The Future of Retail

The future of retailing and why e-commerce’s rise isn’t unstoppable

Is traditional physical retailing irretrievably broken? Many people think so, pointing to shuttered shops, town centres bereft of shoppers, and deserted malls.

The Covid-19 pandemic, they argue, merely accelerated a trend that was already underway, stretching back 20 years: the rise of e-commerce, exemplified by e-tailers such as Amazon, Zalando, AO World, Boohoo, Zappos, and Asos.

Traditional retail is certainly challenged. There’s no mistaking that. Across Europe and North America, once-successful store chains have simply lost relevance for today’s consumers, and imploded.

Granted, in some cases, the individual retail brands live on, but only as online websites, bought out of bankruptcy by cannier operators—in the UK, for instance, e-tailers Boohoo and Asos acquired the clutch of fashion brands that were part of billionaire Philip Green’s Arcadia Group.

Low costs, and wide assortment

But to attribute all this to the inevitable and unstoppable rise of e-commerce is I think mistaken.

Sure, e-commerce meets a need. For consumers who are acutely cost-conscious, e-commerce’s lower cost-to-serve and distintermediation efficiencies—no expensive city centre rents to pay, for instance—e-commerce will always appeal.

E-commerce also works well with the ‘long tail’—the back catalogue and rich assortment that physical stores simply cannot stock, for lack of space.

Amazon’s vast cavernous warehouses can hold far more books—and far more of anything else, for that matter—than any town centre shop ever could. Online fashion retailer Zalando presently stocks an almost-incredible 3,000 brands across its European operations, and has announced an intention to increase that to 6,000 brands.

But consumers want more

But maybe this is confusing cause and effect. Talk to retail experts—as I have, writing for my latest white —and there’s something else going on.

To be sure, e-commerce offers low pricing for easy-to-compare items. But today’s consumers, say these experts, want more than just low prices.

They are becoming more individual in their aspirations, viewing what they buy as a way to differentiate themselves from others—hence the importance, and attraction, of the ‘long tail’, of course. The bigger the assortment, the greater the choice, and the more that they can differentiate themselves from their friends and neighbours.

Consumers also want more from retailers than just stuff to buy. Generation Z consumers in particular want entertainment, social interaction, convenience, and service—there’s even a name for it: experiential commerce.

And however convenient we all find Amazon, Zalando, and all the other top e-commerce sites that we all visit, it’s hardly experiential commerce.

Nor is e-commerce a sinecure, whatever its appeal. Margins are tight, costs are rising, competition increasing, and brand loyalty low. Setting up a new e-commerce brand consumes significant amounts of investment, and it is all too easy to run out of cash before becoming profitable. For every successful e-tailer, plenty more fall by the wayside.

Play to your strengths

All of which, to my mind, signposts a way to the future. Traditional physical retailing is not going to wither away and die; e-commerce will not reign supreme.

Instead, both will evolve. Physical retailing needs to do much more to differentiate itself from e-commerce, emphasising service and convenience and experiential commerce, and exploiting what advantages the model has—chiefly that physical retailers ‘touch’ their customers, arguably know them better, and can influence them more. At least, provided that they go about leveraging that greater customer intimacy intelligently.

Which isn’t to say that they know them well enough yet, of course. Even today, Tesco’s Clubcard stands out as a shining example of how to acquire competition-beating customer data. Again and again, the experts with whom I discussed the challenges facing physical retailing stressed the importance of data, and data analytics. With data, you can not only outsell the competition—but also out-analyse the competition.

E-commerce retailers have a different agenda. A better—and cheaper— returns process is a priority. Omnichannel for better service, where possible—perhaps in partnership with physical retailers, for whom an omnichannel partnership can drive footfall. A true ‘final mile’ capability. Own-label brands, to try and make fickle customers more ‘sticky’. And, once more, the experts with whom I spoke stressed the vital role played by data and data analytics.

Explore in depth

As I say, all this and more is discussed in my latest paper for entitled The Future of Retail. And as well as outlining competitive strategies for retailers—both physical retailers and e-commerce retailers—there’s a wealth of material on the skills that retailers’ supply chain functions will need to hone as they shape those competitive responses.