The end of Retail Business as we know it?

Category: Challenge the Box, Digitalization, Modularization, Understand Customer Viewpoint

In Swedish e-commerce, the hottest debate right now is what the impact will be when Amazon establishes in the country.

Since the dawn of e-commerce, experts have predicted the death of physical retail. Nevertheless, physical stores still serve a purpose. We think that digitization of the retail business should be considered as an opportunity for physical stores, rather than a threat.

In Swedish e-commerce, the hottest debate right now is what the impact will be when Amazon establishes in the country. If we look at the U.S., we can see that Amazon has a market share of over 40 percent! If this would become the reality in Sweden, it is easy to realize that corresponding amount of business will probably have a hard time surviving. This is obviously a severe threat which gives many actors the big shiver. Many retail businesses are amidst a transformation journey to cope with this threat. The big question is: What will be the winning strategy and how could businesses get through this unscathed?

Why do consumers shop at the stores they do?

As early as 1931, William J Reilly developed what is known today as ”Reilly’s law of retail gravitation”. This implies that customers accept to travel longer, the higher attraction the retail center present to customers. Thus, attractiveness is positively related to its size and inversely related to its distance from the shopper’s home. With smartphones in everyone’s pocket today, the closest store with the biggest assortment will always be online. What happens to Reilly’s law of retail gravitation? Is it still valid?

Yes! We believe physical stores still have a role to play in the ”end of retail business as we know it”, although it will be a different role than before. Physical stores must satisfy other needs than the ones that are best met online. Just being a store will no longer be enough. The store should serve as the journey towards the purchasing decision of each individual customer. A journey full of unique experiences, high quality service and expertise as well as a meaningful relationship. These are the things that will make the difference in the future and be the decisive factors for a thriving business or an inevitable bankruptcy. One could say that understanding the “Deal Making Properties”which makes a consumer choose to shop at a specific store, are fundamental to understand in order to cope with the upcoming change.

With the physical store being your closest interaction point with your customers, the crucial questions are: How do you want to interact with your customers? What experience do you want to give to your customers in their journey towards their purchasing decision?

At SAM, we have worked for more than 40 years analyzing ‘User Factors’ and its resulting ‘Deal Making Properties’ in several branches. Contact us, if you like to hear more.