The retail landscape has constantly evolved over the past century. For example, in the US, mom-and-pop shops gave way to departmental stores that offered curated products and experiences to consumers under one roof. This was followed by the advent of big-box retailers such as Walmart, driven by value and convenience in the 60s. The advent of ecommerce however has been a disruptive event, challenging the basic nature of interaction with consumers. The current wave of disruption has been termed the “retail apocalypse”.
In contrast to its global counterparts though, the physical retail landscape in India isn’t under such a threat. Ecommerce contributes only approximately 5 percent of the overall retail market share in comparison to nearly 12 percent coming from online retail in the US. Even with the Covid-19 pandemic disproportionately boosting ecommerce growth, we believe the future of retail most likely won’t be binary. Brick-and-mortar retail is here to stay; however, the business model must adapt. We believe that retailers need to fundamentally rethink their overall value proposition to the consumer.
Successful strategies must be built upon the simple principle of ‘consumer focus’ to ensure relevance and create a sustainable advantage. Retailers must embark upon the following five key strategic imperatives:
- Adapt store footprint and formats
Retailers must transition from a one-size-fits-all approach to define individual roles for each of their physical stores. For example, dark stores serving as fulfilment centres, smaller stores with seamless, self-assisted experience to name a few. Forward-thinking retailers will also need to consistently monitor the relevance of their store footprint and be aggressive in store closures if they are underperforming.
- Invest in experiential retail
Experiential retail will be the future leading to the advent of ‘Retailtainment’–retail experiences that are fun and unique. Stores of the future will need to focus on creating and building interactive community experiences that are destinations for designs and co-creation such as exclusive events, pop-up kiosks, appointment-based services, in-store allied services, and so on. Immersive and sensory experiences that enable consumers to build a stronger connect with brands will be a core strategy, driven by technology and innovative store designs.
- Rethink store operations
The current wave of retail disruption will ensure that only the fittest survive. Consequently, store operations must adapt to become highly agile and cost-efficient. Retailers will need to adopt multiple strategies such as leveraging the ‘gig’ economy to optimise manpower costs, increased automation and smart energy management to build smart stores of the future and operate at peak efficiency. With automation, the skillset and focus of the store staff will also need to evolve around hyper-personalisation to increase store profitability.
- Accelerate omnichannel adoption
Covid-19 has fundamentally influenced the purchasing behaviour and accelerated the omnichannel journey in retail in an exponential way. With rapidly evolving consumer preferences and behaviours, we believe retailers in India need to focus on three key elements to augment their omnichannel strategy.a. In the new normal, retailers will develop a preference for high-street locations over malls to ensure proximity to the consumer and propose a safer and exclusive experience. However, higher rentals for high-street locations will be a significant challenge, which will lead to the advent of smaller stores to optimise yield on rent. With limited availability of space for inventory in such stores, retailers will need to augment offerings for consumers with the help of Endless Aisles.b. Driven by the need to reduce delivery costs and increase responsiveness, ‘Ship from Store’ strategy will be driven by brands and marketplaces.
c. Retailers need to move beyond the transactional nature of standalone loyalty programs and to drive long-term brand loyalty and offer unified experiences to customers through omnichannel loyalty programs
- Lead with technology and data analytics
Technology will be at the core of transformation of the retail consumer journey. With interplay across IoT (Internet of Things), robotics, big data analytics, AI and extended reality, retailers will increasingly deploy a wide range of potential applications such as virtual try-ons, autonomous fulfilment, virtual shopping assistants, inventory optimisation, and so on.
Within digital environments, retailers will employ virtual reality (VR) to provide engaging experiences to the consumer and attempt to bridge the gap with regards to sensory experiences at brick-and-mortar stores. At the other end, brick-and-mortar retailers will invest in augmenting their in-store experiences by deploying Augmented Reality (AR) technology on their product shelves aimed at hyper-personalised interactions with consumers.
In the post-pandemic world, consistent disruption will be the new normal in retail and organisations that can respond with agility to adapt will survive in the long turn by creating a sustainable competitive advantage for themselves. Retailers have a mammoth task at hand and hence, embedding the above imperatives as core strategies will be the key to survival and become the leaders in the future of retail.
Siddharth Jain, Partner; Karan Dhall, Principal and Siddharth Mukund, Manager at Kearney