Just a couple years ago, retailers were scared of what digital and e-commerce would do to their businesses, let alone the augmented reality trend of today. Marc Andreesen, a tech investor and the creator of Netscape, among many other “techies”, had even made comments suggesting that retail stores will completely die at the hands of e-commerce. Since 2013, there have been mixed views, concerns, and even some breakdowns at the idea that brick and mortar retail would be deemed extinct, however, recent studies have proven people like Marc Andreesen wrong.
Some Change, No Implosion
Although the retail industry did alter because of the changes in digital and e-commerce, it did not self destruct as many feared and some suspected. Why was this even a fear? The 2013 holiday season initiated the initial sentiment that something was in the air; consumer confidence had risen significantly in the last three years but U.S. retailers experienced about half of the foot traffic that they received in the prior three years. Consumers continually shift to leading busier and busier lives and tasks such as shopping are time consuming and something that was assumed that consumers wouldn’t spend their excess time on. Online shopping offers a more convenient experience for consumers in a rush, not only can they access more information than when talking to an in-store sales associate but they can also do it from virtually anywhere. Reviews and price comparisons enable more confident consumers buying what they determine to be the highest quality and performing products. It becomes a guilty pleasure when its fast, easy, mobile, and especially because you do not physically watch money leaving your hands (coming from a self proclaimed shopaholic, I know from experience how easy it is). As foot traffic declined, online ‘mouse’ traffic increased, with companies like Amazon reporting an extremely successful holiday shopping season with more than 36.8 million items ordered worldwide. The ominous omnichannel buzzword began to appear, initiating the idea that every channel must work together to deliver a unified and consistent customer experience. Many feared that brick and mortar store fronts would simply convert into fulfillment centers. Moreover, the “deal-oriented” society we live in enables the online shopper to browse on their laptop or phone, find the best deal, and never step foot in a store, handle large crowds or wait in lines at malls.
So Why Did Brick and Mortar Survive?
All the articles with headlines screaming “Shoppers Are Fleeing Physical Stores”, “The Great Mall Exodus”, “Macy’s Confronts the Crisis of the American Mall”, were not accurate, at all. The inclusion of digital technology transformed how customers discover, evaluate, purchase, receive, use and return products. Although all of this is attractive, the growth rate of e-commerce has slowed from 30% in the early 2000’s to about less than half that rate. Brick and mortar retailers control between 94 and 97% of total retail sales. Purely online retailers don’t have the economic advantages that have been attributed to them; Bain & Company research has found that e-commerce’s pricing advantages mostly stem from unsustainably lower profit margins rather than overall lower costs. The cost of the process to get the products to the consumers may actually cost as much as running a storefront in many cases. The omnichannel retailers that take advantage of all the benefits of seamlessly integrating both worlds are likely to experience significant advantages over retailers that try to pursue either of the options alone or independently.
Besides the more technical aspects on the business side as to why brick and mortar stores survived, there is a significant consumer aspect involved. There is a generous portion of the population, myself included, who like the touch and feel aspect of the in-store shopping experience as well as the instant gratification of immediate ownership versus having to wait for an item to come in a box in a week or more. The rise of information gained through social retailing has also changed the consumer’s path towards their purchase decision. Social networks make brands attractive and interactive for consumers and other shoppers’ reviews are generally considered trustworthy. Social media has turned to a key selling tool in driving the purchase; the highest conversion rates belong to items in the categories such as baby products, books, pet products, groceries and clothing. Offline spending influenced by the internet is estimated to be between $1 and $2+ trillion, with mobile retail driven sales estimated to influence around $60.2 billion.
Augmented reality was also extremely unprecedented when people were afraid of e-commerce and the digital take over, however, AR has changed the way that customers experience the in-store buying process. In fact, apps like WayfairView has enabled consumers to leave with more products because they saw it all come together in their home. Similarly, Lowe’s and Ikea released VR kiosks and apps, respectively, to have the customer focus on customizing their designs virtually. At the very least, the curiosity of the virtual and augmented attractions brings customers into stores.
In 2014, Topshop created buzz and consequently one of the hottest London Fashion Week tickets by holding a 360-degree virtual reality catwalk show utilizing the Oculus Rift. By creating the telepresence experience, not only did Topshop open up exclusive Fashion Week to a wider audience and attract tons of in store traffic but simultaneously put themselves on the map alongside the top end fashion houses in the world.
However much the rumors spread, brick and mortar shopping isn’t at risk of death, however, if they are not on the innovative, turning to omnichannel, competitive boat against upstart brands like Bonobos and Warby Parker, they have a reason to sweat a little. As Michael Schrage of the MIT Center of Digital Business addressed it, “it sucks to be an incumbent if you’re in retail…how people want to shop is completely and utterly out of your control,” so you have to keep up and get ahead of the standards.