GDR’s Managing Editor John O’Sullivan restarts the C-Series by exploring how the growth of ecommerce and the proliferation of online logistics systems during the pandemic have changed the role of our physical stores.
Last year we launched the C-Series to explore how the Covid-19 pandemic is fundamentally changing the retail industry and the way we live. Across five articles we illustrated the new and emerging trends, accelerated by the pandemic experience, in how we shop, work, use our homes, holiday and spend our free time.
Six months on from the last article and with the world still grappling with the pandemic, we’ve decided to revisit the C-Series to use our greater understanding of the situation to decipher how it has affected other key areas of the retail and brand landscape. Over the course of the series we will assess how Covid-19 has accelerated change in physical retail stores, travel, and the way we view health & wellness and sustainability.
As ever, if you’re interested in talking to us in more detail about any of the themes discussed in this series, or the challenges you’re facing as a business, get in touch with email@example.com to find out how we can help.
How Covid-19 has changed the role of physical stores.
Part 1: The acceleration of e-commerce logistics
The steady growth of ecommerce sales globally during the last decade coupled with the accelerating effect of the pandemic leaves us in no doubt that the role of the physical store has now changed forever. At GDR Creative Intelligence we are firm believers that there will always be a place for physical stores in the omnichannel retail strategies of the future, but those locations will serve different purposes and come in different formats than the stores of the 20th century. It’s time to leave behind the past and build for the future.
To re-start the C-Series we’re going to begin with a two-part article exploring how the pandemic has changed the role of physical retail stores. In this first part we consider how the growth of ecommerce and the proliferation of online logistics systems have impacted the function of physical stores. In part two we will then highlight the emerging retail formats that double down on the strengths of physical spaces to create unique hybrid experiences that meet the needs of local communities.
On-demand delivery and stores as fulfilment centres
One of the big lifelines for physical retailers during the pandemic, but potentially one of the big disruptors long term, has been the maturation of on-demand delivery. With stores closed and consumers reluctant to make non-essential visits, retailers around the world pivoted to offer super quick at-home delivery. As the UK entered its second national lockdown in October last year, for example, beauty brand Lush offered two-hour delivery via Stuart to those living near its stores. Elsewhere, partnerships with delivery companies like Postmates, Deliveroo and Uber Eats have allowed global retailers to continue to sell to their customers.
This idea of repositioning stores as fulfilment centres pre-dates Covid-19, but the pandemic conditions have driven it forward rapidly. Indeed, Walmart has recently converted its 3,000th US store into a hub for grocery delivery meaning two thirds of its current retail estate is now optimised for online sales. Given the level of investment from retailers and the overwhelmingly positive buy-in from consumers, the on-demand delivery trend is not going to go away. This suggests that we’ve reached the tipping point where a primary function of stores is to be the support act for ecommerce sales, rather than the main event themselves.
The potential and threat of dark stores
Other grocery stores in the US including Whole Foods market, Kroger and Stop and Shop are going further than Walmart by closing some public-facing stores in favour of new dark stores. In some areas they are essentially transitioning from traditional grocery stores designed to delight walk-in customers towards purely functional spaces with the sole aim of offering an efficient logistic hub for local ecommerce deliveries. Echoing the news of Amazon turning former malls into its delivery centres, this paints a fairly grim picture for physical retailers, where formerly sprawling retail units now serve more value as warehouse space for online sales, simply due to their proximity to where people live and work.
In addition to this, a new generation of disruptive businesses are emerging to take advantage of this paradigm change. FastAF offers two-hour delivery on food & drink, beauty, fashion and consumer electronics products in New York and LA, while Cajoo has launched in Paris earlier this month promising grocery delivery in 15 minutes across the French capital. Unlike the delivery companies working with retailers, FastAF and Cajoo both own their own inventory and their dark stores, which are positioned in key logistical locations around the cities. This allows them to meet consumers’ expectations of speed, while making their margin from the products they sell, rather than delivery fees.
In this way, the business model of these two companies is similar to a traditional retail store, albeit with money saved on high footfall, prime real estate rent diverted into last mile fulfilment. Interestingly, Cajoo believes 10 micro-fulfilment locations and a team of electric bike couriers will allow it to serve the whole of Paris. The challenge for existing retailers will be to get the balance of their store estates right; mixing dark stores with store-based fulfilment centres to satisfy the shifting expectations of their customers.
Digital tools that boost footfall and clicks
While it’s easy to view the growth of ecommerce and disruptors like FastAF and Cajoo predominantly as a threat to physical retail, the pandemic has also accelerated the development of many digital tools that help physical stores sell to customers in their local area and beyond.
British property group Grosvenor partnered with omnichannel retail platform NearSt to drive traffic to the stores in its London locations by inviting them to feature their in-store inventory on the online platform. While NearSt allows consumers to find out what items are available to buy in shops near to them, apps like Bezzu in Ireland and MyStreet in the UK create a digital high street of independent retailers, helping the stores to connect with like-minded consumers all over the country. MyStreet even uses AI to suggest matches between retailers and customers based on their profiles, purchase history and inventory.
Flagships as the focal point of global communities
One of the strongest indicators that physical stores still have an important part to play in the omnichannel retail of the future is the sheer number of tech-led ecommerce innovations built around the notion of a physical space. When Dior’s flagship Champs Elysees boutique in Paris was closed during the pandemic it created a virtual shoppable version that ecommerce customers could browse. A similar approach from Ikea China, which used Alibaba’s 3D shopping technologies to allow customers to virtually shop its stores, is credited with improving online conversion rates by nine times.
The gold standard for virtual stores, though, undoubtedly comes from Japanese beauty retailer @Cosme, which created a virtual version of its two-storey Harajuku flagship that merges a Google Streetview-style walkthrough with 360-degree augmented reality. This means users can not only virtually walk around the store, they can tap on items they’d like more information on, or even see cosmetics trialled on a virtual shop assistant’s skin. (You can see the video here).
Beyond virtual versions of real physical spaces, retailers are also starting to build stores intended to serve customers far beyond the local catchment area of their physical spaces. A great example of this is activist beauty brand BeautyCounter’s LIVE@ Abbot Kinney location, which is part physical store, part livestream studio. While it can be physically shopped by local customers, the store is equally pitched at the brand’s international customer base, who can make purchases through shoppable livestream content made on-site. This includes makeup and skin-care tutorials, and advocacy-focused talks about clean beauty.
When viewed through this lens, it’s easier to understand why DTC beauty retailer Avon has chosen to launch its first-ever physical store during a global pandemic. The 19,000 square foot, two storey Avon Studio 1886 isn’t just for the people of LA, but is a virtual clubhouse for Avon’s global representatives and customers.
There is still, we think, great justification for spending money on beautiful physical retail flagships so long as you make the most of the potential they hold by making them the focal point of virtual events and shopping experiences for your global audience.
Stores as e-commerce showrooms
Another key way that physical stores are supporting retailers’ ecommerce strategies is by acting purely as showrooms to drive online sales. Pre-pandemic Chinese e-commerce giant JD.com launched E-Space in Chongqing where customers could test out 50,000 consumer electronics products before buying online through its app. A standout retail innovation just 18 months ago, this same tactic is now being used by global retailers across many categories to satisfy consumers’ needs to physically see and touch products, while handling fulfilment through online channels.
The MAC Innovation Lab concept in New York, for example, reimagines the store as a place to virtually try-on and experience its make-up during the research phase, rather than as the final point of purchase. Everything experienced in-store is saved on the MAC app and is shoppable at any time. Elsewhere, Chinese beauty retailer Bonnie & Clyde doesn’t hold stock at any of its three Shanghai stores, which are built purely for product trial and staff conversations. Instead, purchases are made through the brand’s WeChat store, with delivery in Shanghai guaranteed in four hours due to its advanced logistics system.
Brazilian consumer electronics retailer Fast Shop takes a slightly different approach at its try-before-you-buy showroom store in Sao Paulo. Customers can scan a QR code to add any item to their online basket, while a partnership with Uber offers “Ultra-Fast” two-hour delivery in the greater Sao Paulo area.
Arguably the most interesting Covid-inspired innovation in this space is the launch of Farfetch’s Community Galleries, which were designed to entice customers back into enjoying retail in physical spaces. Held in Swire Property Hotels in China, each event is a pop-up hosted by a fashion influencer featuring a curated selection of their favourite products, which can be bought instantly online. This hints at a future where retail stores won’t necessarily need to be fixed, permanent, full-time spaces, but anywhere that brands and retailers can engage with and delight their community of shoppers.
Don’t miss Part Two
In Part Two of How Covid-19 is changing the role of physical stores (out in two weeks) we’ll explore more emerging physical retail trends and formats that are fit for the future.
If you’re interested in talking to us in more detail about any of the themes discussed in this article, or the challenges you’re facing as a business, we’re here to help. Get in touch with firstname.lastname@example.org