The Future of Shopping

It’s a snowy Saturday in Chicago, but Amy, age 28, needs resort wear for a Caribbean vacation. Five years ago, in 2011, she would have headed straight for the mall. Today she starts shopping from her couch by launching a videoconference with her personal concierge at Danella, the retailer where she bought two outfits the previous month. The concierge recommends several items, superimposing photos of them onto Amy’s avatar. Amy rejects a couple of items immediately, toggles to another browser tab to research customer reviews and prices, finds better deals on several items at another retailer, and orders them. She buys one item from Danella online and then drives to the Danella store near her for the in-stock items she wants to try on.

As Amy enters Danella, a sales associate greets her by name and walks her to a dressing room stocked with her online selections—plus some matching shoes and a cocktail dress. She likes the shoes, so she scans the bar code into her smartphone and finds the same pair for $30 less at another store. The sales associate quickly offers to match the price, and encourages Amy to try on the dress. It is daring and expensive, so Amy sends a video to three stylish friends, asking for their opinion. The responses come quickly: three thumbs down. She collects the items she wants, scans an internet site for coupons (saving an additional $73), and checks out with her smartphone.

As she heads for the door, a life-size screen recognizes her and shows a special offer on an irresistible summer-weight top. Amy checks her budget online, smiles, and uses her phone to scan the customized Quick Response code on the screen. The item will be shipped to her home overnight.

This scenario is fictional, but it’s neither as futuristic nor as fanciful as you might think. All the technology Amy uses is already available—and within five years, much of it will be ubiquitous. But what seems like a dream come true for the shopper—an abundance of information, near-perfect price transparency, a parade of special deals—is already feeling more like a nightmare for many retailers. Companies such as Tower Records, Circuit City, Linens ’n Things, and Borders are early victims—and there will be more.

Every 50 years or so, retailing undergoes this kind of disruption. A century and a half ago, the growth of big cities and the rise of railroad networks made possible the modern department store. Mass-produced automobiles came along 50 years later, and soon shopping malls lined with specialty retailers were dotting the newly forming suburbs and challenging the city-based department stores. The 1960s and 1970s saw the spread of discount chains—Walmart, Kmart, and the like—and, soon after, big-box “category killers” such as Circuit City and Home Depot, all of them undermining or transforming the old-style mall. Each wave of change doesn’t eliminate what came before it, but it reshapes the landscape and redefines consumer expectations, often beyond recognition. Retailers relying on earlier formats either adapt or die out as the new ones pull volume from their stores and make the remaining volume less profitable.

Like most disruptions, digital retail technology got off to a shaky start. A bevy of internet-based retailers in the 1990s—Amazon.com, Pets.com, and pretty much everythingelse.com—embraced what they called online shopping or electronic commerce. These fledgling companies ran wild until a combination of ill-conceived strategies, speculative gambles, and a slowing economy burst the dot-com bubble. The ensuing collapse wiped out half of all e‑commerce retailers and provoked an abrupt shift from irrational exuberance to economic reality.

Today, however, that economic reality is well established. The research firm Forrester estimates that e-commerce is now approaching $200 billion in revenue in the United States alone and accounts for 9% of total retail sales, up from 5% five years ago. The corresponding figure is about 10% in the United Kingdom, 3% in Asia-Pacific, and 2% in Latin America. Globally, digital retailing is probably headed toward 15% to 20% of total sales, though the proportion will vary significantly by sector. Moreover, much digital retailing is now highly profitable. Amazon’s five-year average return on investment, for example, is 17%, whereas traditional discount and department stores average 6.5%.

What we are seeing today is only the beginning. Soon it will be hard even to define e-commerce, let alone measure it. Is it an e-commerce sale if the customer goes to a store, finds that the product is out of stock, and uses an in-store terminal to have another location ship it to her home? What if the customer is shopping in one store, uses his smartphone to find a lower price at another, and then orders it electronically for in-store pickup? How about gifts that are ordered from a website but exchanged at a local store? Experts estimate that digital information already influences about 50% of store sales, and that number is growing rapidly.

As it evolves, digital retailing is quickly morphing into something so different that it requires a new name: omnichannel retailing. The name reflects the fact that retailers will be able to interact with customers through countless channels—websites, physical stores, kiosks, direct mail and catalogs, call centers, social media, mobile devices, gaming consoles, televisions, networked appliances, home services, and more. Unless conventional merchants adopt an entirely new perspective—one that allows them to integrate disparate channels into a single seamless omnichannel experience—they are likely to be swept away.

An Industry Stuck in Analog

Why will digital retailing continue to grow so fast? Why won’t it peak sometime soon, or even implode the way it did the last time around? Anyone who has shopped extensively online knows at least part of the answer. The selection is vast yet remarkably easy to search. The prices are good and easily compared. It’s convenient: You can do it at home or at work, without using gasoline or fighting to park. Half of online purchases are delivered free to U.S. consumers—up 10 percentage points over the past two years. Many returns are free as well. Product reviews and recommendations are extensive. Little wonder that the average American Customer Satisfaction Index score for online retailers such as Amazon (87 points) is 11 points higher than the average for physical discount and department stores.

The advantages of digital retailing are increasing as innovations flood the market. For instance, Amazon has already earned valuable patents on keystone innovations such as 1-Click checkout and an online system that allows consumers to exchange unwanted gifts even before receiving them. Digital retailers drive innovation by spending heavily on recruiting, wages, and bonuses to attract and retain top technical talent. They were also among the first to utilize cloud computing (which dramatically lowers entry and operating costs) and to enhance marketing efficiency through social networks and online advertising.

Customers are out in front of this omnichannel revolution. By 2014 almost every mobile phone in the United States will be a smartphone connected to the internet, and an estimated 40% of Americans will use tablets such as the iPad. If you doubt whether consumers are ready for technology-driven retail solutions, find a “dumb” video display in any public location and look for fingerprints on the screen—evidence that people expected it to be an interactive touchscreen experience.


Meanwhile, traditional retailers are lagging badly. Online sales account for less than 2% of revenue at Walmart and Target. Nor are traditional retailers pioneering digital innovations in other channels, such as mobile shopping and call centers, or seamlessly integrating these technologies in their most important channel—physical stores.

It’s not surprising that these retailers are bring­ing up the rear. As a consultant, I often walk through stores with senior retail leaders whose knowledge of physical retailing is impressive: They know precisely where a fixture should be, exactly how lighting is likely to affect sales, and which colors work best in which departments. As a group, however, they are shockingly subpar in computer literacy. Some retail executives still rely on their assistants to print out e-mails. Some admit that they have never bought anything online. Technophobic culture permeates many great retail organizations. Their IT systems are often old and clunky, and knowledgeable young computer geeks shun them as places to work.

Article Source: https://hbr.org/2011/12/the-future-of-shopping