Brick & mortar retail is dead… or is it?
A lot has been written about the drastic decline and inevitable demise of traditional brick & mortar retail businesses. Most pundits cite rising operational costs and changing consumer preferences as long-term profitability challenges. On the surface, brick & mortar businesses seem to have all the odds stacked against them, and many market researches over the past decade show that brick-and-mortar retailers are indeed struggling.
However, there is a renewed enthusiasm for brick & mortar among the retailers AICS works with; recent market surveys show that some retailers experienced up to 6% revenue growth in the last 5 years. After accounting for the favorable macroeconomic conditions, the resurgence of brick & mortar businesses can largely be attributed to the retailers’ return on investment in advanced technologies.
Though technologies bring retailers ample benefits, too many technology transformations stall because leaders can’t show how these efforts create value. Executives, citing the benefits of improved customer relations, launch bold initiatives that clearly have increased costs and unclear long-term results. For retailers to successfully integrate AI technologies into their existing operations, there are 3 principles to keep in mind in order to maximize digital investments.
1. Re-evaluate your retail business model
Many retailers are excited by the potential benefits of technologies, although many are also reluctant to change their traditional retail strategy and operations, and unsure of how to incorporate technologies.
“We’re happy to adopt new technologies to improve our businesses, but we don’t want those new technologies to interrupt our business model and business processes.”
Before even thinking about what technologies to adopt, it is important for executives to re-evaluate the strategic objective of their brick & mortar operations. Historically, brick & mortar retail stores have been the only channel for merchants to transact with their customers. Today, consumers have the benefit of purchasing products via many different channels.
In 2016, digital interactions influenced 56 cents of every dollar spent in brick-and-mortar stores, up from 36 cents in 2013. Furthermore, people who shop using different methods—online, mobile, 3rd party vendors, and physical stores — spend more than double those who only shop at brick-and-mortar stores. This means retailers must have an adequate and holistic sales strategy plan; a seamless shopping experience executed across all channels is no longer a nice-to-have, but an imperative. It is a key reason why retailers worldwide are investing heavily in online and digital.
It is therefore important for retailers to evaluate the retail business model to pursue, services to offer, and performance evaluation metrics of services offered, prior to adopting new technologies.
2. Focus on business value over technical capabilities
With the buzz around emerging technologies such as AI, AR, VR, many businesses may feel the need to use the latest and greatest technology, hoping to harness the most cutting- edge capabilities and maximize return on investment (less quick to become obsolete and longer payback period).
While AICS offers clients state-of-the-art capabilities in computer vision, speech recognition, natural language understanding, and big data analytics, our clients are always advised to prioritize business value over technical capabilities.
For example, approximately 80% of U.S. consumers view speed, convenience, knowledgeable help, and friendly service as the most important elements of positive customer experience. Prioritize technologies that provide these benefits are more essential to American businesses rather than adopting new technologies for the sake of being cutting edge.
When it comes to retail, brick & mortar businesses need to identify and prioritize the most pressing business needs (e.g., footfall, conversion rate, sales per employee, sell-through, etc.). Only then should businesses successfully evaluate and decide on how technologies could be deployed to best help deliver values.
3. Look for solutions partners, not technology vendors
Finally, retailers need to recognize technologies are just tools, and tools need to be used effectively in order to maximize the business value delivered.
Many businesses early in their digital transformation journey often have the misconception that technology will solve their challenges immediately. These businesses will often end up choosing technologies that are immediately useful (but have limited upside) and dismiss technologies that have significant business value potential (but will require them to learn and build new skills).
A common pitfall AICS sees is the tendency for brick & mortar retailers to neglect better in-store data collection and analytics, even though industry leaders find analytics to be the core to winning and retaining traffic, both online and in-store. At the same time, not everyone can be an ecosystem player like Alibaba and Amazon. Where you are in the ecosystem determines the type of data collected and analyzed, which in turn determines the type of technologies deployed.
Brick & mortar retailers should view technology not only as a tool to reduce costs and improve processes but also as a tool to reinvent the way customers are served. Hence, is it important to find providers who are not just technology vendors, but solutions partners who will be there to guide you along the journey.