If you're in retail business or often read the retail business news, you must notice about a term called "O2O," especially in China, refers to either "Offline-to-Online" or "Online-to-Offline" business model. There has been a debate heating up about online business wl gradually conquer the entire retail market.
In US, the eCommerce business is about 10% of $4.78 Trillions total retail market, increased fr 7% in last year; Amazon (AMZN), as everyone's expected, dominates the entire online channel segment. And on the opposite side of the Pacific Ocean, $1.56 Trillions China's online retail sales grew to a third of its total retail market in 2015. Bc of the rapid significant growth in %, everyone in conventional retail is panicking. Many media and analysts predicted Brick-n-Mortar and Malls wl die. In fact, the 'Big Boy' retailers, like Sears, Macy's, JC Penny, Targets, Best Buy, Walmart & more, are all facing struggles (Read their latest earning statements & you'll figure out why they're all profoundly worrying); Some are even hanging at the edge of bankruptcy. But where's their problem? Some conventional retailers have been the core of US economy in the 30's & 40's until the late 90's when internet booms. Is it really a technology invasion caused a shift of consumer shopping behavior? Or something else? I believe it's the latter, and here's why.
First of all, the total retail market's growing, so we have to look into why the consumers shop less physically, but more online consequently.
Is it bc of limited selection and availability? Nope, this restraint only applies in certain type of goods, and doesnt valid if your products are scarce and exclusive. Besides the well-known term “Showrooming,” there is actually a reverse behavior called “Webrooming.” For example, big screen TV sold much, much more volume in Costco and BBY than the entire online channel (AMZN tried to crack into this problem). Consumers wl go studying all product specifications and comparing price online, then make purchase offline bc of worrying about freight damage and ease of RMA. They would rarely buy online even if today’s Samsung 55” 4K UHD costs $100 less online with ‘Free Door-to-Door Shipping’ offer. It’s just the consumer’s dilemma/confidence matter (Many online merchants and media tried to reverse that, but wasnt much succeeded).
Is it bc of price incentive? Nope, just explained. Plus, shopping online is not necessary cheaper, depending on the economy of scale the retailers we compare in here. Moreover, freight logistic cost (Labor, cost of maintenance & fuel) is progressively increasing thru time trajectory; AMZN is trying to 'w00t' everyone signs up their “Prime”, not only bc of increasing customer loyalty, # of purchase frequency, total revenue per customer & so forth, but to also fundamentally offload the baseline cost of logistic (Not gonna explain the detail math, maybe another time; Pls simply acknowledge the 2-days shipping costs AMZN less than a single package ground-shipped by consumer). Also, guess what? AMZN doesnt offer the best price in town according to many retail researches.
Is it then due to convenience and time saving? Yes, but not 100% relevant to the Cost of Productivity/Opportunity Cost/Product Lifetime Value. Each customer segment apparently has its own distinguishable psychological profile. Let's just say the Soccer Moms (Not saying their time is not important), would they rather go for shopping enjoyment or stay home waiting just for a 'brown-carton-box' delivery, under the circumstance all associated costs (Price, gas & mileage) in shopping online & offline are equivalent? Most would choose the former. In contrast, most married men wl likely make an inverse decision (Shopping is not in men's nature; Also, the reason why @MiserableMen got so popular on IG). Hope that answered you.
Of course, we can continue going on-n'-on to evaluate, review and debate in many more different aspects. But while wandering our answer, shall we first ask why the Homo Sapiens is shopping at the first place? In consumer psychology prospective, "The motivation for almost everything we buy has something to do with connecting with other human beings." You may argue online retailers do provide social marketing activities to form community bonding stronger ‘relationship’ with customers, dont they? Yes, but different from physical engagement. As a social species, we like to observe, talk, smell, touch and feel objects, and importantly gain recognition from another. Why is Apparel being such a big category? Bc we wanna be more appeal to others (Identity Crisis); otherwise, we can all wear a simple, plain white t-shirt at all time (In a fact, that's my signature dress style for a couple years in the past. Friends & collegues would come and ask if I washed my clothes. Haha… And look what FB’s Mark Zuckerberg wears on everyday now); therefore, technology delivers immersive experience, like VR, could be a real threat to all offline businesses. Alrighty, let’s get back to my topic “No Online/Offline Boundary.”
Now, the question is whether today’s ‘Brick n' Mortar’ provide any incremental value to consumers? Yes, but not thoroughly. Like the famous A&F stores (Set aside its controversy), once every youngster loved, every merchandise, every interaction and every touch inside the retail store’s set systematically - very ‘robotic’. In each time walked by their stores’ window, you see the exact same set of seasonal clothing displayed; You’re then welcomed by their 'cloned' associates trained with a big sunny smile; You’ll always find the women session’s on the left, men’s on the right, and the sales session’s at the bottom-end of their stores (This precise 'uniform' floor plan was hyper-sensitively designed, not the work of laziness); You can ‘conveniently’ locate the exact style of clothing with different size and color at the same area in every store; Last but not least, you’ll be lining up in front of the POS counter before checkout. What an exhilarating shopping experience, isn't it?!
In contrary, let’s look at the “Think Different” Apple Store, whom turns 15yrs old & already earns $5,546/ sq. ft on the top of all retailers (Unfortunate AAPL decided not to disclose its stores performance from 2016 on), similar storefront can be found, but never identical. Every store may have familiar placement, but does keep its distinctive window displays and interior design. Not only your loved products can be checkout and pickup right away from any associate with POS machine, and your receipt/activity record wl be emailed and detail-documented in your Apple ID account (No paper waste). In additional, every online order you place can be picked up in any store at your convenience time during their hours. If needed a repair or product problem, you can either schedule online for an appointment or simply walk-in and drop-by the bar. An estimated repairing time’s given, and an txt message or email wl notify you when ready, so no valuable time's wasted. Beside that, new Apple application skills can be learnt for FREE or any in-store event can be participated by easily signing up on Apple.com. Moreover, their 'non-cookie cutting' associates (Their appearance never looks alike, even though wearing the same Apple t-shirt uniform) are very sociable, and they wont feel annoying if you have endless questions. Presently, they take one step further in their latest SF Union Square and NY WTC stores; Both stores turned into recreation park. Haha… Very spacey and lots of trees inside. There are even stools available for utilizing the way you like (I see people stack them up as table) or resting in front of their crystal-clear, gigantic display to watch their demos or just people-watching all day long. Furthermore, to enchant your visit, there’s a beautiful garden for you to enjoy the wonderful sunshine (I dont think you can do picnic yet). You'll also find the design language of their ‘Store’ pulled in sync with their web site. It’s a successful role model for every retailer to follow.
How about AMZN? Do you feel engaged with their brand? I know I dont (Wasnt bc I worked at their rival, EGG, in before. LOL). They’re literally a cold-hearted marketplace for trading products only. Once you find what the product you need, you leave. Dislike a product, write a nasty review and the seller wl compensate you or contact AMZN for a refund, and pretty much about it (Very soon 'Alexa' wl call you for satisfaction survey). Shoppers have no sense of emotion attachment with this brand. And that’s why AMZN, the ‘800lbs Gorilla’, once single-handedly wiped out the entire bookstore industry (Still remember the Borders and Barnes & Noble stories, anyone?), starts building the “Bookstore” again. First experimented the campus stores at the Purdue University and UC Davis, now in Seattle, San Diego and Portland, and more to come soon. In stores, they thoughtfully use the AI algorithms to place selective best selling books in the limited retail space, and display their latest electronic gadgets like the Kindle, Fire Series, and Echo withal. Most importantly, the stores provide the “Order online, Pick up here” service (AMZN Locker) to connect the dots between its online and offline business. But why, if the ‘Retail Stores is Going to Die”? Online business would never survive without offline presence, so does the other way around (Read the KPCB Internet Trends Report 2016 below to understand more).
You see where I’ve been guiding you to? If still not following, how about a last example in shopping 3D technology products online? Please try visualizing the three-dimensional effect of video content (Or now VR) on the flat 2D monitor screen you’re staring at now. It’s just not possible, and that’s why the 3D TV category failed online miserably. Consumers just cant relate to the stunting visual experience and see the value of that technology. (3D TV failure in mass adoption's mainly caused by its immature technology). As you may see, online retailers, as well, have its own limitation and boundary. On the other hand, the arisen of VR technology wl write a new chapter in retail history if intelligently submerged into shopping experience (Again, another topic yet another time). Then, the landscape of online vs offline business may change.
In a conclusion, why today’s offline retailers failed is the lack of presence customer experience, but not by the influence of online business. Brick-n-Mortar can competently fix this problem and captivate better shopping experience by integrating the concurrent technologies, such as Beacon, Chatbot, AI and Machine Learning. The problem I see yonder in those offline-retail corporate giants is the poor resource allocation planning, deficient technology-integrated infrastructure and bureaucracy.
Highly satisfied Customer Experience (CX) is the key to open the door of success to all businesses.
Hope this post gives you a different viewpoint about retail business. I would also like to hear your opinions below. Thanks for reading.
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