Retail Revival: Can Stores Make a Comeback?

Physical retailers have distinct advantages that can spur business growth – as long as they evolve with their customers.

Steve Laughlin | IBM

Though several major retailers have filed for bankruptcy protection this year and others have closed thousands of stores, all seemingly at the hands of online commerce, reports of the death of retail are greatly exaggerated.

In fact, research shows that the industry is booming and that stores still matter. Recent data from the U.S. Census Bureau show that less than 10 percent of all retail transactions happen online.

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We need to bring digital technology into the store to truly transform the customer’s experience.

So in the future, stores will play a new role to differentiate brands. With this in mind, retailers still have lots of work to do to cultivate good shopping experiences if they are going to thrive even more.

And opportunities abound.

For example, credit rating and analysis firm Morningstar Credit Ratings recently reported an overabundance of American retail space. The United States has 23.5 square feet of retail space for every person, the highest ratio in the world. And while the US is oversaturated, physical space is still quite valuable for a brand to create new experiences, new means of engagement and most importantly, customer loyalty.

Also, the younger generations are still hitting the mall. While most would assume the digitally-native (those who grew up with the internet) prefer to shop online, a study released by IBM and the National Retail Federation last year found that the majority of Generation Z prefers to shop in stores.

This generation is looking for new ways to touch, feel and experience products before they buy them – physical experiences only accomplished in a store. And with the global Gen Z population set to reach 2.6 billion by 2020, retailers need to create more interactive engagement in their stores to serve the always-on, mobile-focused, high-spending demographic.

We need to bring digital technology into the store to truly transform the customer’s experience.

Creating the attraction

As retailers work to make stores matter again, they are starting to experiment with new capabilities to attract, engage and retain shoppers.

For the past 50 years or so, retailers have invested in stores to facilitate sales transactions – not necessarily to create an experience focused on fostering a relationship. The industry needs to make stores matter to customers again, yet most of today’s in-store advances are found in one-off flagships, concept stores or incremental changes that aren’t truly transformative.

Perhaps the cause for this slow adoption is funding.

Historically, free cash flow has been used for store openings, merchandise category expansion and more traditional technology to support operations. As I have previously argued, this needs to shift toward investing in innovation and new capabilities to improve the customer experience.

We only need to look at recent news of Alibaba’s $15 billion investment in overseas research hubs to realize the tides and budgets in the consumer industry are turning toward operationalizing an ongoing process of innovation.

There is no roadmap, nor a single answer for which capabilities a retailer needs to build or how to redefine the customer experience. Many retailers we are working with today are employing customer-centered design thinking by listening carefully to shoppers to discover unmet needs that they can address in a competitively differentiated way.

Fostering innovation 

For example, City Furniture in South Florida recently launched three MobileFirst for iOS apps for iPad Pro used by 400 store associates across 15 City Furniture showrooms and 12 Ashley Furniture HomeStore showrooms to get in-store shoppers the products they want faster.

When creating these apps, store manager Britney West took part in a design thinking session so designers and developers could address the key pain points she experienced working with customers in the store.

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Retailers need to construct and drive an ongoing process to foster innovation in their enterprise.

Before the apps, she wrote, she would spend hours of shopping with the customer to find complementary furniture and sit with them at a deskbound “green screen” to manually enter information and finalize the order.

Today store associates with mobile devices like Britney have access to customer data and analytics-driven information to make personal product recommendations so they can better upsell and cross-sell products. This has resulted in 12 percent growth in the average purchase or basket value per customer. Further, there has been a 28 percent increase in in-home warranty revenue.

Some retailers are focused on enabling empowered store associates with better technology and information to better serve customers. Others are seamlessly marrying their physical footprint with their online systems to improve distribution, and by proxy, the customer experience.

This is a distinct advantage physical retailers have over online pure-plays.

What makes these two examples important is they show how retailers are using stores in new ways to serve unmet needs and streamline operations to improve the customer experience. There is no tried-and-true formula for how the physical retail market, particularly in the United States, will fare in this time of our industry disruption.

One thing is for sure: Retailers need to construct and drive an ongoing process to foster innovation in their enterprise.

Making stores and retail brands matter again will not be easy or without significant investment …but this is what it takes to survive and even thrive in the years to come.

This article first appeared on the IBM THINK blog and was republished with permission.

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Steve Laughlin is General Manager of Global Consumer Industries at IBM.

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