Retailing is like a good game of poker. It’s based on a number of bets backed by some really good bluffs. Let me elaborate a little.
Any bricks and mortar store stakes its very existence upon the fragile tripod of convenience, the tactile experience and the ability to offer instant gratification to its customers. You can, usually, walk out with your purchase within minutes of walking in, handling the merchandise and paying for it.
All of this is an illusion. ‘Convenience’ is shorthand for tradition, as we are still conditioned to thinking that the norm for shopping is a real world shop. Handling some piece of merchandise before you buy it is, these days, highly overrated, and ‘instant gratification’ is only as good as the level of stock in the shop itself. The moment something is out of stock the illusion becomes apparent and the entire tripod collapses and a bricks and mortar store becomes no different to an online one except you had had to drive out to it, go through traffic, mess with parking, wait in a queue to talk to an assistant and put in an order through the store’s computerized system. (A little like a ‘dumb’ way of using the web through a real-life proxy).
The success story of Amazon is a study in the disruption of two worlds clashing: eCommerce and traditional retailing. The bet eCommerce was built on, and Amazon refined to an art form, was that consumers would be willing to forego the tactile experience and the instant gratification of a purchase in exchange for convenience in shopping hours and lower prices.
That bet worked, initially, in areas where retailing was of poor quality in regards to choice or local choice in terms of stores was poor. Shopping online, in these cases, was much more preferable to the hassle of a round trip in order to buy something. Retailers who saw Amazon’s business model at the time ignored it on the basis that there were two inherent advantages to shopping locally: A. The experience of touching something before you paid money for it and B. The unrivalled speed at which you could have it.
But just to be on the safe side, they weighed the betting odds a little in their favor, by also establishing an online presence on the assumption that a website would act as a natural extension to the store’s physical presence and normal shopping hours.
Amazon’s Disruption Model
Amazon’s business model has disrupted the traditional retailing industry because the company has been willing to call traditional retailers’ bluff regarding availability and convenience. Its own bet has been a non-diverging one. From its very inception Amazon put store by the fact that it could work on a much larger scale in terms of geography and shopping hours and the company invested heavily on technology to allow it to keep deflationary pressure on operating costs and selling prices.
Amazon’s algorithms are behind the fact that out-of-stock merchandise prices drop to entice fresh orders, popular items go up in price automatically and unpopular items drop. The company has invested heavily in supply-chain systems and it has never stopped tackling the twin issues of delivery times and delivery costs.
Had things remained the same as in 1994, when Amazon was founded, the online and offline retailing worlds would be firmly segregated. The former would be inhabited by those who like to look for a bargain in their pajamas and the latter would be for those who aren’t comfortable handing over their payment details online or buying merchandise they cannot touch.
Unfortunately these two worlds have been on a convergent course since the moment there was a web and the reason is the same for both and it has to with money.
Online and Offline Stores are on Converging Paths
The evolutionary paths of online and offline commercial businesses are converging because both feel the need to reduce operating costs and maintain profit margins in a tough market.
The irony here is that in order to achieve this, offline businesses are trying to reduce wastage by keeping only their most popular lines in stock and accepting orders for everything else. In this they function much like online stores. In the meantime, online stores, with Amazon at the lead, have been busy reducing delivery times and delivery costs in an attempt to blur the perceptual divide between them and brick-and-mortar stores.
This convergence is made even more obvious with Amazon’s latest initiative in same day delivery stores in the US which takes a massive leap towards removing one of the most obvious perceptual barriers for shopping offline.
Amazon, in particular, has been singled out for criticism as the retail industry’s single, largest disruptor. Its price comparison app made headlines as local retail stores suddenly realised that the battle for the hearts and minds of their customers that always took place somewhere offstage, was now being fought directly in their stores.
Fighting Solely on Price is Always a Losing Proposition
It is impossible for an online store to deliver a better shopping experience than a brick-and-mortar one. No matter how interactive the technology may be and how fast the website, it simply cannot compete with the ambience of shopping in a real, high-quality, retail environment. This is something that high-end retailers like Macy’s, Harrods and John Lewis, fully get.
It is also impossible for a brick-and-mortar store to fight an online business solely on price. The business models are so different that the moment price becomes the sole defining characteristic it has to be time for the offline store to lock up shop. Yet, this is exactly what happens.
The reason price becomes a defining characteristic is because traditional retailers are still locked into traditional thinking when it comes to customers. In the world that’s still active in their minds, customers walk into their shop to look at merchandise. If they want to compare prices they need to either have a competitor’s catalogue with them or they need to physically walk out of a store and drive to another one to check prices, taking the risk that the difference they will find there will not be sufficient to guarantee the effort.
The reality is that, that world no longer exists. Search has already changed the purchasing process by allowing most shoppers to research the products they look for, check out their particular specifications and draw up a shortlist before they even leave home.
This leaves retailers with a massive opportunity and an equally massive challenge that webmasters have been facing since the web was born: Conversion. Namely, they need to work hard to convert in-store browsers into customers and the only way to really achieve that is by successfully getting across the notion of value-over-cost.
The Offline Retail Win Formula
If you are running an offline business and feel that Amazon is closing you down the chances are that you are doing a number of things totally wrong. If you are looking for a winning formula which Amazon cannot hope to match you need to start looking at your own business in direct relation to the list below.
01. Value – this is something which is communicated subtly, at many different levels from the moment a customer looks at your shop. The image it projects, the quality of your displays, the product knowledge of your staff, the range of your stock, the ambience of the shopping environment and, in short, the entire shopping experience must make everyone who comes into your store feel that they have received a personalized, friendly, helpful, professional service. Fail to deliver this and you have lost the strongest advantage your offline business has over any online store.
02. Convenience – someone has taken the trouble to leave their home and drive to your store. If they then have to wait for ages before a surly employee nods in the direction of the merchandise they are looking for the convenience factor has evaporated. More than that, provide convenience by using the web, Google Local, local search, telephone ordering and even an app to catch social customers who understand the convenience of price comparison. There is no need to fear small price differences if you can adequately communicate, at every step the first item on this list. As a matter of fact a top-notch service and the fact that there is no delivery charge (always a factor with online stores) can frequently create a totally different purchase criteria dynamic in social customers who understand the need for community stores and appreciate the personal touch.
03. Brand Appeal – We live in the age of the social customer. Because most goods have been commoditized those brands which truly connect with their target customers in terms of shared values, styles, community identity and social aims, will win. In this regard online stores have an uphill struggle. If you cannot, at every step of customer contact, convince your customers that the survival of your business is also a direct benefit to the community, you have lost one more important advantage in your struggle against online retailing.
04. Shopping Experience – Online stores continually innovate. From newsletters and discount coupons to interactive games, clever layouts, special offers and loyalty drives. If you cannot create a diverse, addictive, empowering shopping experience to your customers which totally justifies in their minds why they shop at your store then, perhaps, you should not be in business right now.
Just as Amazon is taking the fight to retailers by creating local distribution centers and experimenting with same-day delivery, so can local retailers take the fight to Amazon. There is no reason, for instance, why online and offline prices should be the same. After all, a sale made online (which will have a delivery charge applied) has not taken the time of a sales assistant, there is no display space involved and it does not even have to be in stock (though it helps). Its sale allows for specific economies which can and should be passed to the informed customer who can then decide where to make their purchase from.
More than that, offline stores which already have an established online presence can create even more winning combinations by offering in-store pick up of goods bought online. The moment you have fresh footfall in your store it is up to you to work hard to convert those who enter into customers, once more, maximizing the spend per customer for very little effort.
Is Amazon winning against offline retailers right now? It appears to be. In every case that happens the fight is between a 21st century business (Amazon) and someone stuck in the past. The dictum of shape up, or ship out has never been more real than now.