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12 mar 2019

How to differ­entiate the local store from the global e-commerce band­wagon

Thoughts

E-commerce is growing, but retailers invested in physical stores still have some options for staying competitive.

In the early days of e-commerce, it was enough to provide curious surfers with a buying experience on the net. Services in these early days weren’t the best and technology didn’t offer any fancy customer journeys. Payments and information security where in its infancy. However, over the years e-commerce evolved to attract entrepreneurs capable of shifting retail into a new era. E-commerce became the global platform for price transparency and volumes started to grow from a low market and non-threatening market share. Now e-commerce is taking most of the growth rate in the marketplace, but it was only quite recently that retailers started to take this shift seriously.

Passed the point of no return

It’s clear now that the retail industry has passed the point of no return. E-commerce is here to stay and has been so for quite some time in many industries. For remarkably many it is a late wake-up call for survival. The fittest; in most cases being the ones that were founded on e-commerce ground, will hammer on and retain their leading position for the foreseeable future. Traditional retailers with a physical footprint of stores meet a shrinking number of visitors.

“All retailers need to motivate their price-offering based on services provided to the consumer.

E-commerce has its weak spots

This strong differentiation for e-commerce does, however, have some weak spots that might be an opportunity for physical stores. The strength of cutting retail prices is fading as the digital markets mature and a shift from price as the major differentiation will expose e-commerce to the one factor it struggles to compete with; human contact and trust created from good service and advise. Even though AI-technologies will improve customer service it will take a while before, if ever, it can outperform contacts between humans.

Ok, then what? Can the traditional retailer win with a network spin on these potential differentiators? What should they prioritize in their strategic plans? It should be no news for anybody in retail, but this transformation needs substantial capital. Capital that for many retailers is limited due to the years of price wars.

While pricing today is transparent across the globe all retailers need to motivate their price-offering based on services provided to the consumer. Producers need to choose between channels with high service level and knowledge or high volume.

Utilize your local market opportunities

In utilizing the window of opportunities to differentiate their physical stores and local sales, retailers should consider the following for their strategic plans:

Regrouping into fewer and smaller stores with more specialization assortments and knowledgeable personnel.
Combined product sales and life-style services.
Those with investments in efficient e-commerce should speed its growth rate and run it as a logistical service to their customers.
Small and medium sized retailers consider joining Amazon or a-likes for their e-commerce.
Utilize the dynamics in last mile distribution.
Support and develop local circular economy.
Physical stores should learn from e-tailers and implement digital capabilities in the physical store, e.g. personalization based on customer insight.

 

The market opportunity for local retailers with physical stores will not be the same across all segments. It might be more valid for segments appealing to certain life-styles. Also, local retailers with stores need to consider alternative business models bundling product and life-style services and offering them on a monthly fee.

All-in-all, e-commerce is here to stay, and traditional retailers need to cope with it. Local stores or life-style meeting points and service providers could retain their position and compete if they differentiate according their strengths.

The only question is, who will change soon enough to stay competitive?