Retail versus Online – the gloves are off!

Online shopping

Borders, Angus and Robertson, Williams and now the 23 year old, Colorado chain all closing their doors – what is happening to retail in Australia?  To survive today’s challenging economic conditions and successfully fight the onslaught of online shopping – bricks and mortar retailers need to re-invent the way they do business.

Times are changing – more Australian’s then ever before are shopping online.

Price comparison site, www.getprice.com.au claims to attract over 1.7 million visitors every month and in a survey of almost 3000 online shoppers found that 47 percent of them utilised their iPad, a mobile phone or another mobile device to visit retail sites.  A recent IBISWorld report (March 2011) found that there were only 350 department stores in Australia competing with 3,852 online retailers that were growing at an annual rate of 9.3 percent.

High street retailers will never be able to compete on price or convenience when it comes to their internet based competitors. Online retailers are open 24 hours a day, seven days a week, you can browse the store and purchase product from the comfort of your home, office or anywhere you can get an internet connection and with lower overheads their prices are more attractive.

So how does a traditional retail store compete against such a dominant force?

The answer can be summed up in just one phrase – customer experience.

The internet while dynamic and convenient can also be a cold, dark place – like perhaps having a romantic dinner with a robot.  The true personal experience, product association and human interaction is just not there.

So here are five ways retail can win against online …

Good old fashioned customer service – bring it back!

Making the customer feel important and valued is one clear advantage that traditional retailers have over online stores.  Think back to the time when every business provided a personalised service – from informative staff to home deliveries, in-store promotions to customer loyalty cards.  All of these attractions are difficult to replicate on a digital platform but easy to introduce within a bricks and mortar store.

Sell the experience, not just the price

It’s true that the GFC has made us a nation of bargain hunters and as such more price savy than ever before.  Customers however don’t just buy on price otherwise we’d all be buying everything second hand on E-bay.  At the launch of a fashion range or product release invite customers to an exclusive evening (the day before the official launch or sale) to ‘experience’ the new products first hand.

Make it a special evening with wine, cheese and a fashion parade – not only will the experience be remembered by customers who attend, a few sales may be made on the night and the word will be spread to friends and family.

Make your retail store a destination

The new retail experience should be like visiting an art gallery or meeting a friend for coffee.  Look at brand leaders like Apple and the launch of their unique Apple stores around the world – every product plugged in and ready for you to try and fun, friendly staff that are there to inform, not to sell.  Create ‘lifestyle showrooms’ where the product experience comes to life with interactive displays, intimate coffee lounges, relaxing music and burning incense.  In a shop it is possible to stimulate all five human senses whereas online you can only deliver sight and sound.

Communication is key

Staying front of mind with your customers is vital to building a long term relationship and establishing brand loyalty.  E-newsletters are easy, low cost and instant but are they really the best strategy for a traditional, high street retailer who is competing with online competitors?  Direct mail catalogues, informative product guides and even just a ‘thank you’ card in the post can be far more effective.  Think about the ‘law of reciprocity’ where a positive action is responded to with an equal positive reaction.  If someone buys you a drink for example at the bar and then has to rush off before you can buy them one back you feel uncomfortable – the balance is out.

Most people will feel the need to return the favour and remember to buy the first round as soon as they meet up again.   Retail marketing can work the same way – send a free gift to a customer and they will feel the need to give you something back in the form of a purchase or at least a visit to your store.

Avoid discounting!

Discounting a price merely reduces its perceived value and makes it difficult to ever sell that item again at its full original price.  To compete, try adding value instead by ‘packaging up’ a product with another item or a bonus gift.

Most of our big department stores nowadays have to run one sale after another, sometimes even multiple sales at the same time to attract customers.

Gone are the days when you had just two major sales a year – new year and stock take.

Technology too is helping bricks and mortar shops to enhance the shopping experience.  NCR Corporation in the US is taking even the automated self-checkout system to the next level with a personalised version that analyses your shopping history via your smart phone and populates your shopping list with frequently purchased items.

So while the online world becomes more streamlined and automated there is an opportunity for traditional retail stores to fight back with a true and memorable shopping experience

  • It is about the experience and the service, however as one who spends most of his day online even looking at products online, I buy 99% in store and will probably continue to do so. I have never purchased clothing or footwear online and am unlikely to for a very long time.

    Computer and electrical gadgets are a different story. If I know that the product is exactly what I am after (this might be followed up by a phone call) then I would buy online.

    Yes we are more price sensitive than before but what has happened is that large retailers are reduced the numbers of personnel on the floor to improve their margins. This hasn’t helped the customer experience but I don’t know if it has moved us online or not.

    Walk into a MYER store on a Sunday afternoon and count the number of staff on the floor, dismal, it is like shopping at Bunnings, just hope you know what you are after or you will spend 30 minutes looking for it or for someone to ask assistance from.

  • Nice one, Tony; great summary! Many thanks for your helpful update. Best regards, P. 🙂

  • John Saywell

    You are right – convenience and low price are no longer on the table for bricks and mortar specialty retailers. The new owners of Borders and Whitcoulls in New Zealand might get burnt! http://bit.ly/l7TRJE

  • You make a great point Tony – I can’t help but think that the more negative customer service experiences we have, the more inclined people are to purchase online. I would love to be able to walk into a store and have a fabulous ‘experience’ rather than be barraged with sale signs, but do such magical things exist??

  • I agree very much with Tony’s suggestions, but what I disagree with is that online competition is wholey or perhaps even significantly, to blame for the demise of Borders, A&R and Colorado. Only time and the receivers reports will tell, but I don’t think its helpful for the media to report that it is as “received wisdom”. I think you will find that these businesses failed not just because of competition (online or otherwise) but that they spent more than they earned. Plenty of other bricks and mortar retailers seem to be doing just fine thank you very much.

    The other big falacy is that online retailers some how have lower costs (and so, higher profit margins) than traditional retailers. Take a few minutes to read the annual reports of listed online retailers globally and compare them to listed bricks and mortar retailers. Profit margins are similar, it’s just that spending is on different things.

    if this wasn’t the case, you would presumably see every bricks and mortar business rushing online to take advantage of those higher profit margins. And if they aren’t (and the profit is so much better online) why aren’t they?

    • Fair comment Steven – there are no doubt plenty of elements to blame in the demise of leading brands like Borders and Colorado with online competition amongst them.
      On the profitably side however I note figures from IBIS World’s recent report, ‘Department Stores in Australia’ which shows an average of $50 Million extra profit for online versus offline but more importantly the annual growth of just 0.4% for bricks and mortar against almost 10% for online shopping. I think traditional retailers are scared of doing too much themselves online in fear of driving more customers away from their physical stores.