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The Future of Retail is Omnichannel

November 18, 2014

In Andrew Dunn’s excellent essay “E-Commerce is a Bear,” the Bonobos founder argues that if your business is selling third-party products via e-commerce, you’ll never see the opportunity to dominate. Between its Prime loyalty program and world-class fulfillment, Amazon possesses both the sheer scale and operational efficiency of a market leader in any vertical it wishes to compete in. But what happens when Amazon decides, as it will briefly this holiday season, to go beyond dominating e-commerce and right into Main Street — elbowing into the neighborhoods of Best Buy, Barnes & Noble and Wal-Mart?

As Amazon looks to unleash and then learn from its first big foray into real-world shopping, traditional retailers ought to take notice — you’ll need to figure out e-commerce before Amazon takes market share in your own backyard. In other words, the omni-channel era of retail is upon us, whether we like it or not.

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After the Great Recession, a company’s physical footprint in the form of hundreds of locations was increasingly seen as a heavy capital burden, its costs contributing to the steady decline and inefficiency of a Best Buy or JC Penney. Undoubtedly, physical shops have never been more exposed, but intriguingly, they also hold the cards to delivering a more satisfying customer experience. That may explain why the tide against physical retail appears to have taken a turn. In fact, it’s de rigueu these days for a hip internet brand like Warby Parker or Indochino to establish a beachhead via pop-up shops and traveling tailors.

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These brands understand that although e-commerce revenue growth outpaces traditional, it still accounts for only a fraction of total retail revenue and isn’t expected to reach 18% until 2030 (Forrester). Physical also has an alluring power borne from a craving to touch and feel, and be impulsive. There’s nothing in the e-commerce experience quite like the spotting of an item you just have to have and literally walking out of the store with it 10 minutes later. This immediate fulfillment is perhaps physical’s most important advantage, one that digital market leaders are trying to chip away at. It’s why Amazon is experimenting with not just the Herald Square location, but also delivery by drones, locker rooms in strategic locations, Sunday delivery and even hiring taxis during off-peak hours, all in an effort to speed customer gratification via same-day delivery.

With digital brands testing brick-and-mortar strategies, it’s time for physical retailers to up their ante by providing customers an engaging e-commerce experience, one that plays to their physical advantages. Yes, e-commerce is still only a relatively small piece of the bigger retail pie, but it is by far the fastest growing. Retail sales growth year-over-year is consistently flat at around 4%, but e-commerce is growing 17% year-over-year. Within e-commerce, mobile commerce is surging, increasing 68% from 2012 to 2013, and within mobile commerce, tablets are expected to account for 75% of sales.

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Given these trendlines, physical retailers are well positioned to provide regional warehousing and fulfillment of online-originated orders. With the right e-commerce, customer experience and marketing technology platform choices (readily available via subscription software), traditional retailers can actually hold a distinct advantage over their digitally exclusive rivals. Instead of fearing e-commerce customers “showrooming” their locations, brick-and-mortars should design the digital experience to complement their key strategic assets of real pick-up, drop-off, customer service and shipping locations. In fact, a study by Bain & Company suggests that the cost of maintaining a physical location can be turned into an advantage if 20% of sales result in shipments from online orders to nearby customers.

Half of e-commerce sales go to retailers with a physical location. It’s no wonder why Amazon and others are building out the physical experience. On the flip side, there’s never been a better time for a traditional retailer to respond by building an engaged and digitally integrated shopping experience, thus capturing the customer wherever he or she decides to make the purchase. Want to discuss your omni-channel strategy? Email us to get the conversation started.

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