Brick-and-mortar 2.0: How savvy retailers can use digital innovation to improve the in-store experience

How savvy retailers can use digital innovation to improve the in-store experience and enhance the customer journey

BY JESSE DONALDSON

DON’T worry, retailers: despite recent predictions to the contrary, brick-and-mortar stores don’t appear to be going anywhere just yet. Although e-commerce’s growth outpaced physical retail by more than ten times between 2013- 2018, the sector still only accounts for ten per cent of overall sales. And, according to a recent analysis by Canadian consulting firm McKinsey & Co, brick-and-mortar stores will still be the site of at least 80 per cent of sales by 2020. Even tech giant Amazon—long heralded as the destroyer of physical retail space—has recognized the value in brick-and-mortar, expanding its presence on the physical plane—not just through its purchase of Whole Foods, but with stores like Amazon Books, Amazon Go, and their series of pop-up locations in shopping malls. And what’s more, the current tech ecosystem is allowing today’s savvy retailers the opportunity to apply digital innovation to their brick-and-mortar operations like never before, leveraging the powers of data and technology not just to survive, but to thrive.

“By now, brick-and-mortar retailers—all of them have some online component,” explains Dan Mitchell, Retail Lead at analytics firm SAS. “But very rarely are they blending online sales data with brick-and-mortar data. We know how people shop today, and that most of the customer journey involves some online element. So, blending online sales with store sales can give retailers a more sophisticated view of demand— localized all the way down to the neighbourhood around them.”

Traversing the endless aisle

Thanks to advances in technology, and an ever-evolving set of digital tools, today’s retailers have an unprecedented level of insight into the online behaviour of their customers. However, as Mitchell points out, when it comes to in-store behaviour, many of those same retailers are flying blind.

“The minute I walk through the door, what happens inside the store—from a data and analytics perspective—is largely unknown,” he muses. “What we know about traffic data inside a store tends to be a few things: Did the door open? Did the door close? And did the cash register ring? But now, there’s this push to use technology to better understand shopping patterns in-store. How much time did the customer spend inside? Were they with someone? Where were they coming from? Where did they spend a lot of time? Retailers are eager to start collecting this information, so they can better understand what’s been happening within those four walls.”

Tracking customer behaviour (which can later be aligned with sales data) can be accomplished in a number of ways. Technology has advanced to a point where options include Bluetooth beacons, GPS, RFID tags, the so-called Internet of Things, connected smartphone apps, and even Visible Light Communication—high-frequency pulses from LED lights that communicate with smartphones to provide accurate customer positions within ten centimetres.

“WE KNOW HOW PEOPLE SHOP TODAY, AND THAT MOST OF THE CUSTOMER JOURNEY INVOLVES SOME ONLINE ELEMENT. SO, BLENDING ONLINE SALES WITH STORE SALES CAN GIVE RETAILERS A MORE SOPHISTICATED VIEW OF DEMAND— LOCALIZED ALL THE WAY DOWN TO THE NEIGHBOURHOOD AROUND THEM.”

DAN MITCHELL
SAS

And, as Mitchell notes, once retailers begin to apply the power of IT to in-store insights, the applications are virtually endless; rather than serving as a simple transaction point, those same stores can become attuned to the needs of the communities they serve, right down to the granular level.

“A retailer wants to have an Endless Aisle, where they have products both in-store and online,” says Mitchell, “but the question is always: what are the right items to have in the store versus online? In the past, that was a broad brush. You’d look at total sales volume, look at the topselling products across Canada, and those would be the items you’d have in-store. That’s not a very friendly way to deploy an Endless Aisle. It’s more effective to be able to adjust that from geography to geography.”

Not only does this information allow for more agile supply chains and more targeted marketing campaigns, but it can also influence things like end-cap pricing, placement of store associates, and, in some cases, even overall store layout. And most fascinating of all, it allows the store shelves themselves to be more responsive to customer demand than ever—not just in terms of what they want, but when they want it.

“Right now, assortment mixes on the shelf change month-to-month,” Mitchell explains. “A retailer may change product offerings, or how many facings are on a shelf, but we’re going to move to a much more real-time mode where that assortment could flex week-to-week or day-to-day.”

(Digital) Value Added

It’s important to note that the introduction of digital and technological elements isn’t just a behind-the-scenes proposition; it can also enhance the customer experience in more immediate ways, by bringing familiar pieces of the digital world right into the store. Take Sephora, for example: back in 2012, the cosmetics retailer introduced an app—available as both a smartphone download, and on mounted iPads throughout the store—that allows customers to scan and research every detail about the products they pick up, from customer reviews, to purchase histories, to whether or not it could cause a rash in specific skin types.

“We are devoted to offering personalized prestige client experiences,” explains Deborah Neff, Sephora’s VP of Marketing, “with services like the colour, skincare and fragrance IQ’s allowing our clients to more accurately find the most suitable products for them. Also, we want to extend our relationships with our clients beyond our stores. The Sephora App allows our clients to talk to the largest beauty community in North America through Beauty Insider Community Group chats, discover new looks in the Gallery, or try “on” product from the comfort of their homes with Sephora Virtual Artist. We accompany them every step of the way on their beauty journey.”

To date, the app has been downloaded more than 1 million times. Other retailers have tried similar experiments. Starting in 2015, Target introduced a shopping-cart-mounted smartphone app that greeted customers with a free cup of coffee, provided directions to products, and automatically gave detailed comparison information when they approached items they were looking for (while simultaneously providing the retailer with up-to-the-minute location data). Burberry has experimented with RFID technology to allow customers to scan their items in front of a “magic mirror”, which not only brings up details about how it was made, but also offers style consultation ideas for what other clothing items it might work with. And starting in 2012, Seattle’s Hointer took that experience even further; the shelves of their Seattle store displayed only one of each clothing item they sold, allowing customers to select size and fit on a nearby tablet. Clothes would then be fetched by robot technology, delivered, and paid for using the same tablet. Hointer has since closed their Seattle store, and is working to adapt their technology for grocery retail—an area that SAS’ Mitchell predicts is due to transform over the next few years.

“Grocery has been pretty stable for a long time. And when it comes to digital influencing grocery, there hasn’t been a lot of action in the last couple of years,” he says. “but I think that within the next 4 or 5 years, 25 per cent of grocery sales will be happening online. Think about all the shopping carts, the number of times you go to the grocery store—if a quarter of that is now landing at your doorstep, what are all the repercussions and ripples outward from that?”

“FOR BRANDS TO WIN, THEY WILL NEED TO BE MORE THAN JUST A PURCHASE DESTINATION, THEY NEED TO CREATE AN IMMERSIVE EXPERIENCE FOR THEIR CLIENTS, OFFLINE AND ONLINE.”

DEBORAH NEFF
Sephora

Embrace the Technological Revolution

It’s not just large retailers like Sephora and Target that can reap the benefits of information technology and analytics, though. In fact, as Mitchell explains, in some ways, mid-size retailers are better positioned to take the digital plunge.

“The specialty retailers, they’ve made more progress,” he says. “They need to—by necessity. They’re fighting to stay alive in a specific niche. But on the plus side, if you have fewer SKUs, and fewer stores, the technical part of pulling this together isn’t as daunting. They’re able to experiment fast and have more agile teams that can work this data.”

So, if brick-and-mortar stores aren’t likely to be going away anytime soon, then what does their future look like? Where will they fit into the overall retail landscape? Rather than fading away, they’ll need to grow and evolve, integrating the digital and physical, leveraging RFID and IoT technology, using analytics and data to inform store layouts, product mixes, and marketing like never before.

“Our world is getting smaller as the power of social media and the web has democratized the beauty world for the better,” says Sephora’s Neff. “As such, it’s becoming less about being in-the-know but more about creating authentic personal connections and experiences. For brands to win, they will need to be more than just a purchase destination, they need to create an immersive experience for their clients, offline and online.”

And it won’t be an easy transition. It will require larger IT departments, new marketing approaches, new business and consulting partnerships, and plain old hard work. But, it’s an approach that will serve tomorrow’s successful retailers for years to come.

“I think the biggest challenge is just the complexity,” he says. “You’re dealing with a lot of skill sets—wireless skills, data analytics, analytics with real-time streaming. And I think we need to look at how we’re training people, how we’re building up our integration partners to do this. Certainly, we see a tremendous amount of investment all over the world. But I think there’s still a lot to do. There are a lot of different skill sets that one person alone can’t own. We have to keep building an ecosystem of skill sets around it.”