The growth of online retail is blamed for the closed shopfronts on American and European streets and dead malls in India and China.
To many, retail seems to be having an identity crisis. The growth of online retail is blamed for the closed shopfronts on American and European streets and dead malls in India and China. At the same time, Amazon is opening physical stores and buying offline retail operations in the US and in India, whereas the world’s largest retailer, Walmart, is busy digesting India’s e-commerce market leader (Flipkart). India’s online fashion and lifestyle websites too — including Myntra, FirstCry, Yepme and FabAlley – are acquiring offline brands or opening stores.
What in the world is going on? The short answer: consumers want choice and retailers have no choice.
The big divide
Two decades on, and hundreds of billions of dollars of investment later, online retail is estimated to be about 12% of the global retail market. E-commerce is 10% of the US market, of which Amazon takes up about half. In India, the figure is in the vicinity of 2%, and that share is virtually stitched up between Walmart-owned Flipkart Group and Amazon.
Clearly, consumers value offline retail stores, either for convenience or as holistic brand ambassadors. Over at physical retail businesses, managers have been terrified of ‘channel conflict’. Senior management has squeezed resources for online, even when return-on-capital was demonstrably better than a new store. Some have refused to publicise their own company’s website through in-store banners, fearing that customers would get sucked away from the store. It has been strange to see this opportunity being passed up – if customers trust you to walk into your physical store, why would you not want to connect with them at other points of time when they are not near your store?
Bridging the gap
Retail is not and should not be divided between ‘old-world physical’ and ‘upstart online’. Successful retailers and brands have always been able to integrate multiple channels and environments to reach customers.
For instance, British fashion retailer Next has long used a combination of physical stores as well as mail-order catalogues side by side, and then e-commerce as the digital medium grew. British retailer Argos took another angle and embedded a catalogue inside the physical store — first a paper catalogue and then on-screen.
No doubt, for older companies, integration is tough; business systems and people are in disconnected silos, incentivised narrowly. Each channel needs different mindsets, capabilities, processes and systems to ensure that the optimal customer experience is appropriate for the interface — whether it is a store, mobile app, website or catalogue. But e-tailers opening physical stores have their own challenges, too, tackling the messy slowness of the physical world, where you can’t instantly switch the store layout after an A:B test. They now need to develop those very ‘old-world skills’ and overheads that they thought they would never need.
Varying circumstances make customers choose different buying environments. Successful retailers that outlast their competitors have used a variety of formats and channels to meet their customers, and will continue to do so.
To my mind, retailers have no choice but to see the retail business as one, even as it is fluid and evolving. A retailer’s only choice is to bend with the customer’s choice.
Devangshu Dutta (The author is chief executive, Third Eyesight and managing partner, PVC Partners)