The Future of Retail: Blending the In-Store and Online Experience

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In many respects, the future of retail is a moving target that continues to shift in response to consumer demand. Retailers are now using mobile payments to help them succeed in a market that is increasingly mobile even as they scramble to reinvent and preserve the in-store experience

When you bring these two trends together, they represent a not-so-subtle blending of distinctly different worlds: the physical store and the online store. It is here that battle lines are being drawn to determine who really owns the future of retail. That war is most evident when you examine some of the recent strategic moves by the top players.[more]

The two giants in each of these worlds are easy to identify. On the physical store side is Walmart, ranked No. 1 in Interbrand’s Best Retail Brands 2013 report with more than $141 billion in “economic profit,” a measure of the brand’s overall financial return to its investors. Walmart accounts for 10 percent of all retail sales; in fact, a Walmart store is within five miles of two-thirds of the U.S. population. 

The online store side is owned by Amazon. During the height of the 2012 holiday shopping season, Amazon reached over 102 million people in the U.S. from December 1 through December 30, 2012, according to Quantcast. Amazon ranks fourth on Interbrand’s list, with more than $18 billion in economic profit.

What’s fascinating is that both Walmart and Amazon are penetrating each other’s worlds—and that may provide clues to where retail is headed in the next few years. While Walmart maintains its brand image as a traditional store retailer, it actually generates over $9 billion in annual online sales, according to Neil Ashe, the head of its e-commerce unit. (As a point of comparison, Amazon’s sales last year were $61 billion.) Now Walmart is in the process of forming a link between its online ordering and physical stores by establishing lockers in a dozen stores. Ashe says the lockers will be used to store merchandise ordered online so customers can pick it up.

The lockers will be in a test phase this summer, but for two years, Walmart has been testing shipping online orders from its physical stores—a way to speed up low-cost delivery by using stores as miniature distribution centers. Walmart CEO Joel Anderson says, “It is really efficient to use our stores. We’ve been picking and putting items in boxes for years. Ship from store is no different. We are picking items from the shelves and putting them in a box.” Ordering online and picking up at a local store is already available from Walmart and other major retailers.

Ironically, some media outlets, such as PC magazine, report that Walmart is introducing “Amazon-like lockers.” Apparently, Amazon beat Walmart to the punch by setting up its own locker system at 7-Eleven, Staples and other retail stores beginning late last year. During the checkout process, Amazon customers can specify that they want their order shipped to a locker. If one is available nearby, Amazon generates a unique code the customer can use to gain access to the locker. So Amazon’s strategy to distribute its products through traditional retail outlets is already underway.

A battle is also being waged in the mobile space. While Amazon’s Kindle Fire is essentially an entry point into Amazon’s online ordering system, including digital downloads, Walmart is rolling out an iPhone checkout system. Now available in some 200 stores, “Scan & Go” allows Walmart shoppers with iPhones to scan product barcodes in a store and see a running total of the items and their costs. Then a shopper checks out by scanning a QR code at a special mobile terminal. The code creates a virtual shopping cart and the shopper pays. It isn’t as sophisticated as a fully implemented mobile payment system, but it’s a big step forward for Walmart.

Walmart is also trying to compete in the same-day delivery arena, but it seems to be outpaced by such online retailers as Amazon, eBay and Google. The real challenge with same-day delivery, however, is that it isn’t high on consumers’ must-have lists; in a recent survey, only 9 percent of consumers said same-day delivery is important, while free delivery and low prices scored significantly higher. 

Actually, Walmart has another problem to solve that has nothing to do with the online world: Low customer satisfaction with its stores. Recent reports suggest that the retailer is having problems stocking its store shelves with merchandise due to aggressive store expansion and inadequate staff support, which contributed to Walmart’s last place rating in the American Customer Satisfaction Index. Despite being an enormous presence in retail and millions of Americans’ go-to store, it has consistently been at the bottom of the index for six years.

Could this be one more reason Walmart is anxious to grab hold of a big piece of the online world?

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