The Future of Shopping: FIVE Predictions for 2017
As we move into the new year, it’s time to look ahead and predict what’s in store for the retail industry as it races to stay relevant in the Age of Amazon.
Here are five predictions to keep an eye on in 2017:
1. Retailers will invest heavily in transforming brick and mortar stores into mini-fulfillment centers: For the first time ever, online shopping outpaced in-store during Black Friday weekend this year, signaling a shift that we’ve seen coming for years. As the scales tip, traditional retailers will need to act fast to capitalize on the biggest advantage they have over their online pure-play counterparts: physical stores themselves.
By building “connected” stores that blend the digital and physical experience – allowing them to effectively double as flexible fulfillment centers – retailers can capitalize on their decades-long investment in building stores along corridors where people live, work and play. Retailers will also be keen on finding ways to equip their associates with tools that help pick and pack effectively for these programs, without adding extra burden to their current workload.
2. Retailers will want to provide more last-mile fulfillment options: Brick-and-mortar retailers will find new ways to meet the demands of their customers. Retailers will begin to invest more heavily into curbside pickup, as well as delivery through partnerships with companies like Uber and Postmates. As Amazon is reportedly planning no-checkout grocery stores where customers are automatically charged for their items through a combination of AI, computer vision and data pulled from multiple sensors, it further increases the urgency for retailers to act and innovate quickly.
3. New in-store experiences will draw shoppers to stores: As in-store sales decline in proportion to online sales quarter after quarter, retailers will develop new programs and incentives to build a better in-store engagement model with customers. One such idea is Nordstrom and is called Reserve & Try, where customers select merchandise through their mobile phone and have it placed in a dressing room so it’s ready and waiting when they arrive, with their name on the door. Experiences like this that expedite the shopping process will be key for retailers in 2017.
4. The true costs of same-day delivery will become apparent: On-demand delivery services have been popular in major cities around the country, however much of the true delivery costs have been subsidized. Net shipping losses are high.
As the subsidies come off, consumers that do not live in dense urban areas and are outside the highest income brackets will be resistant to added fees, opting instead for alternative, affordable fulfillment options that fit seamlessly into their day-to-day lives. On-demand delivery services will need to get creative to offset their fees or risk encountering major scaling issues.
5. Shopping malls will be reimagined: Similar to stores being reimagined as hybrid fulfillment centers, malls will need to evolve to meet the changing demands of today’s shoppers who increasingly are opting for faster and more efficient experiences.
In 2017, we’ll see an increase in in-mall interactive experiences, entertainment and designated spots to pick up orders from multiple stores – much like the Curbside Pickup Pod in Los Angeles.
Jaron Waldman is CEO of Curbside, which makes it easy to find, buy and pickup products at nearby stores.
Study: Rampant promotions lead to big margin reduction for retailers
Call 2016 the “year of promotions” in retail, with 44% of all orders during the year sold on promotion, and 67% of all orders sold using a markdown.
That’s according to the DynamicAction Retail Index: 2016 Year-in-Review and 2017 Outlook, which found that rampant promotional and markdown activity led to a 24% margin reduction for North American retailers in 2016.
Retailers are also entering 2017 with merchandise returns on the rise, already up 23% for the year versus January 2016.
On a more positive note, the focus in 2016 on customer experience and tightening of operations proved successful just in time for gift giving, with orders that shipped late down an average of 6% during the holiday season, according to the report, which analyzed more than $9 billion in consumer transactions globally.
Among the key findings:
• Merchandise returns were up an average 8% during 2016 and up an average 18% for the holidays in North America. Return rates are elevated headed into 2017 as well, with an average increase of 23% in the value of returns in the first two weeks of January, versus January 2016.
• There were fewer late shipments, and free shipping was used on less orders during the holiday season. Late shipments were the norm throughout much of 2016, with an average 48% more orders shipped late compared to 2015.
• However, retailers tightened up operations throughout the year, leading to a decline in late shipments during the holiday season, down an average 6%.
• Free shipping is still a consumer expectation, and an average 42% of orders shipped free in 2016, in line with 2015 numbers. Over the holidays, however, free shipping was used on an average 7% less orders than during the 2015 holiday season.
“The consumer mindset has been hardwired to wait for a sale, and retailers continue to reinforce this wiring with ceaseless promotions in all channels,” said Sarah Engel, senior VP of global marketing for DynamicAction. “As we enter 2017, retailers are more aware than ever that they need to re-engineer their strategies to balance customer expectations with the profit demands of the business.
“Promotions are a new reality, but retailers don’t have to accept the status quo. Savvy merchandising teams are adopting new metrics and employing different strategies to protect the bottom line.
According to Engel, customers that buy on discount can also be incentivized to make add-on purchases at full price by understanding affinities for products and brands.
“Retailers must also connect customer data across channels to understand what else motivates their customers beyond promotions – for example, early access to new product lines, exclusive services or curated selections,” she said.
Other strategies innovative retailers will be employing to re-engineer retail results in 2017 include:
• Gaining better insight into returns by connecting online and store returns, viewing and acting on them holistically. This will enable retailers to garner a timely and complete picture on returns, based on the reality of new shopping and return behaviors, in order to limit profit erosion and customer dissatisfaction.
• Test free shipping thresholds in order to determine how to increase average order value and improve shipping profitability. One women’s apparel retailer, for example, set a constant $100 threshold on free shipping after extensive testing. In 2016, the retailer’s free shipping orders were down 46% and had increased shipping profit per order by 121%.
• Work with suppliers and vendors to support the clearing of overstocks, going as far as to replace vendor-supported "customer rebates" with direct promotions so that the retailer bolsters their loss of revenue with a reduction in the wholesale cost.
Traditional Stores Get Smarter and Better Connected
In their e-commerce operations, retailers have long had access to limitless data about customers and transactions. They’ve become adept at using this information to deliver personalized communications and targeted campaigns to customers as they shop online.
Unfortunately, the same could not be said for in-store shopping. Retailers have had no way of knowing what customers were doing in their stores from the time they entered the front door until they checked out at the POS system.
Now, new technologies are becoming available that can bring the personalized customer experience of online shopping into traditional brick-and-mortar stores. These “connected stores” will help retailers better understand the purpose of a shopper’s visit to predict how they will shop and shape their experience. Such technologies promise to help keep brick-and-mortar stores relevant, engaging and competitive.
A host of IoT technologies
The primary driver of this change is the increasingly widespread adoption and deployment of sensors and smart devices as part of the Internet of Things (IoT). The IoT is a network of physical objects or “things” that contain embedded electronics, software, sensors, and network connectivity that enable these objects to collect and exchange data.
In particular, retailers are increasingly taking advantage of:
• Sensors. Embedded into “things,” such as infrared traffic monitors, sensors help retailers understand where customers are, what they’re doing, and what’s going on around them. Then they can communicate and share data in real-time over a network or cloud-based platform. Retailers can use this data to measure traffic patterns, trip times and checkout queues.
• Mobile devices. Retailers can provide customers with downloadable mobile apps. Customers share their identities through these apps so retailers know exactly who is in their store, and can collect detailed behavior on customer’s preferences and shopping behavior.
• Beacons. RFID and other inventory tracking devices will allow the retailer to understand whether an item is in the store—and if so, if it’s in a pile in the dressing room or how many times customers picked it up but did not purchase it, opening up a whole new realm of real-time signal data.
Intelligent in-store communications
Retailers are combining real-time data from these IoT technologies with the detailed historical information on customers’ preferences and shopping behavior they’ve always collected from loyalty programs and POS systems. By running real-time analytics on all of this data in the background, retailers can predict what products, services and promotions an individual customer might be interested in and determine what promotions to present at what frequency as the customer moves through the store.
For example, knowing that the parent of school age children is in the school supplies section in the weeks before classes begin, a retailer might adjust in-store signage for Back-to-School. With in-store tracking, as the customer passes end-of-aisle displays or other areas of potential interest, the store might generate an instant promotion based on his profile or purchase history and deliver a message or coupon to his mobile phone. If a high-value customer dwells for a long period in a single location on an aisle, store associates can detect that, go over in person to the customer and offer to help.
With knowledge of where the customer is in their shopping journey, retailers can also better predict what’s the next best offer or action. If someone is buying a TV set, a retailer could look at their previous history to determine whether to offer them a warranty or an accessory. On the other hand, if a frequent customer has consistently opted out of warranties online and in-store, the opportunity will lie in offering accessories.
When done right, connected retail technologies promise to dramatically improve the in-store customer experience, allowing retailers to give the customer exactly what they want (product, experience, service, info) with more precision in less time.