Retail 2018: The Tensions Between Online & Offline

Google opens its first “Experience Store”, Amazon enters the brick-and mortar bookstore and grocery business while German discount supermarket chains Aldi and Lidl successfully ignore digitalization. Is this the backlash of the analog? Or are online and offline rather two sides of the same coin? In our new Trendletter Retail, Innovation Strategist Natalia Hoffmann shows how retailers combine the best of both worlds.

What shape will the retail of the future take? ‘Digital’ seems obvious. Yet, the road to digitalization is uneven. On one hand, different businesses have from the onset approached the topic of digitalization differently; with more or less enthusiasm and urgency. On the other hand, every current has an undercurrent, and the more digital our daily lives get, the more we crave a real, physical and tangible connectedness with our environment. 

Surveys and reports indicate that about 50% of Millennials prefer to shop in a physical space versus online. The most technologically connected generation in history still wants to shop and buy in a store! How can brands and retailers navigate, shape, and disrupt the tension between online and offline, while staying competitive in this erratic landscape? Read on to find out.

Phenomenon #1: Ignoring the Internet

Two German discount supermarket chains, Aldi and Lidl, whose rapid and relentless global expansion (stores in Europe, Australia, China, US) secured their retail supremacy, have no online shopping facilities and very limited online offer respectively. Aldi is determined to conquer the retail world by ignoring the internet. As too, to a lesser extent, does its great rival Lidl. At Lidl, a new generation of senior managers began to upgrade their stores’ product selection in 2016 to enable big economies of scale. They resigned a year later after their effort to expand Lidl’s small online offering was deemed too radical a departure from the discounter’s original, tight-fisted formula.

Traditionally, Aldi and Lidl’s hallmark selling strategy has always been the “stack ’em high, sell ’em low” model and a general drop on convenience: Groceries are displayed still in their cardboard shipping boxes, the selection is simplified and reduced (each Lidl supermarket offers 2,500 products at most, compared with 20,000 or more at a typical German supermarket), and many of the products are from the stores’ own brand (90% of the products on Aldi’s shelves). The packaging is often a knockoff of the market leader.

But to attract more upmarket customers, low prices are no longer enough. To lure middle-class shoppers, Aldi now focuses on revamping its interior design(wide aisles, soft lighting, larger displays of fresh produce and electronic displays on the walls), has added organic and vegan food lines to their product range, and consistently scores high on quality. It also wins customers over by famously adapting to shopping habits (tastes and expectations) wherever a new store opens.

For the moment, Aldi and Lidl’s decision to pour money into their brick and mortar stores stores is working – while the market murmurs that this may be the miscalculation that eventually brings them down.

© Aldi Süd

Phenomenon #2: Online Expands Offline

The Breakout Retailers Award is granted yearly since 2016 by Chain Store Age (the leading source of news and analysis for retail executives) to forward-thinking brands that are redefining their industry segments and show strong potential for growth. Among the five winners of 2018 are two digitally-native retailers successfully extending their brands offline: Indochino and UNTUCKit – both companies opened their first physical stores in 2015 and grew to 20 and 25 locations respectively. The winners of previous years’ Breakout Retailers Award include other brands that first established and honed their presence online, and then expanded to the physical space (Fabletics in 2016, Sugarfina and Warby Parker in 2017).

A rise of this kind of disruptive strategy is a noteworthy development. But while the market shifts and grows ‘organically’ with independent digital-first brands starting to enter brick-and-mortar retail, it is far more telling to observe online retail industry giants dab into physical space the same way. Google has partnered with Best Buy, opening in 2016 in Canada its first Google Experience Store. The brick-and-mortar Google shops are designed to give shoppers a chance to fully experience and test drive the company’s expanding line of electronic devices. Taking immersive experience as its blueprint, they feature an immersive “Portal” display that invites shoppers to ‘fly’ over the planet through Google Earth, explore what people around the world are searching for, and play with other Google apps. Shoppers can also book one-on-one appointments with Google “guides,” take part in hands-on daily workshops to learn the ins and outs of Google tech, and sign up for seasonal events led by YouTube creators, popular tech experts, and others.

Amazon, the online behemoth that almost single-handedly put bookstores out of business, has been opening its own physical bookstores since 2015. Carrying a relatively small selection of titles (compared to big bookstores), it is thought that Amazon uses the space strategically as a showroom for its digital devices and a handy way to introduce the public to unfamiliar tech. Similarly, after acquiring Whole Foods Market in August last year, Amazon now also sells its products (Kindle, Echo) thereAmazon Treasure Trucks (around since 2015) are yet another way for the brand to be active in physical retail. It has been announced that the retailer’s deals-on-wheels program that is literally a truck driving around with discounted products you can buy online and pick up in personwill now be popping up at Whole Foods with new offers and incentives. Now that Amazon owns Whole Foods, it makes sense that it would use the grocer’s parking lots as a place to park the truck for the day, while wooing shoppers with food-related product deals… and enforcing corporate synergy. To top it all off, Amazon’s most recent expansion into physical retail is Amazon Go: their novelty grocery stores without cashiers. The first such brick-and-mortar outlet opened in Seattle, Washington, last month. It does not use cashiers or checkout lines. Instead, a sensor-and-camera system detects when shoppers pick items off the shelves (or put them back), and Amazon charges them automatically via an app when they leave. If the idea is a success it could help the company reach even more consumers and disrupt the traditional brick-and-mortar retail business—again. And while Amazon, officially, won’t disclose much about the motivations for going offline, they seem to have a lot of ideas about how physical retailing can be improved, ideas that come from their data-centric approach to online retailing.  

Phenomenon #3: The Power of Haptics

A lot of people still want to touch and feel an item, and try on a piece of clothing before they purchase. They might appreciate being able to buy things on the spottoo. Yet among them are many who simultaneously use their mobiles in stores to compare prices online and read reviews (showrooming). With the competitive edge of the digital retail market, this shopping tendency became a nuisance for many brick-and-mortar outlets. Over the years, the retailers have developed different strategies to accommodate it with profit. Two of them especially stand out.

In February 2014 the electronics retailer Media Markt in Netherlands rolled out an omnichannel pricing strategy across their 45 stores, with real-time digital pricing adjustments. Resorting to Electronic Shelf Labels (ESL) allows Media Markt to update the product prices daily online and offline after comparing them to all available internet prices. With centrally managed price tags, the updates can be carried out in real time, for an unlimited number of products, from just one computer. This ensures a consistent pricing across all their channels: physical, web and mobile stores – nothing is more damaging to customer loyalty and to the chance of securing a purchase than when a customer discovers they are expected to pay more for a product in-store than online. Last year Media Markt was one of the nominees for the bpost Omnichannel Award for this approach to showrooming.

Yet another strategy, one that fully embraces showrooming as a new norm, hints the most at retail’s future. Namely, deliberately creating brick-and-mortar stores where you can look-but-not-buy in situ. Bonobos, a digital-native brand specializing in men’s’ pants – but now purveyors of other pieces of apparel as well – opened their first physical “guideshop” in 2012. With 48 guideshops to its name by now, Bonobos’ entire assortment is carried in a relatively small space. Although every item is in stock, it is only one piece of any clothing size. Potential buyers can try things on, get an idea of fit and style preferences, choose and pay – but not take any garment home. The order placed by the seller with the Bonobos fulfillment system will be delivered by mail to the requested address. And because the Bonobos customers are already accustomed to the online-shopping experience, they don’t really mind waiting a day or two for things to arrive.

“Online retailers are looking at physical platforms with as much curiosity, desire and perhaps fear as their terrestrial counterparts. The blurring of the line between the two is more talked about than it is real and this status quo is likely to remain the same for some time to come.” 

John Ryan is Stores Editor at Retail Week. He shared his Retail expertise as a contributor to our think tank on the future of travel.

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