by Dwight D. Hill, McMillan Doolittle LLP
The pace of retail innovation we are seeing continues to accelerate. Our annual publication, "Retail Innovations 10 – A Decade of Innovation,"1 highlights many fascinating examples of retailers pushing the boundaries of the retail and customer experience. These innovators include both large established brands like Argos in the U.K., opening a new digital store format that is both showroom and distribution center to supplement their established catalog business, to smaller e-commerce pure play retailers like Trunk Club, now opening physical stores.
This always brings me back to the questions asked by many of our clients:
Will physical stores eventually become irrelevant for some retailers?
Should stores become smaller, with hyper-focused assortments?
Will we see a future where most shopping is entirely virtual?
Yes, yes and yes!
We continue to live in a store-centric world; depending on your survey of choice, about 90% of transactions for most retailers occur in store. However, just over 70% of e-commerce transactions include a store visit either before or after the transaction. But we must face the realities of the business – retailers are under tremendous pressures to reach their customer in the most effective way possible – in some cases this is the e-commerce giant Amazon opening a physical location for the holidays or it is the consumer electronics giant Best Buy working hard to stabilize their business and manage large store footprints with vendor "stores within a store." The point – retailers must continue to innovate to reach their customer and, more importantly, survive.
Some retailers are innovating through the usage of technology to their advantage. Chinese grocer Yihaodian has grown rapidly by bringing products to their customer's homes and workplaces, with no physical stores! The retailer used augmented reality in late 2012 to become the largest online grocer in the market. They set up "virtual" stores in parks, landmarks – even the parking lot of a local Carrefour – that are invisible to passersby, but with the Yihoadian mobile app you can see the entire store on your screen. You simply walk through the digital aisles, tap products you want, fill your cart, and the groceries are delivered to your home. The grocery store of the future? Quite possibly and you must see it here2 to believe it!3
Other retailers are re-purposing the traditional store – finding new ways to be relevant to draw in traffic. Urban Outfitters has launched a new concept store in Brooklyn called "Space Ninety Eight." The store offers an eclectic blend of apparel for men and women indicative of the Urban Outfitters brand; space for shop-in-shops and pop-ups that carry merchandise and artwork from local designers and artisans; a music area carrying records, books and more; and a rooftop bar and restaurant. It is a unique blend of food, apparel and music offered in an environment that is designed to engage customers through community events and inspire shopping frequency through rapid assortment rotations. Will it be successful? Time will tell – Urban Outfitters is planning to open 35-40 new locations in 2015.
These are just two examples of retailers exploring new ways to serve a rapidly evolving customer – still using "stores," both virtual and physical. Retailers large and small seem to be heeding the call to innovate. Laggards be warned – your customer has options today that were unheard of even 3-5 years ago; failure to heed this call could result in that state which has led to many a retailer's doom – the state of irrelevance.
 Ogilvy Asia: "Chinese E-commerce Grocer Yihaodian & O&M Advertising Shanghai's 1,000 Virtual Stores App Case Study," May 6, 2013
 CNBC: "Retail's New Reality: Invisible Shopping Centers and Virtual Assistants," Lance Eliot, April 24, 2015
Dwight D. Hill, whose background includes leadership roles with Neiman Marcus and Deloitte LLP, is Partner, McMillan Doolittle LLP. Dwight can be reached at firstname.lastname@example.org.
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