New Amazon Department Stores Signal That Physical Retail Lives On

Amazon.com's reported plan to open larger footprint department stores in the U.S. is hardly surprising. This move is consistent with what we’ve seen to-date: namely, that Amazon has a long-term road map to transform retail in the U.S. and the world. For the broader retail industry, this signals that physical retail stores are still an integral part of consumer shopping journeys and shouldn't be deprioritized amid the shift to e-commerce. While there has undoubtedly been a massive shift towards online shopping, 80 percent of all retail sales occur in the "real world."

Data from Publicis Sapient’s new survey, which explored consumer shopping behaviors for the Black Friday through Cyber Monday weekend, provides further evidence that consumers still prefer brick-and-mortar stores in several cases. For example, 55 percent of U.S. respondents indicated that they agree or strongly agree that they sometimes go to a physical store to check out an item before purchasing it online, and over half of U.S. respondents said that they have purchased an item online and picked it up in-store more than once.

For department stores specifically, 52 percent of U.S. respondents said they expect to make most of their purchases in a physical store. This data is indicative of trends that are likely to continue beyond the holiday season as consumers take advantage of the convenience, speed and simplicity that offerings like buy online, pick up in-store (BOPIS) bring. Additionally, the ability to touch and try a product before purchasing it is a valuable advantage of in-store shopping for consumers; an experience that cannot be replicated online.

Not only do consumers reap the benefits of brick-and-mortar locations, but retailers do as well. Physical locations provide places where products can be picked up and returned, reducing shipping costs and providing hybrid fulfillment centers and warehouses. Fulfillment methods like BOPIS can potentially lead to additional sales for retailers. Publicis Sapient’s survey found that 68 percent of U.S. respondents that ordered online and picked up in-store said they're somewhat likely or very likely to buy additional items when they go into the store to pick up their order.

It's clear that Amazon recognizes the importance of physical retail; the e-commerce giant has been experimenting with physical stores for over four years, recently expanding its grocery chain to more than 20 stores. The move to the department store space is a new one for Amazon, however, it could present significant benefits for the company. Within these physical locations, Amazon will have the ability to see a fuller breadth of physical goods personalized and merchandised to that geographic market. It also gives Amazon an opportunity to expand the usage of its hand and gesture-based recognition to enable cashierless checkout sometime in the future — at least within a portion of the store footprint. In addition, Amazon's ability to sell private-label brands at these stores creates significant potential for the company.

While stores should remain a key element of retailers’ strategies, they must be adapted to fit the needs and expectations of today’s consumers through the integration of both physical and digital elements. Below are some of the ways that retailers can transform their stores for the future of retail.

Enhance the In-Store Experience Through Technology

In my view, there are two main areas of investment in which retailers are focusing. First, mobile apps are seeing a bit of resurgence and continue to be refined and given both in-store and out-of-store modes to optimize the user experience. Apps are increasingly forming a key part of a platform strategy that many retailers are embracing. Second, increased in-store digital signage is being coupled with a larger monetization strategy to create additional advertising inventory, particularly when coupled with Bluetooth low-energy solutions. For example, several grocers are expanding the placement of digital signage near endcaps, deli counters, checkout lanes and elsewhere in the store, and personalizing messaging based on proximity. They're then monetizing this new inventory along with the rest of their properties.

Strengthen Fulfillment Offerings

The further development of micro fulfillment centers is going to redefine our expectations for leading stores. For example, some grocers are exploring reducing the time from order to pickup to just five minutes for 95 percent of products. Enabled through additional robotics and dedicated space in-store — usually adjacent to the existing customer shopping area — these fulfillment speeds will be highly disruptive. In addition, retailers should continue to optimize in-store pickup, curbside pickup, and delivery. These methods — boosted by COVID — will continue to be a substantial part of the mix.

Transform Store Operations

For less mature retailers not yet ready to invest in a significant new buildout, there's a new wave of sales associate mobile tools to optimize picking and routing algorithms within the store. These can double the rate of picking per hour. We’re also seeing a next generation of mobile point-of-sale systems that enable digital couponing, integration with mobile apps, and more flexibility with a cloud and micro-serviced based solution.

The bottom line is this: humans will always demand a physical experience to complement their digital one. This may be convenient delivery or great customer experience over a chat. But larger and more sophisticated retailers, such as Amazon, know that nothing supplants a great in-store experience. As we move beyond COVID-19 and its variants, and return to the physical space, the key to success for retailers will lie in how well they balance and integrate digital investments with physical store investments.

Hilding Anderson is the head of retail strategy at Publicis Sapient, a digital transformation partner helping established organizations get to their future, digitally-enabled state.