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What does the store of the future look like?

  • Date: Thu, Aug 27, 2020

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Covid-19 has had a catastrophic impact on many retailers – apart from food stores and some others deemed essential, such as electrical goods and pharmacies, most were forced to shutter. So: what will the store of the future look like?

The pandemic was a seismic shock not just to the sector but also to the economy. Retail is the biggest contributor to Ireland’s exchequer, generating 23 per cent of the State’s total tax receipts, more than twice that of the country’s second-largest sector, financial services.

Prior to the pandemic, the retail sector employed almost 285,000 people, with 37,400 retail and wholesale businesses operating across the country, with 85 per cent of them employing fewer than 10 people. It’s an army of small businesses typically operating on tight margins without the benefits of scale, which can make innovating and investing in new technology difficult.

That’s a problem, because if ever a sector needed to adapt and innovate to survive, even before Covid-19, it was retail.

No sector was so disrupted by digital. As the pandemic progressed, so did the disruption. For weeks, often the only vehicles on the roads were vans delivering goods bought online via platforms such as Amazon.

But even prior to Covid-19, a report from IEDR, the .ie domain registry, showed Irish small and medium-sized enterprises were not maximising their full ecommerce potential.

It valued Ireland’s ecommerce economy at €12.3 billion in 2018 but pointed out that just three in 10 SMEs could take sales orders online. Even fewer could process payments for transactions through their website.

As a result, while Irish people were happy online buyers, most were forced to buy from international ecommerce vendors.

Covid-19 has forced many Irish retailers to take action. New .ie registrations for the second quarter of 2020 were up 56 per cent over the same period last year, as businesses went online in their droves.

Many are supported by the Government’s trading online voucher. Aimed at retailers and managed by local enterprise offices, it provides grants worth up to €2,500, two of which can be applied for, in order to improve ecommerce functionality. Between March 16th and August 5th of this year, 5,925 were approved, up from a total of 1,218 approvals in all of 2019.

Covid-19 has also accelerated another trend: the blurring of lines between ecommerce and bricks-and-mortar stores.

Today it’s all about omnichannel, whereby a customer might find you on social media and opt to click and collect from your store.

Pre-Covid trends, such as that of buying everyday items online during the week but wanting to visit destination shops, such as garden centres with a nice cafe, for an ‘experience’ at weekends, also give an indication of what the store of the future might look like.

Irish athleisure brand Gym+Coffee offers just such an ‘experiential’ approach. The online brand has a blend of traditional bricks-and-mortar stores and short-term pop-up shops, which drive online sales. It started out building communities through social events such as outdoor exercise classes followed by coffee and a chat back in store.

Payments technology, or paytech, has had to keep pace. Covid-19 has accelerated the move to cashless buying, with bank limits increased for in-store contactless purchases from €30 to €50 in March.

Soon cards may not even be required, thanks to innovations such as Amazon’s Just Walk Out technology which allows shoppers to load up and leave without worrying about remaining socially distanced in checkout queues.

“Covid-19 has accelerated digital commerce. In Ireland, according to our recent Ipsos Mori-commissioned research of over 1,100 Irish consumers, more than half – 52 per cent – said they had increased their online spending during lockdown. Offline shopping will still exist but it has changed,” says Seán Whelan of Opayo, formerly known as Sage Pay.

“Even before the pandemic, consumer expectations were evolving with people seeking more unique, personalised experiences. More recently, many businesses are coming online for the first time. We’ve seen this with local garden centres and car parts retail shops.”

Contactless is now preferred by both customer and shop owners alike. “Our Ipsos research shows that more than two-thirds [of shoppers] in Ireland will actively seek to use cards and contactless payments following the pandemic,” says Whelan. People feel almost “guilty” proffering cash.

For store owners, the key to omnichannel success is ensuring that ecommerce and and in-person experiences are integrated. “Customers want to be able to pay for an item online and return it easily in-store and vice versa. Payments should be frictionless and efficient,” says Whelan.

Health-and-safety concerns will only serve to drive that desire. Part of delivering a socially-distanced interaction is reducing the number touch points, for which contactless or contact-free payment solutions are key, he says.

In the future, stores will have fully-integrated online and face-to-face experience, with a consistent brand. Social distancing might yet unleash a variety of store innovations, from giant vending shops without staff, to new ‘buy, try and return’ options.

For traditional bricks-and-mortar stores, Covid-19 has been a wake-up call to develop their ecommerce capabilities. For first timers, keep it simple, Whelan recommends. “Try using pilots, start small and test what customers want,” he advises.

Start with a simple website experience and go from there. There are many examples of restaurants gong online by providing a niche ‘cook at home’ offerings, or by including access to products, such as speciality foods, that most consumers can’t directly access.

“Absolutely anyone can catch up. For the glass-is-half-full person, Covid-19 is an opportunity. It has levelled the playing field in some verticals. Opayo has seen businesses enquiring about ecommerce solutions rise by 30 per cent in May and 52 per cent in June, reflecting an increased desire to bring their businesses online and diversify the way they serve consumers.”

Digital gives retailers access to previously untapped consumer segments too. “People who were not buying online previously are now buying online. Now that they have discovered this convenience, many are not going back. Lots of cash-based retailers, such as small greengrocers and butchers, are going online or taking digital payments for the first time too.”

There is now a huge appetite among consumers to buy from small, local stores. “We think people are looking to purchase locally and not through the big ecommerce behemoths. If there’s a local cheese shop, they want to support it online,” says Whelan.

“What were already trends are now being accelerated. The question is, for consumers, how much of these behaviours will become the habits of the future.”

Store of the future merely a ‘showroom’ for products

World-changing events like recessions or pandemics don’t in themselves create change, they merely accelerate the adoption of trends already in motion. That’s according to Damien McLoughlin, Anthony C Cunningham professor of marketing at UCD Michael Smurfit Graduate Business School in Ireland.

“Online shopping for groceries has been stuck at around 1 per cent for 20 years. Suddenly it’s 20-25 per cent of the market and that’s not going backwards. People like it and it’s here to stay.”

It’s McLoughlin’s view that the store of the future has been here for a while – albeit not widely adopted – but he says Covid-19 may see it finally become an everyday reality.

“Every business is retail now. We have even seen restaurants pivot towards retail throughout the pandemic.”

McLoughlin contrasts the consumer experience of dealing with businesses selling online with that of visiting a store for specialist advice. “You can buy a mattress online, or you can drive to a shop and queue to hear the expertise, then wait several weeks for that order. But you’ve spoken to someone who knows what they are talking about.”

Some people view the store of the future as merely a “showroom” for products, but McLoughlin doesn’t agree with this.

“Rates are high, and shopping is not that fun or attractive any more, except when we require expertise. We have learned from online the true value of variety. The store of the future is probably not the products that you think.” For example, car dealerships are migrating from the outskirts of towns and cities to the centre.

But old habits die hard and McLoughlin says the reality is that many of the products we purchase are simply repeat buys; washing-up liquid, for example.

“If you buy washing-up liquid every four weeks, why not just have it delivered directly to your home? How much of what you buy involves actual shopping? The average person who goes to a store has fewer than two brands in mind. In most cases, you buy the first brand you thought of. The store of the future will take that into account.”

For now, what should shops focus on?

“Retailers who are providing good shopping experiences are also providing good working environments for their employees,” McLoughlin says. “Do you want to shop in a store where you think employees are not looked after, or are on zero-hour contracts? I don’t want to, and a growing number of people would agree.”

This article was written by Sandra O'Connell and first appeared in The Irish Times on August 27.

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