Retail Wars 3 - Stores are Dead, Long Live the Store

While some brick-and-mortar stores are losing the battle against their online competitors, online stores like Amazon are going physical.

A few years ago, there were many predictions of the demise of brick-and-mortar stores under the onslaught of digital shopping or "e-tailing". It started when the market noticed that Best Buy, Target and other "big box" stores were suffering declining sales. It was said that Best Buy was the "showroom" for Amazon: consumers would go to Best Buy and examine what was on the shelves. When they had made their decision, they would either leave the store, go home and buy online, or they would whip out their phone right there, look up Amazon's Price Check app, and proceed to buy from Amazon.

This behaviour coined the new word "showrooming", and there was much hype about how the conventional retailers would not survive the digital erosion of their customer base. And yet, here we are in 2017 when Best Buy recorded a 24% increase in sales for the latest quarter (end July 30 2016 or "Q2 FY 17"). Admittedly, most of the increase was in online sales, but this merely illustrates that Best Buy had a look at their declining earnings and put an effort into understanding what their customers really needed. The result was new and improved processes to create a positive customer experience and a revamped digital platform that supported all channels and devices. Content was enhanced, with more robust product reviews.

So conventional stores still have some life in them, it seems. Even stranger, online retailing is responsible for new stores springing up. These are new models, based on omnichannel design as an essential approach to ecommerce development and customer experience. Some are focused on the customer's physical interaction with the products on display, others have the primary function of supporting digital (online shopping), but they all are a blend of physical and digital retail. These hybrid models support the 21st century customer. The word that attempts to describe such hybrids is "phygital", where the physical and digital converge, providing the customer with an integrated experience whether they are online, offline or in a store. Some of these new models are described below, but we are sure further innovations will emerge in the next few years.

The Unmanned Store

While showrooming is commonly regarded as a threat, this business has embraced the concept for its physical store. Located in an area of Sweden that has seen the attrition of small grocery and convenience stores as large retail outlets took over, the residents in this region would have to travel kilometres to do their shopping if not for this small shop. It is stocked with everyday items such as bread and milk and has no staff. Shoppers select items and purchase them using an app on their phones. An invoice is issued via phone after they leave the store. Cameras have been installed to discourage shoplifting. There is only one employee, the owner, who replenishes the stock levels.

The Dark Store

The term "dark store" has a different meaning in the United States from dark stores in the United Kingdom and Europe. In the United States, a dark store is a "big-box" store from retailers such as K-Mart that has been closed due to dwindling sales. These defunct stores are unpopular in the towns where they are situated, as they pay minimal property taxes, affecting the town's coffers.

The UK version, which has been adopted in Europe, is essentially a distribution warehouse for a store's online sales. It is built with the same layout as a normal retail outlet, and provisioned in the same way. However, access is limited to employees of the chain, and no consumers enter the dark store. The employees fulfil online orders by picking goods from the shelves, like some kind of proxy shopper. Some stores have robots that assist in the picking. The trend of this store model is gaining traction; the Australian retailer Coles opened a dark store in Melbourne last year, two years after Woolworths opened one in Sydney.

From E-tail to Retail - New Stores on the Block

While most of the major retailers, like Best Buy, are congratulating themselves on their journey to the omnichannel world, there is no reason for complacency. Online stores are starting to build bricks and mortar stores, notably Amazon. In November 2015, Amazon made its first move, opening a permanent bookstore in Seattle. They had been experimenting with pop-up stores on or near university campuses. When one considers the demise and belt-tightening that has happened in the last 8-10 years in this market, mainly caused by Amazon, this move might seem puzzling, especially because another year passed before the opening of the second store in San Diego. Some traditional booksellers were threatened, others welcomed the idea.

The Amazon bookstore does not have a traditional layout - its layout mimics the online bookstore: books are displayed cover-first on the shelves, and recommendations and tips similar to those online are used. Prominently displayed are all the Amazon gadgets and appliances, from Kindles to power cables. However, there are no prices on the shelves; the price is accessed by scanning the title or object you want with your phone using the Price Check app. There are roughly 5,000 titles in the store, and you can buy the rest online. Amazon has managed to combine showrooming and webrooming in one compact store: you can buy the book in the store having checked the price online, or you can buy the book online at, having browsed it in the store.

The opening of a bookstore, or even many bookstores, is not going to create panic in the big league of stores; after all, it has minimal impact on their product range. However, Amazon recently opened a new store in December 2016 that may cause them to rethink Amazon's long-term strategy. The Amazon "Go" store sells food. It is not so much about the food as about the customer experience, explained here in their own words:

"Why did you build Amazon Go?

Four years ago we asked ourselves: what if we could create a shopping experience with no lines and no checkout? Could we push the boundaries of computer vision and machine learning to create a store where customers could simply take what they want and go? Our answer to those questions is Amazon Go and Just Walk Out Shopping."

"All you need is an Amazon account, a supported smartphone, and the free Amazon Go app."

The Amazon Go store is located in Seattle, and is currently in Beta mode and only open to Amazon employees, but will soon open to the public. The threat to every other bricks-and-mortar store is not the product, but the painless customer experience. Other retailers must take note.

Reverse Engineering the Online Business

Other examples where e-tailers are opening retail stores are Warby-Parker, an eyeglasses store, and BirchBox, who sell personal care products. Traditionally, the customer likes to interact with these products, trying on sunglasses and testing fragrances and creams. A physical store allows them to do this, and they can choose their preferred channel to buy. Perhaps this is the future of retail: build a following online and then create a retail footprint according to where the bulk of your customers can be geolocated. Showrooms, unmanned stores and pop-up showrooms will probably become part of the mix. "Sleepers in Seattle", an online furniture has this mixed model, with a retail and an e-tail store, allowing potential customers to experience the products in-store and buy them there and then or online.

Lessons for the Traditional Retailers

While some traditional retailers are doing their best to catch up, many of them have not yet built a true omnichannel. They will now have to re-examine their queues at the tills and see if they can come up with a model that meets or beats Amazon's Go experience. While it is still in beta-test, this may become the way to shop everywhere by 2020, disrupting the traditional way we shop now. What is clear is that retail is not dead; consumers (well, most of them) still enjoy shopping and interacting with products, trying on clothing and shoes (and then ordering them from Zappo's), smelling fragrances, opening a refrigerator and checking out the shelf space. Augmented reality can offer substitutes for these experiences, but an app that shows you what an outfit would look like on you still does not give you an idea of whether it fits and is comfortable.

Digital shopping is sure to bring further innovations to retail shopping as we know it. The key takeaway is that it is not about the technology, it is about crafting the technology to enhance customer experience.

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