SOS: Why Brick and Mortar Retail is Worth Saving

With every narrative that speaks about the rise of online retail, it hails its rise to prominence as the force of good that benefits customers immensely. For the most part this is obviously true; online shopping provides lower prices, a more convenient way to shop, and a wealth of product choices. In the midst of all this, plenty of customers do not spare a second thought to struggling brick and mortar retailers. Many feel that after years of charging consumers with expensive products, and taking a big profit margin, they deserve to be in the position where they are in at the moment. 

 
as much as this guy deserved it

Despite that, there are several facts that indicate how brick and mortar stores are not only worth saving, but they need to be saved. First, is the fact that retail is one of Australia’sthree biggest employers, the other two being the banking and the manufacturing industry. With so many people working in retail, if retail continues its decline, how will the job market absorb these people?

It would most likely mean that unemployment would rise, starting an unwanted chain of events that shackles Australia’s growth. Furthermore, it is not only the number of jobs that would be lost through the demise of retail, but also the type of people that retail can employ. Its flexible time nature means that it suits part time workers such as mothers or students, workers who would find it very hard to find other jobs that offer the same kind of flexibility. 

 students: providers of the best kind of service

This situation is not going to happen in the future, it has started happening now. Just late last year, Myer group, Australia’s leading retailer, announces that they will close several of their stores due to increased pressure from stagnant growth and low consumer interest. Smaller retailer WOW Sight and Sound, with 15 stores in 4 states are closing all of its stores, and noted that they will letting go 580 people as a result. Another retail group, Premier Retail, which owns Just Jeans, Portmans, and Dotti, has also announced that they will be closing around 50 stores around the country.

With so many stores closing, many popular shopping streets in Australia’s largest cities can look very sparse. Which brings us to the next fact: a faltering retail sector will lead to a decrease in commercial property development, which will weaken a sector that is considered as key in any economy that is trying to grow, the real estate sector.

Most retailers are already going for smaller store spaces, and going away from the big box store concepts. Lowering prices means that retailers have to sell a lot more of the same item to make the same kind of money. For example, due to the drop of price in most television sets, a retailer such as Harvey Norman needs to sell a lot more units just to survive. This situation has also led some retailers to opt for shorter leases rather than longer ones, to ensure that they have the flexibility to either close or reduce the space that they are renting.

 too much space can be pretty weird looking

As it is with every bad news, the silver lining is not far behind. Despite the doom and gloom, there are retail stars out there such as Zara, Topshop, and the always busy Apple store. These retailers have been able to generate turnover that is similar to large department stores while operating from a much smaller space, therefore paying a lot lower rent. This might be the future of successful brick and mortar stores, with more specialized products and services, in better defined spaces. 

Read More

Retail Innovation: Tesco's Augmented Reality

Bringing together the virtual and the real seems to be stuff of science fiction just a few years ago, but innovation in various fields have shown us that the future is indeed here, that we do have the capability to create and utilize technology in a way that was not possible just ten years ago. At the moment, nobody needs innovation more than traditional brick and mortar stores. Pressed from many sides, whether that be increasing consumer demands, decreasing profits, and the threat of online commerce, these traditional retailers need to find new ways to connect with their consumers.

 disappointingly enough, not one of these ships has been invented

One retailer who seems to be in the right track in terms of innovation is Tesco. Acknowledged as the third largest retailer in the world, Tesco does most of its business in the UK, but has a presence in fourteen different countries. As large as they are, Tesco are not immune to the flagging fortune of the traditional brick and mortar store, if anything, their immense size makes them even more vulnerable to the effects brought by online shopping. Tesco found its rise to success by correctly managing margins, and always obsessing about being efficient.

Their first innovation is their effort in augmented reality, where consumers can actually create a three-dimensional model of the product they want to purchase and see how it mesh to the home. It is specifically used for Tesco’s online wing, and it becomes a point of differentiation for their website. The presence of something new becomes very intriguing for consumers, and it successfully translates Tesco’s strength as a brick and mortar store into an online setting. 

this video feels both retro and futuristic at the same time

Another interesting concept is Tesco’s breakthrough in South Korea. In their effort to get a larger market share, Tesco started displaying ads of their shelves in South Korean train stations. Consumers can actually scan their desired item, purchase it right there, and get the products delivered to their homes. Since this type of innovation is unparalleled in the retail, Tesco enjoys a significant media attention, which it can utilize to further push its products. 

waiting here makes me want to buy steak

Finding the meeting place of the virtual and the physical is a key development that is needed to grow retail into a new business model that consumers will be attracted to. 3D models are applied in various online shopping retailers, but not in the way that Tesco has envision it. Research has shown that this lowers the consumers perceived risk (Shim and Lee 2011), and lessens the barrier for the consumer to make the purchase. It has also been suggested that technologies such as 3D representation creates similar experiences that consumers might have in a traditional store, therefore blurring the boundaries of online and traditional setting (Dahan and Srinivasan 2000).

While Tesco is not out of the woods just yet, and it remains to be seen whether these innovations will be popular among consumers or not, signs are looking promising. Moves that might be audacious and impossible are needed to generate interest and still be relevant to the consumer.

References:

Dahan, E. and Srinivasan, V. 2000. The predictive power of internet-based product concept testing using visual depiction and animation. Journal of Retailing 17(2):99-109. Emerald. http://emerald.com (accessed March 29, 2012).

Shim, S.I. and Y. Lee. 2011. Consumers’ perceived risk reduction by 3D virtual model. International Journal of Retail and Distribution Management 39(12): 945-959. Emerald. http://emerald.com (accessed March 29, 2012).

Read More

Retail Innovation: IKEA's MANLAND

With all the challenges presented to traditional brick and mortar stores by online retailers, thinking outside the box is becoming a necessity rather than a nice to have. Enter IKEA, the Swedish furniture giant who is a category leader and one of the most respected corporate entities in the whole world. From creating showrooms that presented products together, having a childcare center in all their shops, and ads that are often groundbreaking, innovation seems to be forged in their corporate DNA.

One of their recent breakthroughs is their special promotion for 2011 Fathers Day in Sydney. Inspired by one of their regular fixtures in all of their stores, SMALAND, which is an area dedicated for toddlers to play and get busy while their parents shop, IKEA set up an area for male shoppers called MANLAND. Essentially it is a “man cave” set up with video games, a large flat screen television playing non-stop sports, a Foosball table, and free hotdogs. To ensure that their partners don’t abandon them for too long, they are provided with a buzzer that rings after 30 minutes.

manland: the creche for blokes

Reactions to the promotion has been varied, from people hailing it as a grand innovation in retail, to some others who bash it because they feel that it is very sexist. While obviously any corporations who want to try this type of promotion need to take extra care that they are not stepping on too many toes, the fact that it started a conversation and buzz is definitely a success. Various media reported the promotion, and general reactions are positive. 

 i've been dying trying to find context to use this picture

Retail literature has shown that shoppers’ perception of the retail environment, e.g. store designs, product placements, general store atmosphere, have an impact on their shopping value and approach behaviors (Wang, Chang, and Wysong 2011). Retailers have long spent a significant investment in the designs of their stores (Kaltcheva and Weitz 2006), yet the result might not always induce a positive effect in consumers shopping behavior. This suggests that it is no longer enough to spend tremendous amount of money in designing your store, but it also has to have a shock value, something that the consumer has not seen before, and most importantly, something that they would enjoy seeing and experiencing.

Another important cue that IKEA is on the right track with their promotion is the fact that many consumers shop for hedonic reasons, going to the shops to have fun and incite pleasure. Arnold and Reynolds (2003) suggest that since hedonic consumers go to a retail environment to find a sense of fun, they are more likely to appreciate efforts done by retailers in creating an attractive physical design of the environment itself. 

 then again, "attractive" is quite relative

Store design or promotion such as IKEA’s MANLAND is just one factor out of many that will actually influence consumer’s shopping behavior, but it is definitely a step in the right direction in providing consumers with something that an online setting will never hope to achieve. Playing to their most important strength, their physical tangibility, and trying to innovate in this area is a move that many retailers might want to copy.

References:

Wang, L.C., L. Chang, and Wysong, S. 2011. An empirical investigation of the influence of optimum stimulation levels in retailing. International Journal of Retail and Distribution Management 40(1): 6-20. Emerald. http://emerald.com (accessed March 29, 2012).

Kaltcheva, V.D. and B.A. Weitz. 2006. When should a retailer create an exciting store environment? Journal of Marketing 70(1): 107-118. Emerald. http://emerald.com (accessed March 29, 2012).

Arnold, M.J. and K.E. Reynolds. 2003. Hedonic shopping motivations. Journal of Retailing 79(2): 186-192. Emerald. http://emerald.com (accessed March 29, 2012).

Read More

Online Shopping and Pricing

Rise of online shopping can usually be contributed to three main factors that makes online superior to traditional brick and mortar stores, which are cheaper prices, convenience, and greater product range. This article will focus on the price aspect of online shopping, how it creates unique trends in the market, and how Australian traditional retailers are fighting this aspect of online shopping. 

 another way to save money: not wear pants made of gold

Main reasons of why it is cheaper to shop online is already well established, the fact that online retailers do not spend overhead on a store, more staff, or physically housing products means that they can offer consumers a more competitive price. From the consumers’ point of view, buying online is also cheaper because it reduces product search cost, and while it is not immediately tangible, more and more are consumers are realizing this benefit.
 

Take the insurance market for instance, whether it is travel or car insurance. In the past, consumers would be attracted to the largest insurers, not quite realizing that often times their prices are more expensive. Internet and online shopping has changed this dramatically, where comparison sites makes it very easy to find the cheapest product possible for your needs. This is why smaller players are having a bit of a success in taking away market share from the big boys.

 everyone loves the underdog (or dwarf in this matter)

There is also suggestion that skyrocketing gas prices are also another reason why consumers are moving away from traditional retailers and do their shopping online. It has been revealed in the United States that sharp rises in online shopping in the early months of 2012 coincide with spikes in gas prices as well. While it might be too early to say that there is a direct link between the two, it is quite logical that consumers are making use of the convenience they get from buying online, with the added bonus of not needing to spend a dime to actually go to a physical store.

Still in line with the insurance market example, there also has been increased price sensitivity among consumers who frequent traditional retailers. Take Australia for example, which has a presence of several big appliance stores such as Harvey Norman, Good Guys, Retravision, and several others. Each of these stores often times sell similar products, and compete hard on price. Since each store is a franchise, even prices between branches of the same retailer can vary quite wildly. Before, consumers might find it harder to get the best price for a particular product that is being sold in multiple stores, but with the presence of the Internet, this process becomes very easy.

Interestingly enough, marketing literature has indicated that price dispersion, while limited in the online environment, still exists in online shopping malls (Petrescu 2011). Stigler (1961, 214), who wrote a seminal article regarding price dispersion, explained that price dispersion is a “manifestation, and a measure of ignorance of the market”. It is quite interesting that even with the level of ease that is being presented to consumers in an online shopping environment, they still look for cues to always simplify their purchase process. Some of the things that they look for are the retailers’ reputation and brand equity, as well as their reluctance to experience information overload (Brynjolfsson and Smith, 2000).

This shows to traditional retailers that even with ever lowering prices and profit margins, there is hope of establishing a measure of branding in an online environment. What they need to realize is that they have to transfer the experiences of servicing consumers in a brick and mortar store to the online setting. Paul Greenberg, CEO of DealsDirect.com says that disruption and opportunity go hand in hand, and claims that new retailers should take advantage of the ‘white-flag’ approach taken by some of the more seasoned brick and mortar retailers. Reinventing the retail game is not easy, but it is what is required to those who want to survive.

 if you're not pumped after seeing this, you're taking a 'white-flag' approach

References:

Petrescu, M. 2011. Online Price Dispersion – more than imperfect information. Journal of Product & Brand Management 20(7): 541-548. Emerald. http://emerald.com (accessed March 28, 2012).

Stigler, G.J. 1961. The Economics of Information. Journal of Political Economy 69(3): 213-215. Quoted in Petrescu, 2011.

Brynjolfsson, E. and Smith, M.D. 2000. Frictionless commerce? A comparison of internet and conventional retailers. Management Science 46(4): 563-585. Quoted in Petrescu, 2011.

Read More

What They Say: Travis Hearn, Sales Assistant

Name: Travis Hearn.

Occupation: Sales Assistant at a very well known traditional retailer.

 

1. Can you tell me a little bit about your retail experience? the shops you've worked at, when you started & how long you've been doing it, your responsibilities in the roles that you've been in, etc. 

I have been working part-time in retail since I was about nineteen years of age, which is some eight years. My roles have varied from cashiering, office duties but have mostly consisted of sales and customer service.

2. What do you like and don't like about working in retail?

I no longer enjoy dealing with the general public, most people lack basic manners. There are still a few decent people, but most people are rude, obnoxious and have a terrible sense of entitlement.

3. Have you notice a change in customers interest in products as online shopping becomes more popular? 

Most definitely. Even the stupidest of people now have access to Google in their pocket twenty-four hours a day, seven days a week. Most people want the price they see on a website, but want the instant gratification, they don't seem to be prepared to pay even a little more for being able to take the product there & then rather than waiting however long it takes to receive the item via post. 

4. What do you think about online shopping?

I think it has advantages and some disadvantages. It makes purchasing books, games, etc., much easier. In Australia the retail price of many video games is more than double that of the UK, so it is much cheaper to source them from the internet.

5. Do you feel threatened in anyway by the increasing popularity of online shopping?

In terms of my job security, I would say definitely.

6. What does traditional brick and mortar stores have to offer that online shops cannot?

I think everybody knows the answer to this. You can actually see, use, touch, et cetera before you buy. You also have a point of contact & a person you can speak to regarding your product. 

Read More

Showrooming: The Start of the Dark Ages?

Recently, a new dreaded word has entered the traditional retailer’s vocabulary, and that word is “Showrooming”.  It is a word used to describe a phenomenon where shoppers come into a brick and mortar store to see a product in person, and even try it out, but make the purchase online, often for a lower price. Again, this is just another instance of where traditional retailers feel that their investments are being used by their online rivals, and large retailers such as Target and Walmart has urged their suppliers to create special products that is only available to their respective stores.

yup, something special, like guns

In the United States, online only accounts for about 8 percent of total retail purchase by customers, but it is growing very quickly. While everyone is trying hard to gain traction with their online arm of business, large retailers such as the aforementioned Target and Walmart only get about 1-2% of their business online, quite far from the national standard, and highlights their awkwardness with the medium. 

 about the right level of awkward

While there are many players in online commerce, one giant stands out from the rest. Amazon.com is quite possibly the strongest online retailer at the moment, and they try different tactics to aggressively chip away the advantages that traditional brick and mortar retailers have.

In fact, Amazon has developed an application that allows users to take a picture of a product at a brick and mortar store, and find out how much Amazon is selling it for. To add insult to injury, Amazon also had a promotion that gives an extra 5 percent discount to users who would use the application at a brick and mortar store, but make the purchase online with Amazon. 

Looking at what marketing and online commerce literature tells us, especially in the consumer behavior discourse, it is quite understandable why something like this would happen. One of the main barriers to online shopping is the presence of risk for consumers. With the Internet being a relatively new channel of commerce, there are a few impending unknowns that a regular shopper has to face. 

Going back to traditional shopping behavior, Jacoby and Kaplan (1972) have identified five components of risk, which are economic, performance, physical, psychological and social. Going to the online environment, research has shown that while most shoppers acknowledge the benefits of online purchases (Mariani and Zappala 2006), most cannot get over the financial risk relating to the use of credit cards on the Internet (Bhatnagar, Misra and Rao 2000).

 because some risks are just not worth it

In the current environment, there has been ways to alleviate the financial risk of an online purchase, whether it is the actual security improvement of most sites, or the availability of third party entities that act as a buffer between a buyer and a seller, such as Paypal. One factor that links directly to product is the risk of the product not performing to expectations or product performance risk (Dall’Olmo Riley, Scarpi and Manaresi 2006).

This risk is exaggerated in an online environment, mostly due to the inability to physically touch or try the product (Forsythe and Shi 2003). This limitation means that consumers have to rely on other signals to be persuaded to shop, such as the reputation of the brand, review from other users or prior experience with similar products in an offline setting.

Showrooming as a phenomenon is actually a peek towards the future, where people try to overcome one limitation of a platform by utilizing another platform. The question is how retailers can combat this, and even if consumers want to make purchases online, they do it at the traditional retailers store. There are no easy answers for this conundrum, but traditional retailers have to realize that it is not something that can be stopped half-heartedly.

half hearted is going to a Helloween party like this

Getting products that are unique to your store is a start, but more needs to be done, from actually trying to change the business model, creating a new way of doing retail, or providing an experience for shoppers that cannot be replicated online. Traditional retailers might not have the answers now, but in the end, only those who can eventually answer this question will survive. 

Reference:

Bhatnagar, A., S., Misra, and Rao, H.R. 2000. On Risk, Convenience, and Internet Shopping Behavior. Communications of the ACM 43(11): 98-105. Emerald. http://emerald.com (accessed March 10, 2012).

Forsythe, S.M. and Shi, B. 2003. Consumer patronage and risk perceptions in Internet shopping. Journal of Business Research 56: 867-875. Informit. http://informit.com (accessed March 5, 2012).

Jacoby, J. and Kaplan, L.B. (1972). The Components of Perceived Risk. Proceedings of the Third Annual Conference of the Association for Consumer Research 3: 383-393.

Mariani, M. and S. Zappala. 2006. Risk Perception in Online Shopping. In Impact of e-Commerce on Conumers and Small Firms, ed. Zappala, S. and C. Gray, 179-89. Aldershot: Ashgate Publishing Limited.

Scarpi, D. 2006. The Fun Side of the Internet. In Impact of e-Commerce on Conumers and Small Firms, ed. Zappala, S. and C. Gray, 179-89. Aldershot: Ashgate Publishing Limited.

Read More

Online Vs. Traditional: Consumer Motivation

A very important aspect that retailers are always interested to know more about is the reason why people shop. Why someone would choose a red coffee machine over a silver one, or why someone would only purchase milk at a particular store. Obviously there is no single answer that will satisfy each question, but marketing literature has always been quite fascinated with consumer motivation.

Motivation can be defined as “an internal and complex process, which influences people’s behavior and is caused by particular motives” (Keisidou, Sarigiannidis, and Maditinos 2011, 33). One popular concept is the identification of two main motives for shoppers, which are hedonic and utilitarian. In short, hedonic shoppers are consumers who shop for fun, and utilitarian shoppers are consumers who shop with a goal in mind (Babin et al. 1994).

some behavior are beyond comprehension

This mindset translates well into the online environment, where hedonic online shoppers are motivated to find involvement with things that they consider fun. Typically, a hedonic online shopper would frequent online auction sites, hobby specific sites, and browse to their hearts content to seek a product specific online experience. On the other hand, the utilitarian shopper is depicted by motives such as convenience, information, selection, and the ability to control the shopping experience (Sorce, Perotti, and Widrick 2005).

While some researches suggest that the introduction of the hedonic and utilitarian concept in an online setting is quite seamless, other research suggest that there are significant differences. Scarpi (2006) argue that hedonic shoppers, who find pleasure in the shopping act itself rather than the acquired product, would not be motivated to shop online, because it would forgo the pleasure they get from shopping in a physical store. 

 sophie kinsella: making millions out of the hedonic shopper

 While there are other researches that use different frameworks, they are mostly reiterations of the hedonic and utilitarian classification. For example, Kargaonkar and Wolin (1999) identified seven different motives that may affect the consumers’ behavior in an online environment. These motives are: social escapism, transaction security and privacy, information, interactive control, socialization, non-transactional privacy, and economic motivation.

There are lessons to be learned here for both the traditional retailers as well online retailers. First, both type of stores have to cater for both type of consumers, which means that while shopping has to be a great experience, it should also provide an opportunity for utilitarian shoppers to just get in, get what they need, and get out.

Secondly, when it comes to engaging the consumers, so that their hedonistic needs are fulfilled, stores have to constantly innovate. Some retailers do not change their store displays for years, and they wonder why less people are interested in coming into the store and spend time shopping. 

 have you seen our new display? It's only been there since 1987

Understanding the consumer’s motivation is one thing, adjusting your strategy to capture the consumer is another thing. A lot of traditional retailers fail in their attempt to branch out to online retail because all they do is sell the same products online. What they do not realize is that consumers come to their brick and mortar stores not just because of the products they sell, but also because of the shopping experience that they provide. Until they manage to translate the shopping experience into an online environment, consumers will most likely shun the online versions of their stores.

References:

Babin, B., Darden, W. and Griffin, M. 1994. Work and/or fun: measuring hedonic and utilitarian shopping value. Journal of Consumer Research. 20: 644-56. Proquest. http://proquest.com (accessed March 13, 2012).

Keisidou, E., L. Sarigiannidis, and Maditinos, D. 2011. Consumer Characteristics and Their Effect on Accepting Online Shopping, in the Context of Different Product Types. International Journal of Business Science and Applied Management 6(2): 32-51. Emerald. http://emerald.com (accessed March 10, 2012).

Korgaonkar, P. and Wolin, L. (1999), A multivariate analysis of web usage. Journal of Advertising Research. 38 (1): 7-21. Proquest. http://proquest.com (accessed March 13, 2012).

Scarpi, D. 2006. The Fun Side of the Internet. In Impact of e-Commerce on Conumers and Small Firms, ed. Zappala, S. and C. Gray, 179-89. Aldershot: Ashgate Publishing Limited.

Sorce, P., V. Perotti, and Widrick, S. 2005. Attitude and Age Differences in Online Buying. International Journal of Retail & Distribution Management 33(2):122-132. Emerald. http://emerald.com (accessed March 10, 2012).

Read More