At the start of online shopping’s meteoric rise, the outlook for retailers was poor – with forecasts that digital would displace bricks and mortar. Although traditional retailers were slow adopters of online technology, many are now augmenting their physical presence with digital strategies.

Market-leading retailers are neither exclusively online or offline, responding to customers’ preference for a shopping experience that optimises digital and physical channels.

After the dramatic expansion of e-commerce, the rate of growth in online shopping has decelerated. In the year to June 2011, NAB’s Online Retail Shopping Index showed online shopping was increasing at an annual rate of 35.9 per cent. But for the year to June 2016, it increased only 13.5 per cent, down from 15.7 per cent the previous year. While online sales are growing at a greater rate than traditional retail, they still account for less than 7 per cent of the total market.

Perhaps reflecting these figures, the success of Australian ASX-listed pure play online retailers has been mixed over the last 12 months.

Online furniture and homewares retailer Temple & Webster has seen its share price slide since its recent market debut and last month reported a $44.4 million loss. Similarly, the share price of online surf clothing and fashion retailer SurfStich has steadily declined this year and then plummeted after reporting a loss of $154.7 million last month. The futures of both companies are unclear.

Underscoring the virtues of a real store over a virtual one, many pure play online retailers have recently opted for a physical shop front providing customers with the “touch and feel” element of offline shopping. ASX-listed online electronics retailer opened a pop-up shop in Melbourne late last year. Online shopping behemoth announced a physical extension of its business and opened its first offline bookstore, Amazon Books, in Seattle last November.

Clicks and mortar

Consumers are primarily driving the rapid transition from a bricks-and-mortar to a clicks-and-mortar retail model as digital technology radically changes the way they interact with brands and make their purchasing decisions. Further, the distinction between online and physical retail is arbitrary. Many traditional retailers are extending their physical presence with online sales platforms, including third party marketplaces and digital marketing initiatives.

Today’s customers are highly informed, seeking out product information before they buy, both in-person and online (at home and in store via mobile). Facilitated by web and social media channels, their product research includes third-party data such as user-reviews, cost comparison websites and recommendations from family and friends. According to research carried out by Deloitte, 40 per cent of retail sales are “influenced” by digital technology. Consumers increasingly want their shopping experience to be flexible and seamless across digital and physical channels for example, having the option to buy online but return in-store.

Adapting to the new retail environment, traditional retailers are investing in customer-centric innovations including:

  • Click and collect: melding the ease of online purchasing with the gratification of instant ownership, numerous retailers allow customers to buy online and then collect in-store. Last month, the world’s largest retailer, Wal–Mart, reported an 11.8 per cent jump in its online sales attributing (in part) the growth to the “click and collect” grocery service it has expanded recently.
  • Payments innovations: bricks-and-mortar retailers are leveraging advances in payments technologies to make transacting easierconvenient for customers. Innovations include contactless point of sale payments and “buy now, pay later” payment as facilitated by ASX-listed company AfterPay. Used by online and offline retailers, the AfterPay digital platform gives customers the ability to buy in store, take their purchases home immediately and pay later without fees or interest.
  • Leveraging a physical presence: the latest PWC Total Retail survey finds customers continue to want to interact physically with products and have a preference for “a physical store as an element of both researching and purchasing”. The physical shop offers retailers the opportunity to engage and educate customers in a way that cannot be replicated online. Traditional retailers are leveraging this key differentiator and evolving physical stores from being simply a place to conduct a transaction to one where customers can experience products with the aid of informed staff that have a deep and personalised understanding of their needs and preferences. PWC’s report noted that Apple’s commitment to customer service in-store and investment in its staff has raised the bar for all retailers.
  • Traditional retailers are also using their face-to-face relationship with customers by providing post-purchase product support in store. After-purchase support extends the customer relationship beyond the transaction to maintain and develop brand engagement and loyalty.

Investing in retailers of the future

The retail environment is rapidly transforming and digital technology is a key part of it. The future of retailing will see online and offline channels continue to merge, creating a seamless experience for customers.

Investors need to consider a company’s ability to adjust to the new status quo and synchronise an offline and online business. This includes investing significantly in digital infrastructure and taking a customer-centric approach at each phase of engagement (including research, transaction and post-purchase).

Listed luxury retailer Oroton Group has been ahead of the curve for a number of years and has successfully transitioned its business to capitalise on customers’ behaviours and preferences. Oroton has invested heavily in its digital assets, such as its website and social media platforms, to extend its physical presence and position itself as a successful multi-channel retailer. Online sales represent more than 10 per cent of total sales, while the company has maintained growth in physical stores.

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