopper. Anyone who questions Amazon’s dominance can look at this startling number: 81.7% of e-commerce growth in the third quarter of 2016 came from Amazon, increasing its own revenue 26.7% quarter over quarter​, Internet Retailer reports.

Even with e-commerce’s boom and retail’s gloom, most consumers still enjoy leaving the house and shopping in physical stores. Nearly a third of consumers say they prefer touching, feeling and trying out items before they buy them, according to Retail Dive’s 2017 Consumer Survey. Forty-nine percent say they like to take items home immediately, 18% say they still go shopping for the in-store experience and only 7% say online is the only way they shop. 

So why has retail slipped from decent to disaster? One reason: Customers are no longer happy with the “old model” of retail customer experience, according to Barbara Kahn, a professor of marketing at The Wharton School. Many stores simply aren’t exciting to visit. Many provide poor customer experience—Harris Interactive reports that customer service agents fail to answer a customer’s questions 50% of the time. Bad service is made worse by bad revenue, as more salespeople are cut and fewer are in stores to help customers. With the massive overhead it takes to run a retail shop, competing on convenience against Amazon or price against Walmart is also difficult. 

“The question is, are we predicting the end of the physical stores? I don’t think anybody’s predicting that,” Kahn says. “But are we seeing a shift in shopping behavior? Of course.”



The Mobile Revolution 

There’s a “modern commerce revolution” in retail, according to Brian Solis, a principal analyst at Altimeter and author of X: The Experience When Business Meets Design. Consumers are empowered by the flexibility of smartphones and have either subconsciously or intentionally changed how they behave, what they value and how they make shopping decisions. “That’s where all of this disruption is stemming from,” Solis says. 

A report from Forrester found that in 2016 mobile devices drove approximately $1.7 trillion in offline retail sales—just greater than half of all retail sales. This means customers are researching on their devices and buying in stores. By 2021, Forrester predicts retail consumers will spend $152 billion via mobile phones—representing 24% of total online sales—and smartphone retail sales will grow 20.4% each year. 

Retailers have had trouble responding to this mobile disruption, Solis says, as they still operate in the same “old model” that Kahn referenced. The retail customer journey is now almost unrecognizable from just a few years ago, but many retailers are still trying to make the old customer journey work, Solis says. However, retailers are underinvesting in mobile devices, per Forrester’s report. Companies would have to spend tens, if not hundreds, of millions of dollars to adopt the technology necessary to appease digital-first customers with mobile store maps, mobile coupons and digital inventories. Many businesses simply aren’t doing any of this. Taking bets on digital investments now may mean staying in business in the future, Solis says. 

 

 Brian Solis - The Experience when Business meets Design

 

​​“There is a need to create a bridge between the digital and real world so that they blur and essentially coalesce with one another, but that takes experience, design and architecture, and to get there we have to understand customer modeling,” Solis says. “We have to understand how their favorite apps are impacting how they interact with information and then use that to redesign online experiences to be more like the Ubers and Tinders of their world.”

Physical retailers should strive for digital parity, says Micah Solomon​, a customer experience speaker and consultant. Transparency and ease of use have become essential retail qualities for many customers. Opaque businesses with wonky mobile experiences will risk making customers feel inconvenienced—not a driver of repeat business. “Having said that, streamlining isn’t everything,” Solomon says. “The customer experience—the reason people shop—is about entertainment and emotional engagement. You can’t streamline yourself into a successful business in physical retail unless you’re a convenience store at the perfect location. You need to offer something more.”

The Unknown, Changing Customer

That “something more” may lie in the new customer journey, but retail executives lack knowledge of who these customers are. This is deeply concerning, Solis says, as many business executives believe Amazon is sapping their traditional customers. However, he says Amazon is actually cultivating its own base of connected customers. This leaves traditional retailers—tilting at windmills like Don Quixote—trying to protect a customer who isn’t there anymore. The connected customer is different, likely young and has only ever known a digital world. In some cases, they are an older customer who has adopted a digital lifestyle. 


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“There’s very little expertise and experience within the executive ranks of these retailers because they’re still trying to compete against Amazon with existing resources,” Solis says. “Even when they acquire new companies, they’re still operating within a culture that doesn’t necessarily understand innovation, risk-taking and all of the elements that make innovations so compelling.”

As consumers get younger and become more technology-driven, retailers must understand how to innovate and meet their needs. Kelsie Marian, principal research analyst with Gartner, says Generation Z—or those born between the mid-1990s to the mid-2000s—will “drive unavoidable changes” in retail sooner than most retailers think. 

“[Generation Z] has grown up in an unpredictable world in which technology plays a significant role in helping them to be at ease with what’s happening around them,” she says. “To some extent, becoming like them will help bridge the gap from where retailers are now to the future of living in a world in which technology will play a defining role.”

One way to become like Generation Z—or at least know how they shop—is to study micro-moments. Coined by Google, the term refers to the brief seconds of decision when people turn to their mobile device to do, buy or learn something. Solis studied micro-moments with Google, researching how retail consumers use mobile devices to shop. 


“We were witnessing that consumers not only were becoming increasingly mobile-first, but if they had their druthers, they would be mobile-only,” Solis says. “What we learned is that the customer journey is incredibly fragmented, and it’s because of how [consumers] behave, but also frustrating because most customer journeys that exist today are not mobile-intuitive or mobile-native.”

Retailers have tried to bolt onto t​he existing experiences instead of speaking to the mobile native, Solis says. However, mobile’s supersaturation of the market has created a new set of expectations that piecemeal technology add-ons simply cannot meet. The linear customer funnel—as well as the customer in the funnel—that depended on brand loyalty have changed. Customers studied by Google had no brand in mind during 90% of their micro-moments. Seventy-three percent of consumers made a purchase decision based on which company was the most useful during their micro-moments of retail research. “We’ve watched an incredible shift,” Solis says.

“Read between the lines: Why would Google do this research?” Solis asks. His answer: Customers no longer spend time on traditional websites and have lost patience with horrible experiences on mobile devices. “This is a [consumer] who [retail] executives don’t know,” Solis says. 

 

 Micro-Moments: The New Battleground for Brands

 

The Frontier of Change

From the outside looking in, Bonobos’ Guideshop​—the name for the online-first apparel company’s physical presence—looks like any other clothing store. Sundry, mass-produced framed pictures hang above neatly arranged clothing that lies folded on top of shelves. Eager salespeople sit behind a counter as electronic pop music streams through the speakers. A closer look reveals an odd difference, perhaps an augury of the future of retail: The usual stacks of clothing in different sizes and colors have been traded for a polychromatic arrangement of shirts and pants; there are no repeats among them.  

What makes Bonobos—which was recently acquired by Walmart for $310 million—different from the average retailer is that it is fashioned in showroom style, allowing customers to feel the fit of the clothing before they buy. “It’s nice to come into the store to see the fabric and feel it,” says Denis Guevara, a Guideshop assistant manager at Bonobos’ downtown Chicago store, echoing the sentiments of consumers in Retail Dive’s Consumer Survey.

Here’s how the customer experience at Bonobos works: Customers make an appointment online, go to the Guideshop and are immediately greeted by a warm-blooded salesperson who asks what they’re looking for. Customers try on clothing to find the best fit and are shown pictures of themselves in the outfit with a variety of color filters to see varicolored options. A customer profile is then created to help shoppers easily find the same fit next time they visit Bonobos. Once they buy, Bonobos ships the order to the customer within two days. For its efforts, Bonobos won the award for best Customer Experience Leader in 2016 at Multichannel Merchant’s Excellence in Customer Experience awards

Cody Bauer, vice president of retail at Bonobos, says the company’s focus on customer service begins and ends with employees like Guevara, who are trained in finding the best fit and style for customers. 

“Bonobos was founded on the idea that we could create not only better-fitting men’s clothing but also provide a better customer experience,” Bauer says. “Our goal as a company is to provide an easy, hassle-free approach to shopping in every touch point you are able to buy Bonobos product.”

The appointment system allows Bonobos employees to work one-on-one with each customer to efficiently find what they’re looking for instead of letting them endlessly mill around. The expectation of great customer service in retail has never wavered, Bauer says, but brands are now under pressure to ensure customer service while quickly getting people what they want. “The new normal for brands is being able to consistently do both of those well,” he says. 

Many retailers, like Bonobos, are fighting to improve the customer’s experience to meet the ever-changing and -quickening shopper standards. Nordstrom—previously mentioned as one of the five companies falling in the first quarter of 2017—has seen its stock rise 17.5% over the past year while the rest of the retail industry’s stocks fell a collective 22.4%, per Zacks Equity Research. Nordstrom has done this via a long-term, customer-focused strategy and is on track to reach its growth target of $20 billion by 2020, Zacks says in its analysis. 

“Nordstrom is an example of a department store that is really trying some innovative stuff,” Wharton’s Kahn says. “They have a lot of pop-ups in their store. They feature lots of different stores within their stores, and they change what they have so there’re a lot of new [items]. There’s a lot of discovery.”


Best Buy is another company that has embraced the new-model customer experience. CNBC called the company “a retail anomaly” because it’s actually fun to shop there—kids get to sample video games and adults get to play with the latest gadgets. For the digitally inclined, it’s real-life virtual reality. Best Buy’s stock rose more than 20% in May after analysts saw the company’s in-store sales soar past expectation. 

Kahn says Best Buy’s success is because it, like Bonobos, has embraced the showroom model. Years ago, this model actively hurt Best Buy—Kahn says it served more as “webrooming,” or a place where customers would research and try products before buying them on Amazon—but Best Buy has implemented a price match guarantee for all retail competitors and certain e-commerce websites, including Amazon, Newegg and TigerDirect. Instead of trying out a new iPad and buying it elsewhere, customers get to play with the iPad, find a better price online and instantly take their new tablet home at a discounted price.

Kahn says there are four strategies retailers are using to shift to a more successful customer experience model, including: 

  • ​Competing on price (think Walmart’s “Everyday Low Prices” or Best Buy’s price match guarantee). 

  • Convenience (think Amazon, which allows customers to buy from its physical retail shops by logging into the company app). 

  • Luxury experience (think the flagship, high-end shops of New York City’s 5th Avenue or Paris’ Avenue des Champs-Élysées, which tend to draw in equally high-end customers).

  • Vertical brands offering quality merchandise or product (think Bonobos, Warby Parker or Sephora offering physical versions of their e-commerce shops that serve as product showrooms).

There are other physical retail successes that don’t quite fit into any of these categories, Kahn says. Eataly, owned by celebrity chef Mario Batali, is a chain of gigantic stores stocking Italian-inspired food that intermixes grocery shopping with activities like cooking classes. New York City’s STORY—with the apropos tagline “Re-inventing Retail”—is a shape-shifting store that changes its merchandise and design every four to eight weeks. STORY’s website says it takes “the point of view of a magazine, changes like a gallery and sells things like a store.” 

“These retailers are the ones that people are really attracted to,” Kahn says. “They’re changing their shape. … If you don’t change with these changing shopping behaviors, you’re seeing lots of doors close.”

 

 How Bonobos Is Disrupting The Men's Fashion Industry [Disruptive]

 

​​Little Bets for Big Change

Clearly, updates are needed in the physical retail space. Generation Z customers will soon have more spending power and will expect an integrated experience. Companies that don’t converge retail and online channels risk losing these young customers or, worse yet, losing their business. Every shop will need to have better online-offline integration, Kahn says. A big-box retailer like Walmart, for example, allows consumers to shop online and pick up items in the store, just as new-school retailer Bonobos allows its customers to buy in the store and have their outfits shipped home. 

“Both are this combination of understanding that it’s mobile first,” Kahn says. Other examples of mobile-first retail shopping are using geotargeting and smartphone alerts to notify customers of in-store deals. 

Amazon’s physical shops tie the mobile device into the experience so much that one cannot shop without it. “You use the phone to enter into the grocery store, then you walk around, take whatever you want and it’s all being recorded,” Kahn says. “When you leave, you just walk out and you’re billed on your phone. That’s an example of really sophisticated integration of online-offline, but I think you’re going to start seeing more of that as retailers start to get the hang of the way people are shopping.”

None of this is to forget the traditional customer, who is less familiar with digital shopping but still likely owns a smartphone. While modern, new-school retailers have the luxury of not reinventing their business models, Solis says they have trouble drawing in the traditional customer. This is where “classic” retailers may have a chance to survive and thrive: bridge the gap between the old and new; speak to both groups. 

Executives that want to address the gap between old and new may have to be bolder than usual. With the retail industry battered by disruption, Solis says leadership must not only understand what a more-digital customer wants, but must empower existing employees to create changes that meet the customer’s needs. 

“If you don’t change how your culture empowers and rewards employees for doing and learning new things, you’re always going to be stuck with the same center of reference,” Solis says. “There’s a need for new leadership, there’s a need for new mindsets and there’s a need for new metrics and goals. This has to come from the top down with great empowerment and strategic risk-taking in the same way any disrupter starts to disrupt.”

Marketing’s Role in the Future of Retail

Marketing must evolve with customer experience, Solis says. Many marketers still operate using traditional methods, but brands are being defined by customer experience. This gives marketing departments across the retail industry a chance to affect more than just messaging, but the entire customer experience. 

“I always define customer experience as [the] engagement a customer has with your brand in each moment of truth, then measured overall,” Solis says. “That means that marketing has a greater opportunity to reinvent itself and to become more valuable within the organization; it just has to be ready to accept that marketing is ready for its own transformation, which I think is a great thing and a catalyst to do that is extreme personalization.”

Extreme personalization means marketers must understand customer behaviors and seize the moment—quickly. Google recommends studying micro-moments, Solis says, to understand how different touch points affect different people, such as where, how, when and on which device consumers can be reached. This is where artificial intelligence can become marketing’s “knight in shining armor,” Solis says, as a sophisticated program can crunch numbers quickly and help marketers understand what the new customer journey looks like.

More important than any gadget, technology or customer experience shift is the mindset marketers and executives take into the process, Solis says. “What do you think your role is in customer experience? If you subscribe to the thought that customer experience is each moment and the sum of those moments and that’s what equates to the brand, then marketing should be responsible for uniting those touch points. … Marketers and executives need to really think like experience architects now.”

To avoid falling into the retail apocalypse, Solis says retailers must learn from the companies that failed. Instead of prioritizing shareholder return over customer experience like RadioShack did, for example, start taking small steps into the future even if some steps might mean failure and lost revenue.  

“There won’t be long-term shareholder value if you don’t deliver immediate customer experiences because that’s where the value lies,” Solis says. “Unilever was quite provocative when the CEO said, ‘We’re not going to cater to short-term shareholders. We have to transform in order to deliver long-term value. We’re going to make some big bets.’ And that’s what it’s going to take for them to be successful. But I think there are little bets that people can take.”

Whether executives, marketers and retailers start making bets, large or small on a digital world, Solis says that consumers will still have a digital experience. Will it be a good digital experience? That’s up to how much control marketers take of their company’s fate.

Solis’ advice to marketers is simple: “Integrate [experience] so that it’s complementary and additive to delivering that experience that you designed in the first place,” he says. “Brand becomes the experience.”


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Author Bio:

https://auth.ama.org/PublishingImages/hal-staff-photo.jpg
Hal Conick
Hal Conick is a staff writer for the AMA’s magazines and e-newsletters. He can be reached at hconick@ama.org or on Twitter at @HalConick.
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