Interview: The Future of Shopping
Preparing for many possible scenarios can help retailers align to evolving consumer preferences, optimize margins, and expand possibilities for future growth.
How has consumer shopping behavior evolved over the past five years?
While the acceleration to online has clearly been a trend, the even larger challenges are the speed of service, the continual reduction of transaction costs for the consumer, and increasing competition. Speed can be quantified in same-day, next-day, and last-mile delivery, and retailers will continue to be pressed to meet customer expectations on all three of these areas.
Transaction costs are also important, and this factor goes beyond free shipping to also include free returns, buy online and return in stores, and retail partnerships allowing returns and alternative outlets. Consumers have high expectations for convenience, and retailers need to plan according to those expectations. Another key concern is increasing competition and the fragmentation of previously concentrated sub-sectors. Barriers to entry have always been low for online retailers; however, over the last five years, digital native brands have also started to leverage a few other tools to help the brands punch above their weight class. In particular, beauty products are leading the way in terms of fragmentation. Related factors include:
- Social media marketing is much more cost-effective than many traditional marketing channels, and it does not require layers of marketing intermediaries to reach specific customers, such as modeling agencies, production companies, advertising agencies, and other such complexities.
- Digital reviews and social influencers help to validate the quality of an emerging brand.
- Infrastructure is also evolving, with third-party checkout services removing concerns about providing payment information online.
- Sizing collaboratives are helping online apparel companies overcome concerns about size and fit, offering consumers the added convenience of comparing their sizing and fit across a range of brands.
What are the top three trends shaping the ways consumers shop?
Three trends heavily influencing shopping include omnichannel strategies, “buy online, pick up in store” (also known as BOPIS), and the on-demand economy. First, consumers have grown to expect an omnichannel experience —and that their interactions will be unchanged between the store and online. Most retailers, on the other hand, are still playing catch up, struggling to optimize labor, inventory, and their supply chain, especially as the rate of online returns have skyrocketed through the pandemic. Second, BOPIS is a growing trend that also includes curbside pickup. While this trend appears to be increasing, retailers should continue to look at the cost, and try to understand how BOPIS interplays with a brand’s labor and the possible cannibalization of sales. Retailers should ask themselves: “Are our margins large enough that we can afford to pay an employee to shop the store for an online customer?” and, “Are these transactions truly leading to incremental sales, or is the BOPIS process just shifting a customer who would have shopped inside the store anyway?” Third, when considering partnering with external parties to provide on-demand services, while customers have grown to expect fast delivery, retailers need to pause and thoroughly evaluate these strategies before giving away all margins to compete on speed.
What’s the future of shopping?
The future of shopping is easy to predict. A greater share of wallet will continue to move online. Although the way retailers will get there is less clear, what they can count on is that there will be lessons learned, and, systemically, the smarter retailers will become more efficient. Supply chain challenges will create efficiencies with their inventories, labor shortages will create efficiencies with staffing models and outsourcing, and inflation will impact pricing models and sourcing contracts. With the larger retailers realizing the most efficiency gains, competing smaller retailers will have to pick their spots to be successful, using differentiated service, quality, and product selection to demand higher prices and margins.
What actionable steps can an organization take to prepare for the future?
Each of the recommended actions organizations should take involve contingency planning. Given the uncertain trajectory of the pandemic, most business advisors are recommending that each client team should prepare for the best, the worst, and every scenario in-between. While retailers and consumers alike would love to believe the latest variant indicates the final wave of COVID-19, probability analysis would suggest otherwise. Large retailers, and many organizations in general, should think about pivoting between various operating models dependent on the trajectory of the pandemic.
There is an old saying that the only guaranteed thing about any forecast is that it will be wrong. And, while no one can predict the path of our recovery from the pandemic—some of the best, most-admired management teams are actively developing contingency plans for a range of possible pandemic-related climates.