Retail’s single-minded focus on omni-channel is one of its biggest strategic blunders
“Location, location, location” used to be the retail mantra. No more. Physical location has become all but irrelevant. Do I really care where Amazon is and where it warehouses the goods it ships me? “Price is king” used to be another retail axiom. But price is no longer king; it is an ordinary citizen and applies equally to all. Price is no longer a differentiator; it is a requirement to stay in the retail game. Although currently 85 percent of CEOs believe customers regard cost, convenience, and functionality as the most important criteria of retail choice, according to PWC’s 2016 CEO Survey, these same CEOs see this number trending down to 58 percent by 2020. However, the CEOs seem to be lagging in their predictions. Already in a different 2016 study on retail, PWC finds only 60 percent of shoppers name price as the single biggest reason they shop where they do.
Shoppers’ diminishing focus on cost and convenience is not because cost isn’t important anymore. Rather, it is because the equalizing effect of the Internet assures customers that costs will become standardized among competitors. Sites like Expedia and Kayak already do this for travel; Google Shopping and Amazon do it for products and books. All e-tailers will have to match their competitors’ prices for equivalent convenience and functionality. As cost and convenience cease to be competitive advantages, customers will start seeking other things that differentiate one retail supplier from another. What they are looking for are intangible dimensions of the shopping experience that cannot easily be offered online. In-store shopping, where more than 90 percent of retail business still occurs, retains an important role for retail, but not the role that many large retailers are assuming.
In-store shopping is not going away anytime soon. Stores satisfy a unique customer need that few online retailers have been able to offer: the need for value-adding human connection. The way a retailer provides value-adding human connection gives it DISTINCTION in ways competitors cannot copy. This might be why Amazon is said to be preparing to open 200 retail stores in the near future. The Christian Science Monitor recently ran a cover story suggesting“…a quiet resurgence of independent bookstores.” This trend is not restricted to booksellers alone. USA Today reported just last November that:
“Other companies making this back-to-the-future play include Modcloth, an online indie clothing retailer, Bonobos, a men’s clothier, Warby Parker, an eyeglass seller, Renttherunway, which rents designer dresses and Birchbox, a subscription service for beauty and grooming products.”
It is true that thousands of items, like light bulbs, toilet paper, office pens and pencils, etc., are generic products for which people expect fast, efficient online transactions and home delivery. However, particularly in high touch-and-feel categories as well as categories where expertise is a factor in purchasing confidence, this is not so. W. Rodney McMullen, CEO of the Kroger Company, juxtaposes the need for human expertise and efficient technology: “Think about your best-ever customer experience and how it made you feel, such as the time you went to your favorite restaurant. It’s hard to get that electronically, so it’s going to be important to provide great in-store experiences to customers. But there are also going to be times when a customer is in a rush and wants to place an order with a smartphone and pick it up at the store. The key to technology is being nimble and ready for those transitions.”
PWC’S 2016 Retail Consumer Study confirms a very high degree of resilience for in-store shopping preference, even among those who do their research online. Online shopping still amounts to a nominal percentage of global retail sales. Surprisingly, an AT Kearney study reports that 90percent of all U.S. retail sales “occur within the four walls of a physical store,” and “regardless of age (including teens and millennials), stores are generally preferred across the shopping journey.” In addition, Time Trade study found last year that 85 percent of consumers prefer to shop at physical versus online stores, and 90 percent of consumers are more likely to make purchases when informed by an expert in person.
All of this data doesn’t suggest that retailers should stop investing heavily in their online presences. Almost all major retailers are now vigorously pursuing the omni-channel approach of integrating online and physical retailing. While there is a need for this integration, the single-minded focus on omni-channel is one of the biggest retail blunders of this decade. Omni-channel will not create DISTINCTION for retailers; it is simply a new expectation, particularly of millennials. Omni-channel is a given to be in the retail game of the future. DISTINCTION will come from a different integration that requires a recalibration of how we think about retail in the digital age.
Integrating the human and the mechanical
The idea is not just to integrate the online channel with the physical channel in the way omni-channel does. The idea is to integrate the mechanical with the human (through whichever channel/s) in order to offer the reach of technology with the touch of humanity. A mechanical transaction, whether offered in-store by people or online by technology, will no longer cut it for high touch-and-feel purchases or those needing expertise; nor will a high touch-and-feel human store cut it if the company is inefficient and backwards in its technology. Some online might be able to survive without in-store and some stores might be able to survive without online presences; but no one will survive without efficient technology and knowledgeable associates who passionately represent the products they sell.
Some e-tailers have already grasped this. Zappos had it from the get-go, and now Amazon is following suit, not only with its upcoming physical stores, butalso with innovations like its sommelier service in Japan to give expert wine-buying advice over the phone. The key here is that the human interaction needs to be value-adding and not the call-center-like, meaningless, scripted courtesies—the “and how are you today, Mr. Smith?”—that most of us hate. Scripted conversations are mechanical and, even when conducted by humans, do not satisfy customers’ desire for value-adding human connection. Underlining the growing importance of value-adding humans in the shopping experience, PWC reports that 40 percent of respondents to their survey regard highly knowledgeable sales associates as the biggest factor in making their shopping experience better: especially “ the more sophisticated dimensions of customer service (personalized advice, special after-sales services, and demonstrated deep product knowledge) could be a point of differentiation for retailers, particularly for retailers with a significant physical store footprint .”The quality and style of personalized advice and deep product knowledge and passion are the intangibles by which a company can distinguish itself, whether it delivers these intangibles online or in-store. John Sviokla, leader of PWC’s Global Thought Leadership, states, “The quality of the staff has mattered in retail, even more so now as retailers try to differentiate their in-store offerings. Especially with an enormous product selection and fast-changing technology, having a human being available to explain the various options makes all the difference.” Mechanical efficiency, whether delivered by humans or machines, needs the right corporate structures and processes. Value-adding human touch needs an entirely new approach to hiring, company culture, and leadership development. The focus needs to be as much on a brand’s values as on its technology platforms. Values cannot be delivered by machines; they must be delivered by humans.
Do you hire for these traits? Does your culture foster them? Are your leaders developed to inspire them in your employees and customers? Do you distinguish your company from any competitor by the experience your associates provide to your customers? Answering these questions is important to successfully integrating the human and the mechanical and should not be ignored in the rush to omni-channel.
When using the human dimension to deliver a brand of DISTINCTION, it is important to know the intangible qualities that customers yearn for in their interaction with retailers. We suggest three primary yearnings: Convenience, Community, and Curatorship.
Convenience is more important than price, especially to online shoppers. Retailers need to be cautious not to compromise convenience for anything—not for price or service that is not value-adding. Fifty-eight percent of online shoppers say they shop online for convenience, while only 32 percent say it is for price.
Amazon has set the bar for convenience: range of choice, ease of site navigation, accuracy of search, minimal clicks from search to purchase, and speed of delivery—all within an acceptable price range. All competitors, both online and in-store, will need to meet these standards. For stores to reinvent their roles, attendants will use technology to accelerate their service and improve its effectiveness. People may view items or try them on in stores, and then might have them shipped for next-day (or even same-day) delivery. Attendants will have quick access to online information about any item the customer could need that is not in the store—possibly even items stocked by competitors. Subsequently, the store will become the interface between the customer, with whom it enjoys a relationship, and multiple providers, who can satisfy that customer’s needs. It will be the place where the shopper finds his/ her personal product expert to advise him/ her and to take care of all the logistics once the choice is made.
The digital world in which people now spend so much of their time brings with it a rising sense of isolation. Online communication, even with video, does not satisfy people’s yearning for connection and community. Consider how occupied restaurants, coffee shops, and movie theaters are with young people, despite the vast convenience with which they can order food and entertainment at home. As work-home boundaries blur and people spend more time on their own working at home, they have an increasing and important need to experience community. We can watch a movie alone at home, but often we prefer to watch it with a theater full of others who form a community, sharing scenes and laughing and crying together. We can have coffee alone at home, but often prefer to have it among others who, even as strangers, form a community experiencing the same thing at the same time. Tapping into this yearning for community is an opportunity for businesses to offer their customers something more than the commodities they could buy anywhere else. Community is a value-adding human dimension of business and cannot be a purely mechanical activity. Physical stores can offer environments to eat, have coffee, or read and work. Online stores can offer clubs, reward programs, and discussion boards that create a sense of community. Ninety-one percent of PWC’s global sample are members of loyalty or reward programs. The airline industry has done particularly well at creating a sense of privileged community among its elite passengers.
The range of choice in retail can paralyze customers, many of whom also suffer from FOMO (fear of missing out), always wondering whether one’s choice is the best, or with just a little more research, perhaps they may find something even better. People yearn for trusted curatorship that can filter through the noise of offerings and find opportunities for individuals within their personal ranges of price and taste. The algorithms used by large online retailers feel mechanical and therefore lack the value-adding human dimension that people want embedded in their shopping experience. Curatorship requires intuition as much as it requires technology. It needs empathy to understand the customer, knowledge to access possibilities, and judgment to narrow down the choices. Knowledge can be supported by technology, but empathy and judgment are uniquely human characteristics.
Value creation vs. value capture
AT Kearney discusses the difference between value creation and value capture. Value is created at various stages along the shopping journey, but it is captured only when the transaction is made. As much thought, if not more, needs to be given to how to create value as is given to how to capture that value in a transaction. Value creation is significantly enhanced through value-adding human connection, irrespective of the channel(s) through which a shopper is interfacing with the retailer. Instead of focusing exclusively on omni-channel, retailers would do well to focus also on the “integrated duality” value creation: human value and mechanical value. The way a retailer integrates the human and mechanical dimensions in all channels is what will create DISTINCTION and win them the future.