Ready or Not, Digital-First Retail is Here

Supposedly, Tori Spelling once said, “bad shopping habits die hard.” The "Beverly Hills 90210" actress was probably talking about her own shopping habits, but in a larger sense, Spelling, who helped personify consumerism in the 1990s, when the mall was king and Amazon.com was merely another dot-com, pretty much nailed today’s retail business, where bad habits are dying very hard at the moment. This year, 22 major retailers announced store closings. Many legacy brands are struggling, declaring bankruptcy, or in danger of vanishing altogether. Meanwhile, VC-backed startups are grabbing market share by exploiting holes in traditional retail distribution models and pricing strategies.

It’s not all bad news, however. In fact, the total number of retail stores opening in 2017 will exceed the number of store closings. Digging into the numbers by segment, the biggest growth is in discount chains, convenience stores, and supermarkets and drugstores — both of which do a lot of business outside their primary categories of food and pharmaceuticals. Looking at location opening/closing data alone, you might conclude that consumers are hunting for bargains and convenience, but of course, convenience and cost have always been prime selling points in retail. In large part, e-commerce has thrived because of its ability to deliver greater convenience to consumers at a lower price. However, the rise of e-commerce isn’t the end of story; rather, it’s a stepping-stone into a new world called “digital-first retail.”

Digital-first retail is the growing tendency of consumer journeys to be influenced by digital channels, regardless of where the ultimate transaction takes place. When e-commerce titans like Amazon open brick-and-mortar stores, they’re not merely replicating the model they’ve disrupted; they’re leveraging a new reality, where digital drives awareness and the physical location plays a vital, but secondary role.

Here’s how today’s retailers adapt to the new digital-first paradigm.

Phone Home

At this point, if you need data to tell you that our mobile phones are our primary interfaces with the world, you’ve been living under a rock without a cell signal. But pull out your mobile phone and ask yourself how many different retail discovery opportunities you have on one device.

Sure, shopping apps are obvious choices, as are social and news. Apps for music and podcast delivery are natural channels for digital-first influencing, as anyone who has ever entered a promo code knows. Meanwhile, lifestyle brands are providing utility through health and fitness apps — what you might call a digital-first influencer long game. And right now, ride-share providers are locked in a fierce competition to bring you dinner, which means it’s only a matter of time before they offer to pick up and deliver whatever you want from a local big-box store, too. What this all means is that if your business isn’t built to run on mobile, you need to rebuild, or you can forget about competing in the larger digital-first race.

The Shopping Journey Starts Online

Today, 56 cents of every dollar spent in-store is “influenced by a digital interaction,” according to a recent study from Deloitte. And while consumers’ journeys vary by category, a different Deloitte report from 2015 found that a majority of electronics, home furnishing, automotive, entertainment and baby/toddler-related purchases all began with an initial digital interaction. That same report put apparel at 49 percent and health and wellness purchases at 39 percent, meaning that at this very moment, regardless of category, your potential customers aren’t thinking about your TV spot, magazine ad or direct mail; instead, they’re scrolling and clicking their way toward purchase.

Web-Influenced Physical Stores Are the Future

Sources vary, but according to an eMarketer report, e-commerce in 2016 accounted for only 8 percent of the $22 trillion in total retail sales worldwide. Physical stores aren’t going away, but as a Forrester retail analyst wrote, “the day when almost all products are 100 percent web-influenced is rapidly approaching.”

Rather than thinking in terms of the offline/online contest that has dominated marketing budgets for years, we need to start thinking about web-influenced physical stores. According to Forrester estimates, sales at web-influenced physical stores are five times what we see online. More importantly, the web-influenced physical store space is wide open, with giants like Amazon competing with boutique brands to turn their digital footprints into an appropriate brick-and-mortar presence.

Keep Searching

We tend to think of search as a settled category. However, advances in the quality of voice command technologies, as well as the subsequent rise of voice-activated virtual assistants in our homes and cars, means that we’re rapidly heading toward a future where talking to the device is the norm. At the moment, retailers are focused on optimizing around the queries we type into Google, but that idea will die hard too, because sooner rather than later, shopping will be talking, and the retailer will be the enterprise that has positioned itself to listen.