Who would have thought it? With e-commerce coming into the fray to create considerable disruption in the global retail scene, no one would have pegged that these behemoths were going to make their move back into the brick-and-mortar retail scene – the very one they disrupted. We take a look at both Amazon and Alibaba, considering their efforts as well as reasons behind setting up physical stores to further their hold on the industry.
Where Offline Still Works Better
One of the main advantages that the offline world offers customers is a unique user experience that simply cannot be replicated online. The shopping experience often goes beyond the convenience associated with purchasing from the comfort of one’s home. Retailers want shoppers to leave a store with not just a product, but also a belonging – a sense of identity with the brand.
There are several products that entail a touch and feel shopping approach, one example being the clothing sector where many customers still don’t trust disparate sizing and materials used from pictures. Many stores also have advisors who you can consult with as and when necessary.
The offline world works particularly well for big-ticket items. Visiting a physical store – aside from providing instant gratification – adds perceived value to the product in question and heightens association with the brand, unless a considerable price differential makes up for this.
With the integration of tech – think virtual reality and artificial intelligence – into the shopping experience, the offline store is going to become more and more of a necessity (or a good-to-have) in time to come. We are already seeing the use of QR codes and beacon technology to boost engagement, which allows shoppers to scan QR codes or download exclusive mobile deals to their phones through beacon technology installed at digital mall directories.
Amazon’s Foray Into the Offline World
Amazon’s brick-and-mortar bookstore opened in Seattle’s University Village in Nov 2015
Since its inception as an online bookstore in 1994, Amazon has become the go-to platform for many online shoppers looking to get competitive prices on a plethora of products across varying sectors. With their strong foothold in e-commerce, the company announced a new addition to their move into the offline sphere – acquiring Whole Foods Market for USD 13.4 Billion – and raising many eyebrows in the process.
Although this wasn’t the company’s first entry into the physical retail world (they have opened 6 physical bookstores – with 6 more are on the way as well as a prototype grocery shop in the form of Amazon Go), it signals a serious future focus on the offline retail sphere.
Apart from the fact that approximately 80% of all retail purchases in the U.S. remain offline, a major reason for the company’s exploration of the offline sphere stems from the fact that the grocery industry, although being a notoriously low-margin business, tends to attract purchases more frequently than any other category.
The company will presumably depend on this fact to draw members to its Prime membership service, which could in future include groceries, and to cross-sell other items to these shoppers. For the company, the model is all about leveraging their existing ecosystem efficiently.
The Chinese e-commerce giant has also begun to realise during the last few years that the time is right for a physical presence that caters to a large pool of offline shoppers.
One example of this is seen in the company’s Hema stores, where customers are able to shop, dine, and order groceries from (for delivery from their mobile phones) all while using Alipay to make payments. Analysts believe that a strategy of integrating grocery stores, food-service businesses, and restaurants with new technologies and e-commerce to form the O2O movement will lead the market in going after China’s large number of consumers who still shop offline.
It is particularly this integration of tech with the traditional offline model that Alibaba seems to be after – and for good reason. The company recently launched its experimental unmanned convenience store, Tao Café (not unlike Amazon’s GO grocery stores) which are equipped with biometric technology and enables customers to choose their products, pay, and leave without any human contact necessary.
It is clear that brick-and-mortar businesses are still going to struggle to compete with the e-commerce world, which is able to reach a much larger target market. In the end, it will be the online retailers that manage to leverage omni-channels to increase their presence, resulting in a greater opportunity for growth.