There can surely be no question that the two defining trends re-shaping the U.S. retail landscape are the impacts of the recession and technology. But whereas the impact of the recession is, we hope, cyclical, the impact of technology on shoppers’ lives and on retail businesses is profound and structural.
Much of the discussion about the impact of technology on the retail industry has focused on the extent to which the Internet will replace the physical store as a sales channel. Indeed, as each successive quarter shows Internet sales growing much more strongly than store-based sales, a polarizing debate has begun on when the Internet will make the retail store redundant.
At Leo Burnett, we are far more interested in understanding the drivers of shoppers’ behaviors than we are in forecasting the pre-eminence of one channel over another. So when we explored how shoppers are behaving in a technology-enabled retail landscape, the insights we uncovered were variously interesting, provocative, nuanced and complex.
The first thing to say is that we do not believe that the death of the physical retail store is either imminent or inevitable. It is clear from asking shoppers that many of them still look to the retail store as their final preferred purchase point in the total (and often very long and complex) path to purchase. So it is not a case of either shopping online or in-store. For most shoppers in many product categories, the Internet plays one role and the physical store plays another, complementary role.
But this does not mean that the strength of the retail store is assured. Shoppers are often very clear and very vocal about the shortcomings of the physical store experience. For many shoppers, stores continue to under-deliver on the absolute retail basics of having the right product at the right price and in the right place. Indeed, the size of the deliver gaps between what shoppers want and what they feel they get is often notably wide and notably worrying.
But even if retailers are able to deliver better on the retail fundamentals, this will not be enough to secure the future of the retail store. The nightmare scenario for retailers with heavy investments in physical brick-and-mortar real estate is that their stores default to simply being collection points for merchandise purchased online — in other words, hugely expensive and inefficient mini-warehouses.
To avoid this doom scenario, retailers with heavy investments in physical store networks need to emphasize the attributes and experiences their stores can offer that the Internet and other remote channels cannot.
Many retailers have looked to in-store technologies to deliver enhanced shopper experiences on-site. Unfortunately, when we ask shoppers how much technology does to enhance their in-store experiences, the results often appear disappointing for retailers that have invested a great deal in recent years on customer-facing technologies.
Many retailers look to these technologies to deliver on the holy grail of both taking cost out of their businesses and simultaneously improving the customer experience. The disappointing news is that customers are often largely unimpressed. From the shoppers’ perspective, in-store technology is seen as being largely about functionally improving the shopping process in self-directed environments (such as grocery stores), rather than enhancing the shopping experience in more browsing, experiential environments (such as department stores). Right now, in many store types, shoppers see technology as putting up something of a barrier between them and the store experience. In other words, it is undermining the experience rather more than enhancing it. Furthermore, for most of the shoppers that we surveyed, in-store technologies are very low-order priorities on their wish lists of what will create more appealing shopping experiences.
What are the lessons for retailers? The good news is that most shoppers still value the physical retail store for many of their shopping needs. But in those stores, the promise of technology to deliver an enhanced experience for the shopper, as opposed to a lower cost model for the retailer, has been largely unfulfilled. More work is required.
Dr. Alan Treadgold is global head of retail strategy for Leo Burnett. He is based in London and Chicago and leads the agency’s strategy work and research program for the retail sector (firstname.lastname@example.org).