Rethinking retail in a digital era

Australia provides an interesting case study in the forces driving this evolution because in few places are shop owners being hit as hard by online commerce. A recent study by the Commonwealth Bank of Australia estimated that Australians aged below 21 are spending US$4.3 billion a year online with overseas retailers.

A strong Australian dollar and high-priced local retail options have seen shoppers choosing to save money by buying from overseas merchants, particularly those that have removed the sting of paying for post.

UK-based online fashion giant Asos, which offers worldwide free shipping, has seen such high demand from Australia that it launched an Australian version of its site in September and is even designing and releasing collections exclusive to Australia, which is its largest international market.

Power Retail reported in September that Asos has seen international operations grow from US$48 million two years ago to US$487 million today.

Online retail doesn’t stop at fashion. Amazon-owned Book Depository also offers global free shipping on books. And Hong Kong-based makeup and skincare site Strawberrynet.com has a devout global following thanks to free worldwide shipping and enticing loyalty discounts.

Australian shop owners are having a hard time competing, partly because of the high-cost of retail space and partly because stores there close at 5 pm, while online shopping is convenient and 24/7, pointed out Alex Wong, digital specialist at Maxus Australia.

Local shops are also facing competition from Australian online retailers such as dealsdirect.com.au and oo.com.au, which are already using personalised product recommendations to boost sales, he added. “The cost to acquire a customer [online] is much more efficient than any other medium.”

So should brands therefore abandon bricks-and-mortar stores altogether in favour of online retail?

Certainly not, according to Jye Smith, vice-president of digital, Asia-Pacific, at Weber Shandwick. “But the role of retail stores is changing, and this depends on both the product and purchase considerations,” he said.

A major factor in favour of retail stores is convenience. No matter how low the cost of shipping, the consumer will still have to wait for delivery. “Just look at somewhere like Hong Kong, where ordering your shopping online would be less convenient than ducking into one of the stores that are on each corner,” Smith pointed out.

For high-value purchases, stores are important but take on a new role. “It's about having an experience and perhaps weighing options later, even if the final decision is made online through an ecommerce platform," Smith said.

Apple Store in Hong Kong

Apple is of course the poster boy for this model. Although it conducts the bulk of its sales in Hong Kong via its online retail store, it still opted for Hong Kong as the location for its most expensive store in the world. Staffed with 300 employees and occupying 15,000 square feet in the world’s densest city, the store is nearly always packed.

Its unique retail space is low on product display, high on customer service. Staffed by “Apple Geniuses” the store is a space where consumers can play, try and have their problems seen to. And even if they opt to buy online later, Apple still ultimately benefits.

While an ecommerce site complements the consumer’s brand experience, an in-store experience has the potential to immerse the consumer in the brand, commented John Jong, managing director and chief creative officer of architecture cum ad agency, Thinkscape Group. “Retail is the best place for a brand to manifest itself, it gives form to a brand and shapes how customers experience it,” he said.

Nespresso, Nescafe’s line of espresso machines and capsules, has also opted for the online retail + offline showroom model. Its 270 “coffee boutiques”, staffed by more than 4,700 coffee specialists worldwide, aim to create a place to experience and interact without sales pressure. This model helped the brand boost sales by 25 per cent in 2010. Meanwhile its online store provides customers with 24-hour service and is visited by more than 180,000 unique customers a day.

As with Apple, the staff are key. “The people who staff these stores will also play an important role: think about buying a digital SLR, or better yet, a new running shoe," Smith said. "You want the best advice in addition to the online reviews, because your foot is your foot.”

This experience-oriented store design extends beyond retail. Citibank went so far as to engage Apple’s architectural and store design firm, eight, to create flagship branches that don’t resemble banks. Its Smart Banking branches have been rolled out in Hong Kong, Japan, China, Vietnam, Taiwan and New York.

Again the goal is customer-centric. The Hong Kong branch is staffed by 100 employees and equipped with seven 52-inch touchscreen informational displays that are designed to help customers answer questions.

At the New York branch launch event, reported by The New York Times, Brad Dinsmore, Citigroup’s head of retail banking in North America said, “We want this branch to be a place where customers view it as a hub... a place where they feel warm and welcome, that they can come in and experience our free Wi-Fi access.”

If done right, ecommerce and retail stores should have mutually beneficial relationships, but only if the customer expectations of the brand and the store experience agree with each other, commented Jong.

“Modern consumers aren’t just looking for a ‘purchase’, as in a soulless transaction of ‘product for your money’," he said. "They are looking to enrich their lives.”