Retail Thought Leadership Digital Retail

8/14/2019 Retail Thought Leadership Digital Retail

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Digital retailAnalyzing the effect on retailers


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2012 Ernst & Young LLP. All Rights Reserved. Digital retail | 2

Introduction

Ten years ago, the internet was barely on anyones radar. Fast forward to today, and its the third-most-shopped channel each week, after supermarkets and mass merchandisers, according to WSL StrategicRetails How America ShopsMegaTrends 2012 report. Technology is reshaping the retail environment

faster than ever, causing retailers and brands to rethink how they currently do business.

Shoppers are doing more research before they buy by using the internet to pre-shop, price compare, readreviews, browse and purchase at any time, day or night. Online access and usage has increased significantly,even in the past year. The number of hours spent online is 23 hours a week, up 7 hours from one year ago.Mobile technology has taken this even further, giving shoppers access to the internet and the ability to shopfrom anywhere. This has changed shoppers path to purchase, impacting the way they come to, andultimately buy, products and brands.

Todays retail world is virtually unrecognizable from the one a decade ago. Commensurate with thetremendous rate of change, the next five years is expected to look very different from the last five. With thiscomes significant implications for retailers and brands.

It began with the internetInternet shopping has evolved far beyond travel, books and music downloads. Shoppers are buying morecategories online, including fashion, health, beauty and groceries. Once shoppers buy a category online, theybecome comfortable and start doing it more frequently.

Research has shown that half of shoppers now buy electronic goods online, up 20 percentage points from2009. Of those, 45% buy the category online two to three times a year. These statistics help explain a largeelectronics retailers announcement that it will reduce its overall store square footage, even subleasing storespace to smaller retailers. Large stores carrying many different product lines are no longer required ascustomers turn to online sales channels.

Internet shopping has had a significant impact on many categories in bricks-and-mortar stores, with shoppers

showing a preference for internet ordering and re-ordering of bulkier items (electronics, baby goods, wine,hair care) to be delivered direct to their door, often at better prices.

Online purchasingIncidence Frequency

Base: Total women Buy online 2011 Change vs. 2009 Buy online 2-3 times/year

% ppts. %

Clothing 72 3 73

Books 65 -5 46

Travel 60 -9 41

Fashion accessories 55 7 58

Electronics 50 20 45

Skin care 39 4 57

Cosmetics 37 3 58Office supplies 35 -20 41

Fragrance 34 4 50

Hair care 31 10 61

Rx medication 23 5 78

OTC medication 20 13 62

Groceries 17 1 62

Source: How America Shops From Buzz to Buy 2.0, WSL Strategic Retail, September 2011


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Information and the rise of social retailingThe internet has not only enabled e-commerce sales, it has completely transformed the way we shop. Price-savvy consumers have become smarter than ever, using the internet to research goods and products beforethey buy. Price comparison websites and consumer forums are frequently browsed during shoppers path topurchase. When shoppers decide what to buy, manufacturer and retailer websites were in the top three

most popular sources of information, compared with sales associates in stores and television and magazineadvertising.

Social networking has affected the way shoppers come to brands and products. Various demographics areaccessing sites telling them what to buy and where. Exchanging opinions with others before purchasinggoods is a frequent event. Shopper reviews have gained tremendous influence; many shoppers consider themmore trustworthy than retail sales associates.

Social media is more than an information source, however its a key selling tool. Retailers and brands haverealized the importance of social media in shopping decisions and are reallocating resources to support socialmedia efforts. One large retailer has developed an app that uses information available on a social media siteto help shoppers find gifts for their friends. Any user who likes the app can browse through all of theironline friends and view their friends interests with a customized list of recommended gifts available topurchase on the retailers website.

Online research drives the buy for many categoriesWe looked at categories researched by shoppers online and those they ultimately bought online, to assessconversion rates. The highest conversion rates, those in which online research drives the buy, are incategories such as baby products, books, pet products, clothing and groceries. Cars have the lowestconversion rate at 35%, suggesting that it is a category shoppers look for information online, but few actuallybuy online. The same is true for sports equipment as many consumers like to try before they buy. For themajority of categories, however, the narrow range around most of the conversion rates suggest that whenpeople do go online to research, they intend to buy.

Conversion: Research to BuyResearch online ConversionBase: varies by buyers of categories % %

Consumer products

Baby products 16 80

Books 31 78

Pet products 28 76

Clothing/fashion accessories 30 76

Mens personal care/grooming 13 76

Household groceries 15 76

Womens beauty products 36 75

Foods/beverages 27 75

Health (Rx, OTC, vitamins) 34 70

Home (fragrance, dcor) 20 68

Electronics 48 67

Computers/software 37 61

Sports and fitness equipment 15 52

Cars 23 35

Services, experiences and entertainment

Restaurants/clubs 32 74

Entertainment 39 70

Vacations and lodging 32 63

Cable TV/cell phone service 20 59

Financial services 15 43Source: How America Shops From Buzz to Buy 2.0, WSL Strategic Retail, September 2011


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Mobile muscles inMobile commerce is perhaps the biggest game changer of all. With the growing accessibility of smartphonesand faster technology, suddenly people have access to the internet and internet shopping at theirfingertips. Shopping has truly become anywhere, anyplace, anytime. Ten percent of the population has usedshopping apps on their mobile devices, be it to secure discounts, find stores or compare prices.

Retailers also realize that mobile technology has transformed the in-store experience. IPads are available inseveral retailers stores for shoppers to view catwalk shows, browse product specifications and to enter theirinformation for customer relationship management purposes and marketing lists. Apps allow shoppers toscan QR (quick response) codes to redeem coupons at store checkouts and collect or use frequent shopperreward points.

Incidence of mobile useRegularly use a

mobileHave a mobile with

internet accessUsed a mobile forinternet access

Used mobile instores

Downloaded anapp

2011 88% 57% 49% 48% 41%

2010 87% 44% 33% 27% N/A

Change(ppts.)

1 1316 21

N/A

Source: How America Shops From Buzz to Buy 2.0, WSL Strategic Retail , September 2011

Mobile shopping has enabled retailers to find new places to sell beyond stores. One UK-based retailer hascommenced virtual grocery stores in subway stations and airports, where shoppers can view images ofproducts, scan a QR code to add items to their baskets and buy through their phone. The product is deliveredto their home, with no need to go to a physical store. By eliminating the need for shoppers to enter a bricks-

and-mortar environment, or to be at a computer, digital technology appears to have truly extended thisretailers reach.

Implications for retailers and brandsThe rise of a new digital shopping world creates many retail implications. Some immediate foreseeableimpacts that can have both operational and financial implications are:

1. Physical (bricks and mortar) stores wont be going away entirely, but they will change. Store closuresare expected as chains no longer need as many physical stores. Store size will also change, as categoriesgo online (e.g., smaller footprints, retailers leasing out space). This will drive leasing decisions, physicallayout and merchandising plans.

2. Retailers will find ways to rethink shopper loyalty to create reasons for shoppers to come to their stores.This will include differentiated in-store experiences, enhanced service models and new loyalty programbenefits. Exclusive brands and products will also become important to retailers, as a way to differentiatefrom the competition. These changes can affect the accounting for many pre-existing loyalty plans, orcreate newer and more complex structures.

3. Transactions will occur more in the digital space, which means retailers will turn to multi-channel modelsincluding online, mobile and social commerce, and virtual stores, in addition to physical stores. As thesevirtual transactions occur, retailers will need to ensure that their revenue recognition policies andpractices are appropriate and supportable.


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4. Multi-channel retailing will provide a strategic advantage to companies by virtue of the transactional andbehavioral shopper data gained, but with that will come a greater need to mine and leverage this data

more effectively. Additional stress may be put on existing systems and the people that operate them.

Ability to manage and utilize larger data warehouses of critical information will be imperative.

5. All of the impacts above create massive supply chain implications. The most obvious the inventoryimplications of fewer physical stores, less inventory in stores and a multi-channel model. There are alsosignificant organizational implications. Leading retailers will be out in front of the competition utilizing

these new technologies to enhance their supply chains, while identifying efficiencies and cost

effectiveness as critical components to competitive advantages.

The future is now

Technologically enabled change to our retail world is happening faster than we can write about it or study it.

Mobile devices are already changing consumer experiences in many shopping venues, and several retailers

are testing new concepts from enhanced self-scanning to mobile scanning and checkout and beyond. The

reality is that the future is here. Consumers are becoming increasingly comfortable with using digitaltechnology in the shopping environment and presumably will more frequently measure a retailer on how well

it supports this change. The challenge for retail companies is how well they can adapt, how wisely they can

make spending decisions on new technology, and how best they can use technology to continuously connect

with their greatest asset the consumer.


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Retail Thought Leadership Digital Retail