I recently read another good article by Ben Evans which got me thinking. I say recently, but it was back in May and time has blurred due to the massive amount of eCom consulting clients have been requesting. The article discusses how different mediums overtake each other such as digital overtaking print media, or Netflix and streaming vs paid TV subscriptions.
Both deliver programming to view, but in different formats. Over the years online streaming has been steadily overtaking TV due to a combination of better pricing, high quality programming, additional freedom, etc. As Ben mentions, of course retail vs eCommerce is another one of these battles currently ongoing. Which got me thinking, what does retail have over eCommerce? What is left for retail?
To dissect this, we first need to understand consumer behavior. No commerce, whether online or offline, happens without the consumer. Looking at their needs, the core drivers of consumer behavior, I typically focus on 4 areas:
- Convenience
- Relevance
- Trust
- Value
First is convenience. Having a background in Conversion Rate Optimization (CRO), I have seen time and again how friction leads to frustration leads to someone taking their business elsewhere. If things take too long, if they’re confusing, if they are off-putting in any way the consumer will often abandon and the business will lose sales. We can see how convenience has evolved in retail through platforms such as department stores, malls, and convenience stores. The latter of which is almost always within walking distance in the country I live in, Japan. Perhaps this incredible level of convenience explains some of the behavior I see here such as people typically shopping every day for food vs every week back in the states. It could also explain why eCom here has been lagging behind other countries with a percentage of total retail of about 8%, and only growing at a rate of 4% (pre-COVID stats). Back to the point, retail has been very convenient. You can purchase everything you need often at one or two stores and they’re often not very far away.
But lets take a look at eCom now. As far as product selection goes, it’s much more convenient to shop for almost anything online. You don’t have to physically visit multiple stores, you just have to type a few words into Google or Amazon. This is a clear point in eCom’s favor. The current gray area comes in the convenience of when you actually get what you ordered. Offline is instant once you find it in stock at the store, but when ordering online you have to wait for delivery. For many items retail is the clear winner in terms of speed. But how long will that last? Here in Japan you can get same day delivery on many items off Amazon. For food, the likes of Uber Eats and Demaekan will deliver in less than 20 minutes in some cases. Do you think this will stop with food? It’s already passed it. In fact, Demaekan allows you to also add items from convenience stores to your order. What’s more convenient? Getting dressed, walking down to the store, finding the product, paying for it, and walking back? Or a couple taps on your smartphone and doing something else for the same amount of time it would’ve taken to go buy yourself? I don’t see retail coming out on top in this category long-term. That is until they have 3D printers or replicators from Star Trek that can make you whatever you desire.
Lets move on to relevance. A product or service is relevant when it is personalized for you, when it’s exactly what you’re looking for, when it fits your style, etc. It resonates. I’m slightly old-fashioned for my age in the sense that I enjoy wearing suits and jackets. Will I order a suit online? No, because I don’t trust them to get my size right (especially in Japan, where the average height is 25cm shorter than I am). I go to my favorite shop (Suitbar in Daikanyama if you’re wondering) where they have my measurements on record, browse the abundant fabrics, and place my order. This too is slowly changing. One example is Fabric Tokyo, who runs a hybrid model. You go into one of their stores only once, and just to get measured. Then you order everything online through their website. An interesting model that has been doing pretty well. But why even go in to get measured? Top apparel EC site, Zozotown (Japan, please please please adopt UX at a faster rate, it’s disgusting) made news not too long ago for their “Zozosuit,” a dotted, skin-tight suit that would record your dimensions with the accompanying app.
It didn’t fare too well and got mixed reviews, but the idea makes sense. With further progress in computer vision and other technologies, expect more along these lines in the future, further reducing the draw of retail.
So that’s fashion, but we also see retail losing the relevance battle in other verticals as well. The main driver? A handy little thing called data. When you walk into a retail store, no one knows what you’re interested in, what you’re looking for, what you’ve purchased before, etc. Online, you can know all of that and more through user logins and history, the keywords used to search, and various other data signals. This allows websites and experiences to change based on who is browsing, making the exchange more relevant. Retail has had the benefit of being able to have a conversation with the consumer and help them find what they need, but even that advantage is eroding thanks to digital assistants and chatbots. Build a bot well enough and it can even outperform humans. I remember reading an interesting statistic a year or so ago that stated Japanese people would rather talk with a chatbot than a human (lots to unpack there, perhaps another day). I’m struggling again to find how retail can win this dimension.
Next we’ll discuss trust. Trust is probably the most straightforward. Consumers want to know that what they’re buying is real and not a fake, that it’s not being obscenely marked up, that things will proceed as expected. Again, eCom has struggled on this one out the gate. I remember the first time I learned I can’t trust everything I read on the internet. I had used Yahoo search to look up my favorite video game, Chrono Trigger, in middle or high school. I found a site that said you could unlock an additional 2 hidden characters by proceeding through the game a certain way, which I excitedly did. When I reached the critical point it told me to insert a Playstation memory card into my SNES. Hmm, maybe I can skip that one. I tried for a couple more hours before coming to the conclusion that I had been lied to. Welcome to the internet.
eCommerce has had similar problems. Not being able to feel and see firsthand products before purchase has led to many negative reviews that the product didn’t meet expectations. Fake products, dangerous products, used products are not difficult to find. Retail has things vetted and delivered from the source leading to a much more trustworthy shopping experience.
But again, will this last? There are 2 technologies in particular that I’m watching drastically improve the trust of eCommerce transactions. The first is blockchain. No, it’s not just a buzzword, blockchain has a myriad of valuable uses (My favorite is for voting. Lots of gas being blown about voter fraud in the US these days, a blockchain registry could be mighty useful for that, eh. In fact, they’ve already been working on that for years in Tsukuba Japan.). In commerce, we can use blockchain technology to register and validate products as legitimate, especially useful in the luxury industry. We have done this with clients through our Dentsu Tracking sister agency full of logistics experts, but let me use an external case to illustrate the same thing. In Gartner’s recent report, “The Top 6 Supply Chain Breakthroughs, 2020,” they talk about how Ralph Lauren has used blockchain to serialize their products, allowing users to validate their authenticity by simply scanning a QR code on the tag, greatly increasing trust.
The other technology that’s really helping with eCommerce trust comes from the licensing industry, Fabacus’ Xelacore solution. Product catalogues can be difficult to track, especially across platforms. Most of the time it’s the platform that makes the catalogue, and not the manufacturer leading to lots of problems like duplicate product pages, fake products, and more. Xelacore creates the catalogue on the brand’s side and then shares with all the relevant parties like Amazon, Google Manufacture, etc. Having a single source of truth keeps illegitimate 3rd parties from simply creating a new page and selling used or fake merch. Another step in the right direction for trust. These technologies will take time to implement, but with the amount of money they will save businesses, adoption is sure to accelerate. Retail takes this category, for now at least.
Finally, on to value. Value can mean a lot of things to different people. It can be price and quantity, it can be rarity or uniqueness, it can be sentimental, it can be subjective. Price is an easy one to look into. Retail will sometimes win with incredibly drastic sales, but generally if you want to find something cheap, you go online. Many more options have lead to behaviors like showrooming, when you look up a price on your phone for something you’re looking at in-store. Where things get a little murkier are when you factor in experiences. During my stay-at-home period, I took Yale’s The Science of Well-Being course with some of my friends. It was an interesting course with an obvious bias towards the US-idea of ‘well-being’ but there were still many helpful techniques and lectures. One of which spoke about how experiences lead to much greater happiness than purchases. This aspect of commerce is currently strongly anchored in the physical world of retail (despite me having a great experience with friends taking the course online). Utilizing all the senses, getting out and doing things is more likely to leave a lasting impression and improve happiness. You don’t Uber an anniversary.
So, we’ve seen how eCommerce is rapidly evolving and overtaking retail in core areas consumers care about. COVID-19 has changed consumer behavior leading to people trying eCom for the first time and often getting hooked. DunnHumby released some stats saying that 86% of those who used eCom for the first time due to the pandemic will continue to shop for all or some of their groceries online. We also see BOPIS (buy online pick-up in store, relegating retail locations to be simple fulfillment centers) skyrocketing with Microsoft seeing jumps in related searches by 1,200% and Adobe reporting BOPIS usage increase of 195% in May. Things look bleak for the incumbent, retail. Which is the perfect cliffhanger to end on. I’ve got lots of ideas to write about for another installment some day where I’ll dive more into retail experiences, what retail can do to evolve, and what this means for the many people employed in the retail sector.