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Restore the Store: Strategies for Brick-and-Mortar Survival and Resurgence

 

The prospect of endless product aisles and the convenience of buying anytime, anywhere are luring even the most steadfast in-store shoppers to switch loyalties to the online model. eCommerce retail growth is expected to outpace brick-and-mortar sales growth over the next five years, reaching $370 billion in sales by 2017[1]. As big-box retailers attempt to recover from the onslaught of online behemoths, ‘showrooming’ by shoppers spoilt for choice seems all set to drive the last nail in the brick-and-mortar stores’ coffin. Are clicks really killing bricks?

Emulating nature’s tactics for store resurgence
Globally, retailers are struggling to keep stores alive and relevant. However, merely striving for survival is aiming too low; instead, brick-and-mortar retailers need to shift focus from survival to revival. The key to resurgence of the physical store may lie in the successful emulation of nature, which has developed survival mechanisms to overcome several challenges. In this paper, we present ideas on how pure brick-and-mortar retailers can emulate nature’s tactics in order to stay relevant and succeed in the digital world.

Tactic #1: Run faster and in the right direction
When faced with a threat, the first and most intuitive tactic of any creature is to run fast enough to outpace the predator. Faced with the threat of high operating costs of brick-and-mortar stores, one of the strategies that retailers apply is to go for aggressive cost cutting in a specific area. While this might seem to be the right approach, cutting costs in one area without sufficiently preempting the possible adverse impact on other areas poses a high risk. For example, a token reduction of inventory can lead to stock-outs and service loss, while cursory reduction of store staff may adversely impact customer service and the in-store customer experience.

With customers tightening their purse strings and same-store sales remaining flat or even dipping, instead of baulking at high operating costs, retailers must proactively identify ways and means to keep these costs low. Many retailers have been able to identify the right levers and move in the right direction, making store operations more efficient and competitive. In order to succeed, the speed of change must be as fast as the customer expects it to be and more importantly, needs to be faster than competition.

Tactic #2: Adapt to blend into the environment
The digital natives, that make up a large fraction of today’s customer base, are increasingly opting for channels that provide an immersive experience. This growing trend poses a threat to physical stores. In response, smart retailers have attempted to camouflage the physical store experience with a Web-like experience. A few of the digital transformation initiatives that have found their way into stores include mobile point-of-sale (mPOS), mobile apps for price comparison, in-store browsing terminals, augmented reality trial rooms, NFC payments, and customer mobility.

However, the retailer’s core line of business, volume of transactions, brand image, and positioning need to be considered before deploying technology solutions to keep pace with evolving digital trends. For instance, the efficacy of mPOS systems will need to be thoroughly validated in high volume grocery retail stores. Augmented reality-based trial rooms will need to be evaluated before full-scale implementation, especially when shoppers travel to a brick-and-mortar store looking for a sensory and tactile experience. Similarly, while self-checkouts may reduce staff cost for retailers, they should only be introduced after carefully administered trials in select retail outlets, taking into consideration the fact that customers are generally used to being assisted at check-out.

Tactic #3: Choose your battles wisely
Despite the purported threat by online retail, several big brick-and-mortar stores still remain undeterred. Some have adopted certain aspects of online channels, while others have tested the waters and identified innovative solutions that minimize the disruption to their existing brick-and-mortar retail model. There are yet others who continue to sit on the fence with no immediate plans of adapting to omni-channel retail. It may not be practical to resist change forever and therefore, undecided retailers may need to think of attractive propositions that maximize their footprint.

Retailers can learn from their contemporaries who have bucked the trend. For instance, German discount supermarket chains such as Aldi and Lidl have continued to hold their own against leading customer-centric multichannel retailers such as Tesco, Sainsbury, and Carrefour. They have both focused on various alternate measures to minimize customer defection to other retailers that provide multichannel options. Rather than adopting cutting edge technology or a transactional website, both the retailers have focused on maintaining the threshold on price, service and assortment consistently.

In another instance, Primark, the popular British budget fashion retail chain, recently partnered with ASOS, a pure Web-only fashion and beauty retailer. After prolonged resistance to establish an online presence, Primark finally set up a Web store to sell a limited edition online for the first time. This approach has allowed the retailer to test the omni-channel waters without committing to any significant investment in revamping its infrastructure.

Tactic #4: Befriend the enemy
For retailers, this simply amounts to identifying innovative ways for physical retail stores to co-exist harmoniously in a multichannel environment. In such a scenario, stores will cease to exist as just nodes of transaction for customers and will assume multiple roles that address various aspects of omni-channel retail. The role of the store is to be able to partner with the customer at any point across the purchase lifecycle — beginning with the discovery stage, moving on to browsing, leading to a sale at the transaction stage, and finally on to a continued relationship through after-sales engagement.

The new-age store is expected to be a crossover between the erstwhile store and a fulfillment center. This presents the need to identify and deploy operational capabilities that did not exist in the traditional environment, and adapt the ones that did.

Processes like in-store picking, or packing and dispatching are now done at stores. The picking process requires the store associate to perform the role of a picker in a distribution center. There are various aspects including labor scheduling, pick path optimization, inputs to planogramming modifications and/or truck-to-shelf processes that need due consideration, along with many other interdependent aspects of the store landscape. Also, the store planogram is developed with the primary intent of driving higher customer sales. With in-store picking coming into the fray, relevant adjustments will need to be made to the planogram. All these factors need to be considered while adapting to the new environment.

Conclusion
Retail brick-and-mortar stores are at the cusp of what could either be a journey to recovery or a downward spiral to extinction. Pure brick-and-mortar players need to rise to the challenge. Despite sceptics writing the obituary for physical stores, there is immense potential for its sustained relevance, and more importantly, its resurgence. Aiming for store resurgence is one thing; in order to succeed at it, retailers need to consider the following:

  • Technology and operations must complement each other. Cutting edge technology employed at the customer interface without appropriate optimization of store operations may provide short-term gains but may not be sustainable or cost-effective in the long run.
  • The store does not exist in isolation; it is the most visible part of a very complex value chain. Only a holistic approach that addresses all areas—from the parking lot to the sales floor and the back room— can provide a balanced solution.
  • The success of the retail ecosystem is highly dependent on the store’s operational efficiency and effectiveness. Seamless customer experience across all channels can only be given a physical manifestation inside the brick-and-mortar store.
  • To the customer, the retailer’s brand is a single entity and does not consist of multiple channels. While contribution from physical stores may have reduced, it is important to note that physical stores continue to influence sales in other channels. This needs to be considered before making changes to the store operations.

[1] Online Retail Forecast, 2012 to 2017 (US) by Forrester Research Inc. 

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- Reimagining Retail: The Digital Imperative
- Restore the Store: Strategies for Brick-and-Mortar Survival and Resurgence
- The Dawn of Digidexterous Stores - A Perspective on the Future of Stores
- Universal Store Commerce: More than a Digital Experience
- Global Retail CIO Agenda 2014: Taking on the Digital Paradigm Shift


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