The Rise of Digital-First Retail

February 28

The pandemic has forced businesses to make sudden changes in how they operate. One of the most dramatic changes for retail stores is the shift to digital-first retail policies. Here's a look at what digital-first means for resilient stores determined to survive the economic crisis.

Digital-First Business Models Help Preserve Market Relevance

Immediately after the pandemic broke out in 2020, customer foot traffic dropped by over 82 percent across the country. Suddenly there was a surge in demand for online shopping, which led to many stores issuing new customer apps. Another significant development due to the pandemic has been the growing adoption of contactless payments.

As to whether or not the rush to digital-first retail made up for lost sales, the results are mixed for different retailers. For apparel manufacturer Levi Strauss & Co., e-commerce grew by 52 percent in the third quarter of 2020. By contrast, overall sales for the same quarter declined by 27 percent year-over-year. Similarly, Office Depot saw a 20 percent spike in e-commerce for the quarter, yet an overall sales decline of 9 percent.

Retailers cannot ignore the reason why consumers have chosen online shopping: mainly for convenience. Baby boomers turned out to be the most active age group to increase online transactions since the pandemic began, according to a survey published by The Economist. Online spending increased from 25 percent to 37 percent for baby boomers, compared with Gen X spending, which jumped from 39 percent to 47 percent.

Why Digital-First Brands Are Turning to Brick & Mortar Stores

A pure digital strategy for retail doesn't work. A digital-first strategy also has its limitations. Hence digital brands are now focusing again on brick & mortar. At the same time, the combination of both digital and physical sales strategies is a compelling plan for business survival. The key is to provide online experiences in a physical store.

The connected brick & mortar store benefits from faster checkouts, greater workforce productivity and better conversion rates. It helps turn inventory faster and leads to overall stronger output. The concept of the connected store appears to be here to stay as an increasing number of stores are emphasizing this digital and physical sales blend.

Even digitally native brands that initially sought to disrupt markets online have turned back to brick & mortar to extend growth. Eyewear maker Warby Parker, for example, launched in 2010 as an online store that provided alternatives to big competitor Luxottica. Over a decade later Warby Parker owns 145 stores and builds new stores to drive further profits.

The euphoria of disrupting markets with e-commerce-only websites has worn off. Many consumers still want to visit physical stores to examine and perhaps try out new products. Brick & mortar stores also help attract new customers who may live or work in the neighborhood. Since the cost of acquiring new customers keeps rising, for some businesses it's worth having a physical storefront to interact with customers in-person.

Another option for a direct-to-consumer (DTC) retailer is to partner with a wholesaler that provides supplies to small distribution hubs. Many consumers prefer not to get packages sent directly to their residence. They want to make sure the product is delivered directly to a pick-up location to ensure it arrives at the right place on time.

Ways COVID-19 Has Changed Long-Term Consumer Behavior

COVID-19 changed several patterns in consumer behavior, from increasing online purchases to spending more time reading reviews. Here are some of the biggest changes that have occurred in consumer behavior due to the pandemic.

  1. Rise of Self-Servicing - Not only is self-servicing a viable solution to labor shortages, it can provide greater convenience for the shopper. Purchases can often be made faster in self-checkout lines. Growing strategies that blend online ordering with physical pick-up locations include BOPIS (buy online pick up in store) and BOSS (buy online and ship to store).
  2. AR & VR Stations - Augmented reality and virtual reality are effective emerging visual technologies that allow customers to try out new products in a virtual environment. Wearing a headset to see panoramic views is useful for real estate firms, as well as car dealerships and clothing stores. IKEA uses VR to promote kitchen interiors.
  3. Online Payments - Since the pandemic broke out, consumers have made major transitions toward online payments through services such as PayPal and ApplePay. Contactless payments promote social distancing and have become more widespread, particularly in supermarkets, restaurants and hotels. Digital gift cards will likely continue to proliferate in the future as a more convenient way to shop for and distribute gifts.
  4. Higher Demand for Local Stores - Consumers have become less mobile due to the pandemic but still rely on stores in their neighborhoods for daily needs. Since many small businesses shut down during the pandemic, competition has tightened. The supply chain crisis has added pressure on local shops to devise new strategic inventory methods. With less supplies available to the public for national brands, demand has increased for local alternatives.
  5. Greater Privacy Concerns - These days, cybersecurity is a major concern as it probably always will be in the future. One security breach can wipe out a business if it hasn't taken precautionary and proactive steps to protect data. It's imperative for all businesses that engage in e-commerce and store confidential data to use the most robust cybersecurity solutions available.
  6. Less Room for Errors - Fast delivery is what consumers now expect after becoming well acquainted with online ordering. Since alternatives can be found quickly in a matter of clicks, customer satisfaction has become a top priority for many brands. While the supply chain crisis has been responsible for slowdowns and shortages in product and material supplies, brands must still find ways to innovate in terms of distribution. Consumers simply have developed a low tolerance for late shipments and other errors.
  7. More Personalized Brands - Customers like to be acknowledged as supporters by the brands they choose. So there's been a growing trend toward personalization and customization in terms of brands interacting with customers. A brand can use customer relationship management (CRM) software to develop customer profiles that lead to more personalized experiences.

Conclusion

 Even after the pandemic, businesses will be challenged to mix digital and physical environments in the pursuit to reach as many customers as possible. Retailers need to remember that while digital-first retailing allows for reaching a 24/7 global market, having a local physical presence helps nurture and maintain loyal customers.



Johannes Beekman

About the author

Our CEO has more than 25 years of experience in manufacturing in the high-tech industry. Johannes has worked for 25 years in the semiconductor industry, where he worked for Philips, Infineon, and Sematech in various management positions in process development, engineering, operations, and sales and marketing. While working for Philips, he was an engineering manager in 2 wafer fab startups. And while at Sematech, he managed various international technical symposia. He has built 3 successful digital marketing companies in the past 8 years. His focus is marketing integration, marketing technology, SEO, and inbound and outbound marketing. And he has developed a content creation system that uses the AIDA model to develop content for every stage of the sales funnel. Johannes has experience working with companies in manufacturing, the high-tech industry, process industry, IT, healthcare, and legal industry, and he has published on several trade-focused websites.


Tags

brick and mortar, hybrid retail, online retail, retail tech


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