Mike Hsieh
In 2016, Walmart plans to close 269 stores. Macy’s plans 36 closures, and Kohl’s 18. Is this the beginning of the end for brick-and-mortar retailers?
There has been much speculation about what retailers should do in an omni-channel world. How do they compete in a world where Amazon is undercutting them in prices and offering free delivery? How should they respond when brands are increasingly ignoring channel conflict and launching their own e-commerce stores?
Rather than trying to predict the future with a crystal ball, retailers can learn from other industries that preceded them with disruptive technology and innovators. What steps did the incumbents take to fight off the digital onslaught, and what worked to keep them not only competitive but gave them an advantage? There are numerous lessons that can help formulate a long-term growth strategy for retail stores.
After the demise of music retailers and bookstores, movie theaters were in the crosshairs of the digital revolution. Netflix, Red Box and Video on Demand had already put most video rental stores out of business. With home entertainment systems becoming more and more sophisticated, why should consumers drive to theaters and pay $12 to watch a movie when they can enjoy the same fare in the comforts of their own homes for $4? It looked like movie theaters would follow the same path of self-destruction.
Yet in 2015, movie box office sales increased 7.4 percent — and show no signs of slowing down. Why did technology not put movie theaters six feet under? The answer lies in understanding what benefits a theater provides that a DVD, Blu-ray, Roku or Hulu cannot. At its core, a 90-minute movie is a fantasy experience, best enjoyed in an immersive environment. The big screen and surround-sound system with state-of-the-art speakers delivers a far more powerful entertainment experience than any home system — where there may also be numerous interruptions by family members or pets.
This realization led theater owners to invest even more to differentiate themselves from home entertainment systems, i.e. IMAX screens, 3D technology and Dolby sound systems. They also have reduced the pain points by installing bigger and more comfortable seats, serving healthy and more delicious food and providing advanced ticket purchase with pre-selected seating. As a result, movie theaters have stemmed the tide of entertainment streaming directly into the home and regained the upper hand in convincing Hollywood studios to extend the exclusivity periods for their products to be in theaters.
Another prime example is in sports. Improvements in LCD technology with bigger flat-screen TVs offering high-definition pictures should have induced fans to watch more games at home instead of going to the stadium. Yet ticket prices have continued to climb, with no shortage of demand for season tickets and corporate boxes. Once again, the key is to understand that the core of sports entertainment is fanaticism.
People love their teams and want to be immersed in environs where they can celebrate with other fans in a mob environment. This cannot be replicated at home, even while watching with a group of friends. As a result, team owners are upgrading their stadiums to offer better seating, food and alcohol. They also are removing pain points by adding more parking spaces and access to public transportation.
Brick-and-mortar retail stores are facing the same challenges from the digital revolution. There is little technology or innovation in-store to make it a more compelling experience over purchasing something online. It is equivalent to an old-style movie theater on Main Street: The screen is small, the sound system is old, the seats are hard and only popcorn is available at the concession stand. On top of that, there is no parking lot. Why would anyone go to that theater if it doesn’t provide an immersive experience that a home system cannot?
Retailers need to understand the benefits of the in-store experience to a consumer. At its core are discovery, trial and instant gratification. Retail stores need to delight the customer by suggesting merchandise options that are unexpected yet appropriate once the consumer enters the store. This means utilizing data collected about the customer online, offline and mobile, including past searches, purchases and abandoned carts. Sales associates must be more knowledgeable about products and their benefits and understand customers’ needs and preferences.
One of the tools to empower sales associates is Tulip, which integrates product, inventory, e-commerce and purchase data to give sales associates the best information to deliver the most seamless experience to the customers. With more data, sales associates can answer customer questions, upsell and cross-sell more effectively, and truly delight customers.
If the products are not in stock in one particular store, sales associates can look up inventory on their e-commerce site or other store locations so that customers can still complete the transaction in-store and have the products delivered to them. No more lost sales. If the customer opts in, sales associates also can communicate with them after the store visit. Retailers such as Toys R Us, Coach and Bonobos are leveraging Tulip to improve the in-store shopping experience and increase sales.
Additionally, pain points such as long lines must be reduced by adding comfortable fitting rooms and mobile checkouts. Seattle-based startup Hointer solves these problems by equipping the fitting rooms with tablets where the customer can pick different sizes and other products, which are then delivered into the fitting room through a chute. This solution eliminates the pain point of having to leave and come back to the fitting room. Hointer also provides mobile check-outs to complete a seamless shopping experience in-store.
A seamless and magical in-store shopping experience can only be accomplished with greater investments in technology and data. Retailers are already investing in in-store data analytics solutions such as RetailNext, but they need to go beyond traffic counting to truly transform the in-store shopping experience. Similar to theaters and stadiums, these investments will turn the tide against the digital onslaught and help differentiate brick-and-mortar retailers from e-commerce and mobile commerce competitors.
Close to 90 percent of purchases still occur in-store, although e-commerce and mobile commerce are growing at an accelerated rate. Rather than retreating, retailers should learn from the entertainment and sports industries to push technology and data analytics into the stores to enhance the benefits of shopping in a physical environment. Consumers should be delighted by new discoveries of products, instant trial and immediate gratification of bringing it home. These are key benefits that Amazon cannot replicate.
*Disclosure: Fung Capital is an investor in Tulip.
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