Are bricks-and-mortar stores the next step for online retail?

Retailers are rethinking their online strategy, realising that physical shops are again one of their biggest assets

Retailers are rethinking their online strategy, realising that physical shops are again one of their biggest assets.

For a long while, it looked as though the high street was doomed as retailers scrambled to hold the attention of consumers by offering online shopping.

But now the tables are turning, with previously online-only retailers such as Amazon and Google opening customer-facing branches. So is retail heading back to bricks and mortar?

Given the ease with which consumers can search the web for the best deals, online retailers can no longer rely solely on e-commerce to win and maintain a market share.

Scott Galloway, professor of marketing at New York University, says successful retailers are now merging their online and high street presence to provide a seamless customer experience across the web and in store, which purely online businesses cannot easily match.

Speaking at this month’s Demandware XChange 2015 conference, Galloway said: "The future of retail looks more like Macy’s than Amazon. Pure-play e-commerce doesn’t work for anybody. The world looks like a multi-channel future; pure-play e-commerce is dead."

The omni-channel agenda for chief information officers in retail businesses

In December 2014, Forrester partnered with the National Retail Federation (NRF) for its annual survey of retail CIOs to understand the most important challenges and opportunities for the upcoming year. The survey showed that retail CIOs broadly agree about the importance and nature of omni-channel.

They have a clear idea of what omni-channel capabilities they need to deliver. However, they, along with the rest of the business, are still grappling with the “how” – in particular, how to find best practices. They also appreciate that customers shop brands, not channels – that is why they expect to return online purchases in stores, for example.

The survey responses showed increased urgency around integrating selling channels. More than three-quarters (76%) of CIOs surveyed included integrating the selling channels to enable an omni-channel face to the customer in their top three 2015 priorities, up from 64% in 2013. Among the challenges retail CIOs face is that retailers’ merchandising applications must manage an extended range of merchandise to woo customers who are spoilt by a vast array of choices from online specialist retailers. They must manage more suppliers and more merchandise with shorter lifecycles than previously. They also need to support more frequent price changes to compete with the automated pricing of internet specialists such as

Legacy back-office applications will not be able to keep up as they are, which explains why 63% of CIOs surveyed ranked overhauling merchandise systems in their top three priorities over the next 12 to 18 months, on par with 62% in 2013. In addition, retail CIOs are understandably concerned that their line-of-business colleagues may become impatient and invest independently in everything from location technologies and independently developed mobile apps to software-as-a-service business intelligence systems.

Given the potential implications of rogue technology investments that can result in portfolios of disconnected applications, retail CIOs are justifiably concerned about the business requirement for strong corporate-level technology governance. In 2015, effective governance was second only to data security on IT leaders’ list of concerns, with 78% of retail CIOs ranking it in their top five – up from 24% in 2014 and 20% in 2013.

This is an extract of the Forrester report, The Retail CIO Agenda 2015: Secure And Innovate (March 2015), by George Lawrie.

Integrating the channels

A recent survey by analyst Forrester and the National Retail Federation (NRF) found that more than three-quarters (76%) of the CIOs surveyed included integrating the selling channels to enable an omni-channel face to the customer in their top three priorities for 2015, up from 64% in 2013.

A few months ago, online retail giant Amazon opened a physical "clinic" in a campus in the US – its first-ever bricks-and-mortar store in the 21 years of its existence.

Meanwhile, online furniture retailer has been investing in showrooms to display products available through its online store, and Google has opened its Google Shop, proving that a physical presence is now an important part of e-commerce.

Any combination

IDC analyst Miya Knights says that while consumer adoption of technology has supported rapid growth in online sales, retail brands and merchants of all shapes and sizes are now realising that consumers value convenience above all else. "That means they expect to be able to use any combination of purchasing, fulfilment and customer service options – in-store, online, while out and about, and over the telephone – throughout the shopping process," she says.

Knights says retailers are beginning to focus on how to become more customer-centric, but they are finding themselves held back by how retail IT is architected. "In the past, IT had point relationships with the supply chain director, e-commerce director, store operations director, loss preventions department, marketing department and  merchandising – each of which required a shopping list of functional management systems," she says.

This led retail CIOs to buy best-of-breed software, says Knights, but now, given the need for customer-centricity, CIOs are under pressure to provide cross-business functionality.

This involves integrating the disparate IT systems that exist across a retailer’s various departments to enable an easy flow of customer, product and stock data.

According to Knights, retailers are responding to customer expectations for similar levels of convenience online and in-store by offering digital services, integration and interaction in their physical shops. In fact, some retailers are beginning to use technology in-store as a way to entice customers to visit the shop, rather than seek out the best deal online.

Take the purchase of running shoes, for example. While it is entirely possible for a savvy consumer to get the best deal by searching the web, sportswear retailer Asics is offering visitors to its shops a free consultation – something that is impossible to replicate online.

"Some people like to say stores are more like a theatre, because of course you have the online possibilities, so what Asics tried to do in its stores is create more than just a place where you buy your shoes," says Sander Tinholt, retail IT manager at Asics.

"The stores are complete running laboratories. We put customers on a treadmill and have all kinds of sophisticated technology do a full analysis of their feet and advise them on the right footwear to use."

In Asics’ London store, the service – called gait analysis – uses video and lasers to build up 3D foot mapping by taking a detailed scan of the runner’s foot. Asics says the scan shows information such as arch height and the alignment of the Achilles with the leg. This data can be used by a salesperson to find the right running shoe for the customer.

Digital car showroom

Another example of the blending of web and physical presences is Audi City. Carmakers have offered online new car configuration tools for a number of years, but Audi has taken this to a new level by creating a digital car showroom in London powered by Microsoft Surface tablets that project the customer’s designs onto large video walls.

When analyst Forrester spoke to Audi about the digital showroom in 2013, the manufacturer said 70% of the cars it sold through the showroom were bought without customers taking a test drive, and nine out of 10 purchases were made by customers new to the Audi brand.

Asics and Audi demonstrate how retailers can offer a shopping experience that would be impossible to achieve online only. But reinventing the in-store experience requires a culture change from a technology perspective.

Extra functionality

Unfortunately for retail CIOs, an omni-channel approach puts extreme pressure on IT and retailers’ legacy mainframes, and point-of-sale systems may not be able to cope with the new functionality required by the business.

IDC’s Knights says retail CIOs need to re-architect the underlying infrastructure to pull data together in real time, combine external data sources and to do this more quickly, moving from nightly batch updates to near-real time processing.

This is where the debate over shadow IT becomes more important for retail. Gartner’s CMO Spend Survey 2015 shows that marketing now spends more on IT than the IT department.

Businesses are becoming frustrated with the speed at which IT implements projects and are buying their own cloud-based systems. "Some IT directors are seen as a barrier. They need to become a facilitator to the business," says Knights.

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