Actionable Insights From APT's Retail Practice

Brick-and-Mortar Has Got a Lot of Life Left

January 12th, 2017 | Posted by Haley Jackson in Labor & Operations | Retail

It’s not uncommon these days to see a retailer make headlines for shuttering physical locations, highlighting the trials of the brick-and-mortar retail business model. Yet, while e-commerce sales are growing quickly, they still only comprise 8.4 percent of total retail sales in the U.S. – physical stores remain the most important retail channel by far.

One thing is clear: retail is becoming increasingly omnichannel, and executives must innovate to compete with fast-growing e-commerce leaders. One strategy for retailers to outpace their digital-first counterparts is to make the in-store experience more compelling. Yet store investments no longer just mean driving sales in physical channels. Many are increasing investment in physical stores to drive sales across both physical and digital channels, launching initiatives to meet the rising demand for convenience, service, and immediacy.

One method some retailers are implementing in hopes of better connecting their physical and digital channels is introducing smaller-format stores in urban areas, intended to engage typical e-commerce shoppers like millennials and other city-dwellers with tech-savvy features and easy access to online purchases. For instance, IKEA opened smaller-format, urban stores offering items for immediate shopping, along with tablet banks that enable in-store customers to shop online for larger merchandise. And on the note of better integrating physical and digital channels, Nordstrom just announced the newly created position of Chief Innovation Officer, an executive charged with helping the retailer evolve its stores to better serve customers via digital and mobile.

Perhaps the most interesting sign of life for brick-and-mortar retail is that several major, online-only retailers are now actively establishing a physical presence. Building on its fledgling physical footprint, Amazon just announced that it is growing its chain of physical bookstores, in addition to launching a grocery concept. Other retailers like Warby Parker and Bonobos are also expanding from the world of e-commerce to brick-and-mortar. This emerging trend is a nod to the prevailing consumer preference for tangible access to products like groceries and apparel, and points to a world where omnichannel is the real future, not just digital in isolation.

As traditional retailers continue to refine their brick-and-mortar presences, it is key that they rapidly test responses to both competitive incursions (e.g., how should we respond if Amazon opens a store nearby?), as well as strategies that meet the ongoing shifts in consumer behavior. Consider an organization deciding whether to roll out a program offering digital kiosks in smaller-format stores, to enable customers to order additional SKUs that the smaller format’s limited inventory doesn’t afford. The company could test this program by investing in kiosks in some locations while other, similar locations continue business as usual. By comparing performance between the stores that received the initiative to stores that did not, the company could measure the initiative’s true incremental impact on its bottom line, across all channels.

Some considerations before moving forward with this program would be whether providing kiosks for the purpose of online shopping actually drives additional purchases across channels, enticing customers to make large online purchases in addition to their in-store purchases, or if the easy access to online shopping cannibalizes customers’ physical shopping baskets. By experimenting with new ideas and carefully evaluating the results, companies can isolate insights that help them identify which programs are worth the investment, and ultimately optimize the value of their physical network strategy.

It is clear that developing and testing new ideas is key to remaining competitive in today’s retail landscape. At the upcoming Retail’s BIG Show in New York City, APT CEO Anthony Bruce will be moderating a related panel with representatives from three leading retailers, examining how they are using new data sources and experimentation to accelerate innovation and improve performance. More details on the panel can be found here – we’d love to see you there!


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