Integrated Shopping Is the Future of Retail

Retailers that combine bricks-and-mortar stores with online and mobile sales will find success reaching and engaging customers.

If retailing isn’t undergoing a revolution, it’s at the very least in the midst of swift evolution. E-commerce is likely to make up about one-fifth of all nonfood sales by the end of the decade, up from just 14% last year. Online sales made up about $300 billion last year, according to figures from the U.S. Census Bureau. But it’s getting harder and harder to classify a sale as exclusively online or bricks-and-mortar only. Further integration of online and in-store sales in coming years, as retailers try to reach customers where and when they want to shop, will further blur the distinction.

The implications are huge for all involved, from retailers themselves to their suppliers, shippers, employees and customers, plus landlords and others. The new norm will likely be a multichannel shopping experience for consumers. Consider, for example, a purchase researched online, customized and ordered on a tablet at the store, with a salesperson’s help, and then delivered to your home the next day. By 2016, half of all consumer purchases will incorporate some online or mobile component, whether it’s comparison shopping, ordering, customizing or paying, according to Forrester Research. Already, 65% of consumers have done some online shopping, and that rate will likely continue to rise as the line between online and in-store becomes more obscure.

For both large and small retailers, survival means embracing the integrated business model, though a few companies serving special niche markets may buck the trend. Big chains are already well down the path, allowing customers to buy online and pick up at stores, or see and touch products at stores, then order online with free delivery included. Among those at the head of the pack: Apple, Nike and Toys “R” Us. Increasingly, small independents are finding ways to integrate online sales into their business model through sites such as Amazon. Through the world’s largest e-commerce site and others, they are both reaching distant customers and capturing local customers by becoming a same-day local delivery option for orders placed online.

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Competitive pricing will be crucial in a multichannel shopping world. A quarter of shoppers already use mobile devices to comparison shop, often as they check out the products at a store, according to a Pew Research Center study. With ShopSavvy, PriceGrabber, Price Check and other mobile device apps, customers scan bar codes to get the prices at online sales venues and at bricks-and-mortar vendors nearby. Overall, it means retailers’ thin margins will be squeezed even more.

Look for more retailers to empower sales associates to lower prices to combat such “showrooming.” Other tactics: Offering additional free services or accessories with purchases. Earlier this year, Target asked its vendors for help lowering prices to match online rivals and for new products that would be available only at the second-largest discount chain.

Expect new emphasis on customer service, too, transforming in-store shopping into a pleasurable activity rather than a necessary chore. Think of Apple stores with the latest iPads loaded with games and apps to try out, or clothing shops showing videos on different ways to accessorize an outfit. A knowledgeable sales staff that can solve problems can make the difference between profitable and broke.

That means investing in employees. Firms such as Costco, Trader Joe’s and QuikTrip are finding it pays to shell out more to get and keep top-quality workers and to provide extra, better training. According to one study, every $1 increase in a store’s monthly payroll adds from $4 to $28 to the cash register each month.

As retailers remake themselves, the impact will ripple through the economy. Employment needs will change: fewer cashiers and clerks on the sales floor as more business is conducted electronically and online, or through self-checkout point-of-sale systems. Automation will continue to reduce the number of employees who stock shelves, move inventory, package and ship purchases, etc. In short, there’ll be less demand for unskilled labor.

There’ll be more need for workers with skills, though, starting with trained sales associates. And better wages, too. Also, information technology and logistics specialists, as well as data analysts, will be needed to decipher the volume of customer info and market data that will be available from online and mobile purchasing. Retailers’ increased demand for hardware and software spells gains for IBM, Oracle, Datameer and the like.

Faster, cheaper shipping will be in demand. Already more than half of today’s consumers expect free shipping when ordering online. That will give rise to more partnerships, acquisitions and other innovative relationships between retailers and delivery firms. Amazon, for example, recently bought order fulfillment company Kiva Systems. Smaller sellers may team up with firms such as ShopRunner, which provides shoppers with two-day shipping from participating stores in exchange for a membership fee. And the lines between shippers, sellers and makers will blur over time. FedEx already offers added services, such as storing and processing some goods for its customers. Sprint and Motorola send cell phones made in Asia to a UPS site in Louisville, Ky., where they’re customized and packaged before delivery to buyers.

Real estate markets will feel the shift in the form of shrinking store sizes, particularly in urban areas. Target, for example, is launching a downtown store, with 25% to 40% less space as it moves into Chicago, Los Angeles and other urban areas. Downsized stores will offer a different array of products than their suburban cousins, but shoppers can still access Target’s large inventory online and have goods delivered.

On the other hand, more online retailers will try bricks-and-mortar sites as customers demand to touch, feel and try products before shelling out their cash. Gap’s online accessory site, Piperlime, for one, is opening a store in New York City. Amazon plans a retail space in Seattle. Even eBay is trying to reach customers through pop-up stores in New York and San Francisco. Customers were able to check out popular items, order and pay for them with smart phones and tablets, and get them delivered to their homes.

Karen Mracek
Associate Editor, The Kiplinger Letter