Retail versus e-tail

Updated: Apr 17 2014, 02:08am hrs
Technology, singularly, has been one of the biggest disruptive forces for the retail industry. It has given the shopper more than one channel to shop with, convenience of shopping at home, driven down costs and, most of all, shifted the centre of gravity of customer experience from the provider to the buyer. To say that the shopper today is well informed is understating the facts. While the retailer grapples with customer analytics, with the information overload, do the customers need an analytics tool themselves to process the information they have at hand.

The informed customers today research online, see and feel the product in store, and place the order online; in the process, driving the price of their buy more than 40% than what they would have paid had they bought the product in-store. This has given rise to the term showrooming, and while even the biggest sceptics are not ringing the death knell of the physical stores, the cheese has clearly moved for this industry.

In the debate of retailing versus etailing, the truth today is somewhere in the middle. While etailers worldwide are a growing breed, it is also true that the etailers are increasing feeling the need of getting into physical formats be it small stores where customers can walk in, feel and see products and then order online, shopping walls, or lockers for convenient delivery. Amazon, eBay and Tesco being examples of that. On the other hand, retailers are upping the game by going the multi-channel route and we will see somewhere the line between etailing and retailing blur, and a new business model emerge for the industry.

To be able to capitalise on these trends, its important for the physical store retailers to understand the reasons behind the changing behaviours. According to PwCs Global Multi-Channel survey, the top two reasons shoppers buy online is convenience, followed by cost. Online shopping gives them the convenience of shopping from home, doing so 24/7, and it also gives them the cost advantage.

On the other hand, people who shop in-store do so because they like to feel the product, get instant delivery and like personalised services. A large part of India shops in-store also because they do not trust the delivery system, are worried about data security, dont own a credit card or dont have a data connection. While with the penetration of data and credit services the last three reasons will become less and less important over a period of time, it is time for physical stores to plan for a sustainable business.

To start with, today more than ever it is important for retailers to cater to multi-channel. This, in the most obvious case, helps beat the infrastructural issues and cost but, on the other hand, also gives more options in the hands of the customer. However, in most cases, where the retailer has gone into non-physical formats, its an also-ran for them. Most of them are moving into that format because everyone is, and not because it is a serious way to get geo-expansion, getting customer loyalty and market share. It is important for the physical retailer to take the multi-channel option as a big driver for growth. This requires a change in operations, the way analytics is used, the way technology is scaled, the way marketing is done. And retailers need to create business models that will take into account all these factors.

While showrooming is a growing phenomenon, it is also true that online is driving sales in-store in a number of categories. There are categories that are researched online and bought in-store. For example, the PwC survey showed that in the computer and electronics segment, 59% people researched the products online but only 43% bought them online. As many as 45% people researched furniture and homeware online but only 32% bought them online. Similarly, 51% of the buyers researched household appliances online and only 36% bought them online. This would mean that shoppers are today walking into stores to buy certain categories more than the others. The retailer, hence, needs to look at the category mix and realign them to drive sales in-store.

Finally, retail is all about people, their behaviour and what drives loyalty. One of the biggest reasons people shop in physical stores is social interaction and, as our survey respondent said, They just like shopping in stores. So can stores evolve to become places where people not only shop but get an opportunity to get together and hang out Probably IKEA does it the best, creating their stores as social destinations and not necessarily shopping ones.

As etailers require physical formats and physical retailers see a need to go online, new models will emerge. One is tempted to think that one day there will be partnerships where etailers, instead of having physical stores, have a shop in physical retailer stores where their cost-conscious customers browse and try products, order online and the physical store gets a charge for each such transaction. One may think why would the physical store do that, but then, other than the fee, the store has the option of selling a lot more in-store goods to the customers.

Finally, its hard to think that stores will cease to exist, but what is definitely true is that they will need to reinvent themselves continuously to stay relevant and cater to the changing trends.

Rachna Nath

The author is leader, Retail & Consumer, PwC India