Transformation is the Name of the Game | The Electronic Retailing Association

Jan 24, 2020Int. Appearances

It is hard to overestimate the impact of the internet on retail. When being online was new, the retail business model did not have to adapt, not much. Buyers, retailers, consumers, same old story. In many ways, the webstore was simply a digital storefront, with a department store behind it. Not so today. The here (analogue, offline) and there (digital, online) is merging to become one onlife experience. This is a phenomenon called ‘onlification’. Society as a whole and retail in particular have undergone an immense transformation. The new normal, being onlife. Every aspect of life has changed, from online banking, or using social media, sending emails on a smartphone, booking a ride-share app, checking Google Maps for an address, and so on. Consumers are online all the time, wherever they go, on various devices.

In my book ‘The End of Online Shopping’, I describe several trends that are transforming the retail business. To name just three:

Trends

1. Online and offline become one: stores and services providers will become connected stores, serving as places of inspiration, experience and service. Consumers can use apps and smart store concepts, allowing them to have a fully onlife retail experience, whenever and wherever.

2. Diversification in retail: Retailers now offer services, too, and service providers no longer shy away from selling actual goods. Amazon, Alibaba and Souq are examples of companies that sell an almost infinite array of goods. Diversification makes room for new market entrants to grab opportunities in niches and catch established businesses off guard.

3. Channels flowing together: the distinction between B2C (business to consumer) and B2B (business to business) is likely to disappear, with everyone selling to everyone else. Consumers can sell to consumers and retailers broaden their focus to includes businesses.

New business models and new customer experiences are on the horizon. More disruptions for businesses and more opportunities for the tech-savvy onlife consumer. On a larger scale, we can look at changes to how the economy works.

Dilemmas in the platform economy

There are four new economic paradigms: the smart economy, the sharing economy, the circular economy and the platform economy. I want to focus on the “glocal” platform economy, where the pendulum swings back and forth between global – the world at large – and local – individual neighbourhoods. This paradigm presents governments and retailers with momentous questions and unprecedented challenges, and last but not least forces them to look beyond their own frames of reference.

Over the past decades, developments in technology have been a huge boost to globalization, resulting in global free trade of goods, services, capital and labour. Similar to previous surges in industrialization, this has opened up new markets, led to an immense increase in productivity and provided billions of people with opportunities to improve their lives. According to the Legatum Prosperity Index — an independent index measuring wealth, economic growth, education, health, personal wellbeing and quality of life — the world has never been in better shape than it is today. By 2020, almost 5 billion people are predicted to be connected through the Internet: truly a global village.

Looking at the next few years , if nothing changes, the tech giants will expand their positions in the global market and create unforeseen monopolies of power. These firm favourites of onlife consumers are already posing tough challenges for retailers and constant worries for national governments. I am talking about global marketplaces and platforms, such as Amazon, Alibaba and eBay, but their regional counterparts and partners, too. These companies took full advantage of the Internet and digitization. Their incredible savvy at shaping the new reality to fit their own specifications is nearly astounding. For smaller retailers, this presents a dilemma: you can’t live without them, but do you really want to live with them?

Plenty of consumers, retailers and critics are exasperated by the monopsony-type behavior of the shopping ecosystems or platforms. On the other hand, there are people like Venezuelan economist Moises Naím. He thinks it’s simply a matter of time before new businesses and startups manage to reduce the power of the big companies. It has never been easier to reach a billion consumers, at no great investment to your business.

This might be unlikely in a market where the big guns tend to define the future of startups. Can newcomers match the innovative ability, size and scale, not to mention the budgets, of those platforms? If the tech giants fail to keep the startups at bay, they can simply buy them — something that has happened often enough in the past few years.

I think the true threat for the open market and free trade is the role of monopsony the platforms have within the retail value chain. The very essence of monopsonies is that they force others into a position of dependence: if retailers want to be found, or want to do business on a global scale, they have no way of avoiding these platforms. It’s a position that few governments, retailers and consumers are aware of — let alone taking action against — though it should be grabbing everyone’s attention.

Customer journey redux

The onlife consumer has high hopes for the retailers they purchase from. Retailers need to step up their game, if they are to meet the expectations of their customers. They can no longer get away with the website being a digital store window, they need to tap into all the options tech has to offer them. How about an app the consumer can use for personalised offers, how about using VR/AR to allow customers to try on outfits at home using their smartphone camera, how about instore beacons that track customer behaviour? Big data, artificial intelligence and other technological advances are turning retail upside down. The question is not if the consumer is ready for it, the question is: can the retailer make it happen?

Thanks to ecommerce and retail platforms like Amazon, who basically invented sales promotions like “Black Friday”, the world has changed. Such promotions were always part of the customer journey. Now, the technology allows retailers to use the data to see what customers do as they go through the orientation phase before selecting a purchase.

Consumers the world over are becoming ever more digitally savvy, with the majority of their purchasing journey spent online, regardless of where they buy. Regional differences include people focusing on ideas online, yet purchasing offline (e.g. Middle East/North Africa), or the opposite: browsing in brick stores and then buying online (UK, for example). Watching brand videos is already popular in some parts of the world (later adopters of online shopping lead the way here), and is set to become more so in future years. In other words: video is huge, video is a must. Retailers who are unaware of this kind of consumer behaviour are missing out on key opportunities.

Similarly, the type of device a consumer uses matters greatly. Mobile first means that smartphones are the preferred method for online search and shopping. Retailers need to be sure their webstore interface is responsive and meets the standards of savvy digital consumers. Retailers all over can take the advice of Jack Ma, of the Chinese Alibaba, when they are considering what onlife means for them. It is the ultimate strategy of Alibaba to transform retail based on an integration of online, offline, logistics and data. “We want to create a new economy where the online world is integrated with the physical world,” Ma explains. “We’re building an economic entity — a virtual economy on the Internet.” Now that’s an idea any retailer should want to get behind.

This article was published in the ERA Global Newsletter of January 2020:

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Het nieuwe jaar is nog maar net begonnen. We bruisen van goede voornemens en willen graag geïnspireerd worden! In dit paper deel ik 4 trends die de komende jaren een fundamentele rol spelen binnen e-commerce! Deze paper is gemaakt samen met @Pondres: https://t.co/nCYsTUZgTV
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