Future Shop
(see updates further down the page)
Showroom Blues
It's a sign of just how punishing retailers are finding it that some camera stores are said to be charging "Explanation Fees" to people who come in wanting to handle and be told about a camera. Obviously this is the missing element from a lot of online sales experiences, where price is the thing. Customers can be hard-hearted and use retailers without intending to buy, or intending to take them up to the critical moment and then ask them to match the online seller's price.
Bookshops too have a term for people who browse and then surf the net while still in the store - it's called Showrooming. Books are easy to order online, and the next stage is the electronic edition for half price or less. Amazon do good secondhand copies of books and CDs, so the savings can be significant - even with the delivery charge of around $7 for CDs and more for books.
I've written before about the future of retailing, and what strategies retailers have to embrace in order to stem the bleeding. There are a number of elements or tactics, but the most promising one may be the Enhanced Shopping Experience. How do you get it?
At the simplest, micro level it might be the unexpected free gift put in the bag at point of sale, or the coffee shop within the bookshop. Taking it to the next level is creating a venue that has interactivity, a place where you are dazzled by the possibilities of modern technology. You can see it, hear it, touch it. Instant gratification can be yours with a purchase.
How each sector achieves this enhanced experience is up to them, but it doesn't negate the price factor. Prices need to be not too far out of the ball park in order to defuse the issue. People don't mind paying a bit more, perhaps up to 20%, but 50% is not so good.
The higher cost of doing business in Australia remains a fact of life, but it's one that shoppers are willfully ignoring in their quest for best price. Buying online will always have pitfalls, but the onward march is confirmed by the number of manufacturers and major chains that are getting into it.
Intro
In the following article, written some years ago, I looked at what the critical factors were in getting people to make a buying decision, and projected this forward to what elements needed to be in place online for people to get the product info, the look and feel, and ultimately the confidence to buy. These pieces are falling into place steadily, and this item at BBC Technology News focuses on new ways of presenting product information to people either in-store or during their commute! The screen has become the oracle, the salesperson.
There's no doubt now that the future of selling is inextricably bound up with online information. It's just a matter of how imaginatively, flexibly, it is accessed. In this vision of the future the products virtually explain themselves. Click the above link for the full story, and check my old article below for some earlier musings on the topic.
However, there are still a lot of products you really want to go and assess in person, if you can. That option will only survive while stores can generate enough sales at viable profit levels to provide you with that facility, so don't be too blase or stingy about it!
The Future of Retailing
By Geoff Forgie (c-2005)
Retailers are the meat in the commercial sandwich. On one side you have the supplier, who might also be the manufacturer. On the other you have the consumer. Suppliers want to reach as many consumers as possible, and the retailer is there to help both sides achieve their goals. But there is change in the wind, and news items like this one from the BBC will continue to appear. It details the growth in online purchases in the UK, with simultaneous drops in High Street sales.
Big Retail or Big Wholesale Direct?
The Wal-Mart story from the USA throws up an interesting question. Is it a retailer who has done away with wholesalers, or is it a wholesaler selling direct to the public. Either way it has squeezed one level of the distribution chain out of existence. The remaining challenge for conglomerates like Wal-Mart is to minimise the cost of employing people. Ultimately their commercial decisions on how to run their business will be solely about the cost of getting an item from manufacturer to customer.
If throughput is maximised by having big centres scattered across the country, where customers come and take away the product at their own expense, then the Wal-Mart model will continue. If it is found at some point that less and larger distribution centres, processing purchases and shipping them to the customer, can operate at a similar level of throughput but at reduced cost per transaction, then the pattern will change. Read more about the Wal-Mart story here.
The ongoing process of cutting costs and increasing turnover is putting pressure on retail margins, and the advent of the internet as a channel for sales is going to change the face of retail. It is already a fact of life that companies like Sony can completely bypass retailers and sell to the public. You can go now to sites such as Sony Style and buy various products. This trend is going to grow as people gain confidence in their ability to assess and to make purchasing decisions without visiting a retailer. As the compression of the levels of distribution continues, we will see more smart handling systems in our "shops" - such as RFID (Radio Frequency Identification) - which will make them more efficient (less staff) and hopefully speed us on our way. Supermarkets & Shops generally will become more like automated warehouses. Before they disappear altogether, that is!
How Online Shopping Started
Books and CDs were the thin end of the wedge for online sales. The product is a known quantity, so deciding to buy it is easy. As long as the online facility is trusted to use your credit card number, there is no problem. Companies like Amazon.com were the trailblazers. Today it is accepted that you can buy all sorts of things online. So what factors are keeping retailers in business? One is Knowledge, and the other is Service.
Traditionally we have gone to the stores to see what products are there, and to talk to sales people, and assess the deals being offered. We might get to try out the product, or we might be offered a review to read. If we have a problem later, we expect, and should receive, support.
Buying: Steps and Stares
There are several important steps in making a purchase, apart from having the money!
You need to know about the product, then decide that it is the one you want to buy, then complete the transaction with a trusted seller. Knowledge - Assessment - The Deal.
"We sell more if we help customers to make a decision". (Jeff Bezos, Amazon.com - see his story here)
How Does It Work
Sometimes we are searching for a product, and we don't know if it exists. The web can help us find it. Most of the time it is more a case of "which one? We all know that cameras exist, so if we are after one it becomes a matter of which camera. We can access lists of cameras, reviews of cameras, pictures of them, specifications, and on it goes. All this can be done on the net. If we are confident that a model is the one for us, we can also survey the deals on offer, and complete the purchase. We might do this only when we have ticked all the boxes, including finding a seller who we feel can be trusted to deliver the goods. But it can be done, and is being done every day of the week.
Larger Item Purchases
When larger items are involved we might be more inclined to want to see them and have that touch and feel experience. This is particularly true of furniture and cars. Establishing a level of confidence in the suitability of these products will take additional information. The consumer will eventually have access to more information via streaming video, and it is at this stage that the real power of the internet for sales generation will be unleashed. It will then be a matter of the marketing skills being directed to the consumer via "infomentary" videos online. You can see a current example of marketing at the Sonos Site where they have a very good demo of their new wireless multi-room music system. Note: prices on this site are USA not Australian
Benefits of Online Purchasing
It is not just about the cost, but price will always be a factor in deciding who to buy from. Selling direct to the public reduces the margin by cutting out the retailer, so it is going to continue to be an attractive option for manufacturers and distributors. It may also increase their own margin. Even if it does not, the pressing need to keep market share will be enough to force them in this direction.
Research can be done very efficiently online. If you want to find out more about almost anything, you can now do it from anywhere. From specifications through to comparative reviews, and whether other purchasers like it, it is all there for you.
Convenience will also be important to many customers. We are often too busy to get around to various parts of the city to buy this and that. Online shopping makes it easy and home delivery helps too.
Access to products not sold in your area, or even in your country. We don't all live in the city - many live out where shops are fewer and not so well stocked. Specialised items are just not available everywhere. Online shopping can simply be a modern form of mail order. Ebay has built into the premier online auction house in the world. It makes all sorts of things available that you might never get to buy otherwise. It is a boon to collectors of all sorts of stuff. See more about the beginnings of ebay in this book by Adam Cohen, or an abbreviated history here
Predicting The Future Is Dodgy ...
Yes, we are still waiting for the paperless office and the cashless society. The latter appears to be closer than the former. Back in the early 1990s I was convinced that CDs would be distributed by download - even though the technology of the time was not up to the task. Downloading music is now an everyday thing, and I now hear people say that nobody under 27 years of age buys CDs.
Since the late 1990s I have been convinced that sales via the internet would become so common as to render traditional retailing a niche business. It is early days, but my experience in the retail world still points me in that direction. There is the pressure of ever-reducing prices, the pressure on available time, the need to research online anyway.
Changes of this magnitude take 10 to15 years to work up the numbers. I'd say we have about ten years to go. By 2015, I expect a large percentage of retail to be online transactions.
Updating The Future Of Retailing - 2012
Samsung's imminent new shop in the Sydney city centre is another indicator of the way retailing is going. But it's not all down that same track. Back in 2005 I wrote about the future of retailing in the full belief that online shopping would become a major force. Everyone now agrees that it has arrived, even though it is still a minority of total dollars spent on consumer items. But nobody denies that it is a growth area, whereas back then I was faced with quite a bit of denial.
What I also saw coming was the shrinkage of the distance between the manufacturers and the consumers. Direct selling is now a fact of life, with growth not just in online offerings, but also in branded stores: Ikea, B&O, Bose, Sony, Apple and next - Samsung.
It's obvious that such stores become "destinations" in themselves. Having a complete range available, staff that can be knowledgeable about their range (and not have to be across so many differing products), and confidence in the organization at a premium over other retailers.
Ikea is also notable in the way they telescope the wholesale and retail together. I've found myself accessing their lookup system on a touch screen to find the bits I needed to make a desk, then taking the items from their bulk storage; that's no-frills for you.
Bulk specialist Costco is changing the approach to selling as well. It's all about volume and low overheads.
There are several ways retailing from bricks & mortar locations can evolve, and it's already happening. The one-brand store, as mentioned, is well underway. This is often supplemented by direct sales via the web.
Then there's the bulk-supply operation, where the warehousing and retailing are on the one site, and a large range of products are presented. Costco is one, and Wal-Mart in the USA is another, while Ikea does it too.
This leaves other operators with one viable way to go, and that's to have a range of exclusive products. But how do you do this in a field like Home Entertainment, where so many products are mass-market brands?
The traditional hifi/home theatre specialist does it by offering a facility where the customer can see and listen to products, which is often quite a revealing experience for them. Preconceptions about brands can be shattered by actually hearing how one speaker brand compares to another, and the impression created by that review they read in a UK magazine about UK product can go right out the window. But these days, the danger is that hours spent with customers results not in a fair return but in a subsequent price war, with the retailer asked to match the best price the customer has found - even on the internet - for the product he didn't know existed or didn't know was so good until he heard it in a the shop-based shootout.
What's the other track? I guess you can concentrate on those more boutique brands that the mainstream doesn't stock. The trick there is to generate the numbers from brands that are not "front of mind" for the buyers. Once again, the benefits of these products have to be demonstrated in some way. A further danger is that once the brand is established, the temptation to go "mass market" can be too much for the supplier to resist. Sonos is an interesting case study in this regard. To begin with it was a product that only specialists could demonstrate and explain, but over several years it evolved into something that's stockable at JB Hifi or just about anywhere. The lesson to the specialist is to make hay for a few years then relegate such things to "add on" status. Sonos is a great product, but it will only sound as good as the gear you connect it to, so selling it as an add on to good stereo gear makes sense, as does integrating it into complex multi-room jobs.
Finding a way through this new and somewhat hostile environment is a challenge that will require resourcefulness and a bit of thinking outside the box. I'll be following developments closely, and adding to this page periodically.
Update as at 24/1/2015
Update: Here's the view as at 24/1/2015!