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From the Virtual World to the Real One: The Comeback of Brick and Mortar

Seema Punwani, Principal Consultant, R3

Seema Punwani, Principal Consultant, R3

In online customer experience has been trying to mimic offline since the onset of e-commerce. When e-commerce players wanted to move shoppers to the digital space, they took cues from the real-world shopping experience and then enhanced it and made it more convenient.

eMarketer estimates that global retail sales growth is slowing, but year-over-year increases will continue, mainly fuelled by sales in China, India, the US and developing countries in the Middle East and Africa. E-commerce sales growth will outpace brick-and-mortar sales growth by a more than 3-to-1 margin over the forecast period. Asia-Pacific is said to be the main driver behind this growth, accounting for over half of global retail e-commerce sales in 2015.

So if e-commerce is where the growth is why did the online retail giant Amazon open its first physical book store in Seattle last year? On the surface it appears counterintuitive, but this is a growing trend among successful online retailers. Let’s take a closer look at the growth of O2O (online to offline) -- what is making e-commerce retailers shift from online to offline?

1) It Makes Business Sense

While Amazon and other online retailers have chewed away at physical stores' sales, e-commerce still only makes up 9 percent of the overall space, according to Forrester Research's 2016 forecast. Meaning there is plenty of money to be made offline and it’s not about to change anytime soon. According to McKinsey, in 2020, 80 percent of US retail sales will still happen in brick-and-mortar stores. This does not mean online retail is dying, it just means that a synergy between online and offline will be the key to retail success in the near future. Enter omni-channel retail, where the real and virtual world not only merge, but learn from each other for an enhanced customer experience.

Amazon’s store doesn’t look much different than an average book shop, but it is unique in that it includes reviews customers have posted on its website. Amazon used what works in e-commerce and bought it to life in its physical store. The books are placed coverout, rather than the traditional spine-out, and it includes categories based on shopping habits from Amazon. Merchandise is sorted by how many stars it has received online, and although Amazon sells physical books in its store, there are stations for its Kindle e-reader as well. Perhaps the best part is that the books are priced the same as on the website.

2) Physical Stores Play Role of Brand Ambassadors

Just like movies need a fancy trailer to drive movie-goers into the cinema, a physical store attracts customers with its aesthetics, design and ability to create the sensorial experience. Displays make products more desirable. Oneon-one customer service helps increase sales. TimeTrade’s State of Retail 2015 Report reveals that one third of customers like to receive product advice from sales associates, and a whopping 90 percent of shoppers are likely to buy after receiving help from knowledgeable staff in-store. Despite the popularity of online shopping, the human touch still seems to be good for business.

Pepperfry, a popular Indian online furniture retailer, recently joined the growing list of e-tailers by going 'hybrid' and opening a flagship ‘experiential’ store in the heart of Mumbai’s shopping district. They reported that almost 20 percent of online purchase came from customer experience in the offline store. The key advantage of such a store is that products can be curated.

Leveraging online habits in the physical world was also recently put into practice by Tok&Stok, Brazil's biggest design furniture store, when they took the Pinterest virtual "Pin" button and modeled a physical pin. The store had actual bright red pins that let shoppers pin items in store and save them immediately to virtual inspiration boards on Pinterest. The pins used Bluetooth low energy (BLE) to connect with a "PinList" app that the shoppers had to download to their phone.

3) Seamless Consumer Experience

Customers’ virtual and real worlds are not diverse. They are looking for a unified shopping experience. Ikea is a classic example of a retailer who does this well. Their website allows consumers to make a digital shopping list, but then come into the stores to make their purchases.

In China, where retailer space comes at a premium, leading UK high street fashion brand Topshop partnered with luxury e-commerce site, ShangPin, to create a pop-up store in Beijing’s down town retail hub. Pop-up stations around the mall were equipped with giant iPhones loaded with Topshop fashion looks styled by ShangPin. Visitors could access a mobile adventure by scanning QR codes, allowing them to share looks on social media and order items for delivery.

4) Physical Store Help Deal with Credibility Issues

Opening online stores does not always involve a stringent quality control process, especially in markets like India and China. In China, anything could be counterfeit, and consumers are getting tired of gambling with their health every time they make a purchase. Online Chinese retailers such as Alibaba have been facing pressure from both consumers and the government over the massive number of fake items in the underground ‘daigou’ market, which is worth billions.

Hence in order to build brand trust, Remy Martin created the “Smart Bottle” for the China market to test if the product is legitimate and safe. The brand collaborated with Selinko, an anti-counterfeiting service, to produce a smart bottle, which works in conjunction with mobile phones. The bottle uses near field communication (NFC) tags to verify its authenticity and whether or not it’s been opened prior to purchase.

5) O2O to Outperform Logistics

During the last “Single’s Day,” Alibaba virtually merged physical stores’ stocks with online shops’ stocks so consumers were delivered the nearest stock and there was less chaos in the delivery. O2O can thus help e-commerce retailers save time and money with better logistics by leveraging physical stores as part of their supply chain, thus cutting the costs of inventory management and increasing speed of delivery.

It’s ultimately about physical stores supplementing online stores - not replacing them. Or vice-versa. Convergence is the name of the game today.

R3 is a marketing and advertising industry based organization, founded in 2002, providing services specializing in Marketing Consulting, Independent Research, Agency Selection and Compensation, Independent Media Auditing and Analysis.