The proliferation of online-only retailers has placed severe competitive pressure on traditional operators. Their ability to offer vast product ranges along with their lower overheads gives them a distinct advantage in many ways. This is leading to many bricks-and-mortar retailers to explore digital-first strategies, but it’s not as straightforward as it sounds.
Online shopping may have grown significantly during lockdowns, but lots of people are returning to stores at the earliest opportunity.
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"If already you have invested in physical stores, you still have to protect those assets," KPMG partner Niall Savage points out. "You need to get value out of them while they are still profitable. The decision on a digital-first strategy will probably follow where you are at the moment in terms of online trading, the amount you have invested in your physical [spaces] and if it is possible to exit from those stores."
But they can't simply ignore digital channels. "Retailers still have to compete with the platforms and the digital-first retailers like Amazon who have a very different cost base," says Savage.
The nature of the retailer also has a bearing on the decision. “Brown Thomas is still Brown Thomas,” he adds. “Its flagship store on Grafton Street is what drives the brand, even though they have an online presence which has grown significantly bigger since the beginning of the pandemic. But if your product is low margin, low cost and high volume, can you cover the extra cost of delivery? You might decide not to go online if that’s the case.”
According to Savage the cost of getting customers to come to the site and getting the goods to them will probably be too high to bear. “Does it pay you to have a van delivering €18 worth of goods? There is a lot of additional cost and complexity involved. If your business model is around big box stores with lots of stock, turning that into a web-based model like Amazon is not easy. But you can contrast that with certain retailers like Dunnes who are partnering up with Buymie, who take the problem away for them.”
But digital-first strategies aren’t confined to the online world. “Amazon is steadily deploying more and more of its automated convenience stores,” says BDO Eaton Square director of technology consulting Conor MacManus. “It now has five in London and 14 in the USA. There are cameras with AI along the aisles which spot what you pick up, and you get a bill when you leave. And there is a bunch of start-ups trying this and other approaches.”
Product recognition
AI and machine learning are also being deployed to help customers find products online. “The two central questions of ecommerce, and indeed any retail, relate to logistics and discovery – how do I get it, and how would I know it exists?” says MacManus. “At any given moment, buyers on the web see shopping inspiration – new fashionable trends, seasonal tablescapes, and artful shelfies. But in many cases, we see something we want but can’t figure out how to buy it or even check it out. AI and machine learning can answer questions like what is that product that I see in an image or photo? Where can I buy it? What else might I like?”
Product recognition is among the most important ways to make it easier for people to shop online, he continues. "If AI can predict and understand exactly what's in any given picture, then people could choose to make any image or video shoppable. People would more easily find exactly what they're looking for, and sellers could make their products more discoverable. Facebook is already using AI to build the world's largest shoppable social media platform, where billions of items can be bought and sold in one place."
There are other issues to deal with as well. “We don’t need research to know smartphones have entirely transformed consumer behaviour,” says Vivienne Grace, head of ecommerce sales for Elavon Europe. “It’s usually the first technology we interact with in the morning and the last at night, whether we like to admit it or not. It means shoppers are increasingly heading online to research, browse or to buy. But we’ve become pickier, and far more willing to abandon our purchases if the process takes too long or involves too much faff, such as scrabbling to set up an account for each and every online outlet we use.”
And then there is the not-so-small matter of security. “Fraud concerns have also risen because cyber criminals have a much wider pool of potential victims to target,” adds Grace. “Meanwhile, from the legitimate end of business, concepts like contactless, cashless and buy-now-pay-later have moved from the margins into the mainstream, forcing retailers to rethink what they offer customers.”
Irreversible change
Successful digital-first strategies must preserve the best of the in-store experience, says Grace. “As customers we expect to be able to get a similar purchasing experience online compared to what we’re used to in store. Retailers need to offer real-time stock updates, safe methods of payment and personalisation to the consumer – all without making that process too slow or cumbersome. If I feel it’s too protracted, I’d abandon my purchase and look elsewhere with just a few taps of my phone screen. The pandemic has changed the entire payments ecosystem. Some elements may go back to how it was before, but most will have evolved irreversibly. So, retail needs to take what was good, efficient and loved, and adapt it to what is now needed and expected by customers.”
Lego is one company that is successfully combining the best of the online and offline shopping experience. “They are using AI to improve the customer experience. You can spread all your Lego bricks out on the floor and take a picture of them,” says McManus. “An app will identify them and come up with a whole list of designs for things you can build. Lego will also help you choose presents. They make the whole experience seamless and replicate what happens in store. It’s just like a sales assistant advising you and helping with your decisions.”