The changing retail landscape and how leaders are bucking the trends

Bloomberg Business reports that it expects to see a slew of defaults in the retail industry in 2016. It’s not to do with falling revenues, as you might expect. In reality, the problem comes down to a sea change in the vertical, namely the trend towards digital retail and away from traditional retail. While the 2015 holiday season was profitable for the sector overall, with e-commerce coming in as the key winner, the struggle to reallocate resources between the two channels is real. It’s certainly not the case that store visits have stopped, but that digital influence is increasing.

So what’s to come in 2016? Retailers are embracing the concept of ‘commerce as a whole,’ which is inclusive of both physical and digital, according to Deloitte’s 2015 study, “Navigating the New Digital Divide.” However, while many companies give the concept lip service, they have yet to truly embrace it operationally.

The shift from brick and mortar to digital real estate

Most big box retailers conceived of their real estate strategy prior to understanding the long term impact of digital. Many retailers are seeking to re-allocate those assets to better serve their customers’ changing habits and store closings are rampant as a result. Macy’s plans to close three dozen stores, Gap Inc. has closed down 25% of its stores, Sears Holdings closed 235 stores last year, and the list goes on.

What’s more, for those that continue to open new stores, many of them will be opening with much smaller footprints. Kohl’s, for example, plans to open 5-10 new stores this year with a smaller format - about half the size of current stores.

Bridget Weishaar of Morningstar was recently quoted as saying, "No matter how you cut it, the store base on these traditional department stores was built before the advent of ecommerce. There are way too many stores."

Again, it’s not an either/or equation, but a rebalancing; the more agile movers are reacting to the increasing influence of the digital experience. To further quantify that expanding influence, Deloitte reports that 64% of all in-store retail sales were influenced by digital in 2015.

Redefining what it means to be a digital destination and brand

It’s not simply about rebalancing the physical and digital, it’s about defining a digital retail strategy that works for the customer. Employing someone to develop an app for your retail business is a great first step, but it only takes you so far. When retail mobile apps are just a shell that links to a mobile website, no one wins: consumers who use their data plans to download a retail app and interact with it expect a lot more.

This is an industry-wide issue. In ARC’s 2015 study “The Best- and Worst-Rated Apps” just seven retailers earned high marks from users. The common factor among winners such as Fanatics and Haute Look, is that they’ve gone beyond the desktop experience. These apps, for example, allow users to find the best local deals in one tap and personalize the shopping experience by bringing targeted merchandise to the top of a user’s product feed.

Additionally, retailers are starting to embrace digital-only deals, staggered releases, and physical-digital store crossover events as mechanisms to drive urgency and deadlines. Holiday 2015 saw more of this activity than ever, with Target offering an instant 10% off on certain toys just for creating a wish-list in a Target Kids app, and Wal-Mart offering 4x the number of Cyber Monday deals as the year prior.

Switching gears from the tactical aspect of deals and deadlines, retail brands are now also expected to further extend their remit as educators, trend setters and confidants. Each retail category has different interaction points in the customer journey that will make or break the transaction. For apparel, it’s all about finding inspiration, whereas electronics purchases hinge on the ability to validate reviews and read customer opinions.

Smart content creation and distribution are now table stakes for brands looking to catch their customer at the right moment in the digital influence journey.

Warby Parker is an excellent example of a business that is leveraging social media to the fullest. The company built an incredible following on Facebook and Twitter by encouraging customers to take pictures of themselves trying on glasses at home and posting with #WarbyHomeTryOn. Warby Parker also introduced a Frame Studio in its Chicago location, where customers can get their photo taken by a pro photographer for free. The company suggests that “it’s the perfect place to stage your holiday card, celebrate a great day out, recreate a favorite editorial, and of course, see how your new frames look.” It also just happens to be an incredible social content driver, as customers hashtag and post their photos at very high rates.

Social media is increasingly responsible not just for driving awareness of a new product, but also for closing the deal. Shoppers are 29 percent more likely to make a purchase the same day when they use social media to help shop either before or during their trip (90 percent vs. 70 percent conversion).

While 2015 saw big changes in the retail landscape, analysts agree that there is still much more to come in the year ahead. Some big brand names will continue to struggle with creditor confidence, and physical stores will continue to fade away.

However, there will certainly be winners that stand out as well. This year will be all about speed and disruption as the paradigm shifts quickly away from simply connecting the channels (omnichannel strategy), to truly understanding digital influence on a deeper level. Those that move quickly to think about asset and human capital allocation in terms of ‘commerce as a whole’ and remove the e-commerce designation will capitalize on digital influence more quickly. On top of that, leveraging vertical-specific customer journey insights will help to craft social and mobile experiences that harness digital influence to drive up purchase conversion across the board.