August 16, 2016, 3:37 PM EDT
Brick and Mortar Reborn
The Future of Retail in the Era of UrbanizationDOWNLOAD
Table of Contents
Shopping Experiences Customers Want to Try On
Urbanization and The Consumer
Part of this shift toward cities can be explained by aging demographics. For the aging generation, growing old with the convenience of walkable, accessible living is appealing. And younger generations are drawn by the opportunities and lifestyle. Cities present the best career options for ambitious, competitive talent, as well as convenient access to shops, restaurants, and cultural resources.
Because of slowing population growth, economic development in the future will depend on increased individual spending rather than population expansion. In fact, three groups—China’s working class, global retirees, and the Northern American working-age population—will dictate over half of all global urban consumption growth by 2030.6
Even so, coming of age during a time of profound technological change and economic crisis left a considerable impression on these North American millennial consumers. If not digitally native, these late bloomers are at least digitally fluent. They are also educated, socially conscientious, and fiscally calculating (Figure IV). After years of immersion in ever-connected mobile devices and curated digital environments, leveraging technology to discover deals, services, and products has become second nature to this demographic. In fact, despite widely held stereotypes, millennials are discerning consumers: In the absence of burgeoning bank accounts, their time—maximally utilized and carefully doled out—is money.
- 63% of millennials purchase only what is on their shopping lists
- 82% report they are confident they're spending what they can afford 9
E-commerce has grown over the last decade: It totaled nearly 9% of retail sales in 2015 (Figure V). That growth has raised some concerns about the future of the brick-and-mortar outpost. But for all the alarm, in-store shopping remains the preferred retail channel for 82% of millennials,11 even for those who also engage in online shopping.
Being able to navigate consumers’ priorities of subtlety and immediacy demands a shrewd, nuanced approach from retailers. And recent industry developments suggest that continued innovation in retail will require strategies that encompass both the digital and physical realms.
The Rebirth of Brick-And-Mortar
Convenience is and will continue to be paramount to urban consumers. On-demand services like Uber and Seamless have conditioned city dwellers to expect flexibility and immediacy when purchasing items online—70% believe having delivery and pickup options is important.13
The click-and-collect strategy allows customers to purchase items online, with the option of collecting or returning goods in store. Though it requires investment in store staff and server storage, it eliminates the need to subsidize shipping costs
Ship-from-store allows customers to purchase items online and receive their orders directly from a store rather than a distribution center. To source items and balance inventory demands from online and physical channels requires a centralized tracking system. But the approach can create gains by shifting unsold inventory to areas where demand is highest.
This strategy treats stores as showrooms, allowing customers to engage with personnel, place orders, and then ship merchandise to the location of their choice. No inventory is held at the outpost. This way, retailers can remain competitive by offering a wider variety of items without needing to maintain excess inventory.
On-demand shipping strategies partner retailers with local couriers to deliver products immediately. This strategy is most effectively deployed in dense, large cities with shorter distances to travel.
Dual hubs: Retailers maintain two warehouses—one for online inventory and one for in-store inventory.
Distributed hubs: Retailers utilize a number of distributed warehousing sites spread throughout the suburbs to serve urban stores in close proximity. These warehouses may be large or small. Some retailers even opt to rent space within multi-tenant warehouses to save on costs.
Direct: Retailers do not hold extra inventory, but “pull” items directly from the supplier as required.
Urban consumers strongly favor the in-store shopping experience—with an emphasis on the experience. 18% of urban millennials expect to shop more in stores in the coming year than they did the last. When they do, they expect more than just a transaction. They want a unique experience that differentiates their spending and are willing to pay, on average, 31.6% more for it.19
Flagships are large retail outposts meant to serve not only as shopping centers, but as destinations. From outsized selection to special events and community spaces, these stores represent the ultimate tangible embodiment of their brands.
Highly curated physical spaces are an approach that smaller retailers—or those targeting a narrow demographic—can use to differentiate themselves. Think: storefront as brand microcosm.
A favorite of small brands and large retailers alike, the pop-up allows companies to experiment and to engage urban consumers without an onerous long-term investment in physical space. Typically placed in prime urban locations, one-offs like these enable retailers to take advantage of the high visibility of urban centers and major cultural events. At Art Basel Miami 2015, sustainable digital retailer Ethikal offered an “all good” themed pop-up highlighting four eco-conscious fashion brands.
Even as digital commerce grows, almost 90% of commerce is still conducted through traditional brick-and-mortar channels.21 And at least two-thirds of online customers engage with a store at some point during their digital transaction. Companies are taking note: Even pure-play digital companies are opening physical outposts to complement their core digital commerce business.
For a time, the consumer practice of “showrooming”—visiting a store to examine products before completing a final purchase at a different online venue—was expected to doom brick-and-mortar retail. But while some large retailers have found it hard to compete against such practices, click-to-brick companies have embraced and even expanded the model.
For other click-to-brick companies, moving into the physical realm is a function of harnessing a synergy between their product and the lifestyle brand they’ve cultivated online. This was the strategy adopted by retailer Athleta—one of the early movers on the “Athleisure” trend.
For retailers, the ability to collect and synthesize on-premise information and shopper behavior and preferences represents a huge opportunity to extend personalization and customization. Over the past few years, businesses have tested strategies that both gather intelligence and facilitate the consumer journey, and already, some of these efforts are bearing fruit. In fact, sixty percent of shoppers report opening and engaging with beacon-triggered content while shopping in-store.23
These retailers are maximizing customer engagement by building personalized and content-filled shopping experiences that provide utility through the fusion of technology and data. Consumer device capabilities and information about location, consumer profiles, and preferences are considered in tandem to deliver services that best align with consumers’ needs and expectations of the brand.
Looking to the future, the savviest retailers will be able to seamlessly and deftly leverage their physical spaces and advanced analytics to complement a mobile-first digital strategy. In a world driven by mobile on-demand purchasing, stores will function largely as brand centers and information hubs, attracting customers by providing a sophisticated outlet for experiential consumption. Informed by a deep understanding of consumers’ needs and behaviors, these centers will be optimized for efficiency, speed, and taste—a welcome prospect for retailers of all sizes who, only recently, were warned of the demise of their beloved storefronts.