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When Target announced its first quarter 2015 results earlier this year, it was clear how quickly the world had changed.
Wendy Liebmann, WSL Strategic Retail
Chief executive officer Brian Cornell said, “We’re encouraged to see early progress on our strategic priorities, including strong sales growth in apparel, home and beauty, nearly 40% growth in digital sales, and positive traffic in both our stores and digital channels.”
According to the statement, digital channel sales contributed 0.8 of a percentage point to the retailer’s 2.3% comparable-store sales growth for the period.
How times have changed. Many remember three years ago when Target management sent an eviscerating letter to vendors saying it would not tolerate them using Target as a “showroom” for their online sales. Now the company’s once dreaded nemesis contributes to its success, as it does for many retailers.
It’s no surprise that many retailers have been slow to recognize the importance of the Internet and growing shopper demands for omnichannel access. After all, online shopping is still in its infancy (eBay and Amazon were only launched in 1994). But its effect has been much greater than its 20 years. The power of websites (and their accomplice, digital marketing) to influence sales has upset the once natural order of retail.
Until recently, the order that built brands and retailers relied on distinct channels (food, drug, mass, etc.), clear processes for incentivizing shoppers (circulars, coupons) and predictable shopping behaviors (prescription refills every 30 days, weekly grocery trip, fill-in trips, seasonal events). Now, it is all in chaos.
Mouse that roared
In some ways online sales are easy to dismiss. They still represent only 7% of total retail sales. And while they are projected to grow to 10% in the next two years, sales in physical stores will continue to dominate.
But here’s the rub: Sales growth in traditional retail has stalled. Trips are down in many retail chains, with no indication they will improve dramatically anytime soon. All the while, Internet sales’ share is growing, and stealing trips from physical stores — one trip at a time. This raises questions about the future of retail based on a real estate-driven strategy and financial evaluations based on same-store sales.
We have to ask ourselves: What is “the store”? How critical is an omnichannel strategy? How many channels will retailers need to capture share of their shoppers’ wallet to avoid leakage to other retailers, other channels? What will shoppers buy next online? What categories and channels are most at risk? In all, what will the future look like? These are just some of the questions we set out to answer in our latest How America Shops national survey, titled “Take Charge of Your Omni-Channel Destiny.”
Meet your omnichannel shoppers
We have tracked online shoppers since 1997, when only 1% told us they bought online. We saw the first real incursion of the Internet as a legitimate channel in 2008, when 34% said they had purchased something online in a three-month period. By 2012, that number had increased to 59%; the Internet then ranked as the No. 4 channel shopped, after supermarkets, mass merchandisers and drug stores. (Note: This is not spending but what we call “share of shopper.”)
In our 2015 study, 63% of consumers reported they now buy online every month; one in four buy every week. Millennials (ages 21 to 34) and Generation X (ages 35 to 50) are the most frequent online shoppers. One-third buy online every week, 15 percentage points higher than older (baby boomers, age 50 and up) shoppers. This is not surprising when we consider that Millennials grew up in a digital world and are now moms buying for young families. They and Gen X-ers are the busiest, most time-pressed and often most economically burdened shoppers. For them, the Internet means saving both money and time.
Age is not the only influencer. The affluent, who shop more overall (they can afford to), also buy more online. One-third of households with annual incomes over $100,000 buy online at least once a week, 10 points higher than those with lower incomes.
In every How America Shops study we see Hispanics as the most digitally connected shoppers. That holds here too. One-third of Hispanics buy online at least once per week, 10 points ahead of Caucasians and African-American shoppers.
Online advantage: It’s easy
When Target first challenged its vendors not to use its stores as showrooms, the online advantage was focused on low prices. Amazon’s PriceCheck was one of the first apps to enable shoppers to compare prices with the flick of a finger. The implication was, Why pay full retail? More price-check tools emerged, so that today checking prices is easy, a must. Good (mostly low) prices are now a price of entry.
That said, the bigger “Aha” is how quickly low prices have slipped as the primary reason many shop online. Today, convenience matters most: Quick to find, quick off the list, quickest trip and quickest checkout are more important to more shoppers. Two-thirds say the No. 1 reason they shop online is convenience. Only half say low price is No. 1. Which raises the question, Might shoppers in the future be willing to trade a slightly higher price for more convenience? (Maybe they already have — what is Amazon Prime if not that?)
Omnichannel creep
The shopper’s passion to save time is a powerful motivation for more categories to move online. Beyond first-mover categories such as books, computers, electronics and clothes, more shoppers report purchasing a wide variety of categories, including everyday consumer packaged goods categories. More than half (53%) said they bought at least one CPG category online in the last year, and 34% have purchased six or more, including such categories as O-T-C medications and beauty products.
It’s not only category creep; it’s also “omnichannel creep.” Forty-five percent want retailers to let them order online and pick up at the store; 24% say they use subscription services to buy a variety of categories so they can sign up once, then forget it until it arrives at their door; and 14% say using kiosks in-store to purchase products that aren’t readily available.
Role of the physical store
Physical stores do not have one specific, overriding advantage but a composite of several. Which may be good news — or not. Convenience is top of the list here, too, but it means taking the purchase home immediately or returning a product quickly. Second is the experience of being able to see and touch the merchandise. Third is price — using coupons or getting a good deal immediately at the shelf.
But here’s the challenge: As online shopping is now distinguished more by convenience, it challenges the physical store. Is the merchandise in-store organized in a way that’s easy to find? Is it in stock? Can I try it? Can I return it easily? Is there someone to help me? Online shopping does change the competitive environment, and it substantially raises shoppers’ expectations for their in-store experience.
What is the store?
When it began, shopping online was a revolution. (For some it still is.) However, for most shoppers it is now an evolution that is increasingly absorbed into everyday shopping trips, depending on need. Not everyone shops this way — but everyone knows they can; they know that they have choices, and many solutions to suit each and every buying occasion.
Our new research shows that shoppers now have fewer boundaries for what they will or won’t buy online, which means all categories are in play.
Groceries can be purchased from a mobile device while one is commuting to work on a Wi-Fi-enabled train, and lunch hour is spent shopping at the desk for the baby or pet or buying makeup on websites that offer rewards that become habit forming. A relaxing evening revolves around browsing new furniture or reading reviews to choose a remedy for back pain. (At night is when half of shoppers place online orders.) Shoppers now move back and forth between physical stores, their computers and their smartphones, clicking and/or picking up, depending on the time of day, immediate needs or the desire just to explore.
In this new world, retailers must create a better whole store, an omnichannel store. The risk is that if retailers don’t, not only will they continue to lose a trip, they may lose shoppers altogether. This was clear in our study. Of shoppers who went online for the first time to purchase one of 61 categories we studied, four in 10 used the website of the brick-and-mortar retailer they usually bought from. But the rest went to a pure-play online retailer (one-third), such as amazon.com or soap.com, or purchased from the website of another brick-and-mortar retailer (one-fourth).
That means six out of 10 actually left your store. Welcome to your future.
Wendy Liebmann is chief executive officer and chief shopper at WSL Strategic Retail.
