Ecommerce has shaken the foundation of retail, and our recent survey indicates that the shaking is far from over as a generation of tech natives get some extra cash in their pockets. But, while ecommerce is one of the things shaking up retail, it’s not the only thing. A recent NetSuite survey shows that retail executives are generally wrong in their assumptions of what customers want in stores and are too preoccupied with ecommerce and technology. Both are important and need to be part of any retailer’s roadmap, it’s the level of importance and the expectations for outcomes that’s off.
It’s not hard to see why executives would be fixed on ecommerce and technology. Look at the five-year stock price of Amazon vs. Walmart. Over that period, Walmart stock is up a respectable 46.8%, but that’s dwarfed by Amazon’s 467% growth. With 2.2 million employees, Walmart is the largest employer in the US and has a present market cap of $315B. Amazon with its 647,500 employees is the second largest employer and is valued at $931B. Clearly investors think online retail will continue to grow much faster than overall retail sales. And that has the attention of retail decision makers.
Amazon originally passed Walmart in value back in the dotcom boom. After the ensuing bubble burst, it wasn’t until 2007 that Amazon moved ahead and stayed ahead of Walmart in value. Two things happened in 2007 and both had a profound effect on retail and brick and mortar stores. First was the Great Recession, which both companies weathered well, but real estate-heavy Walmart was affected more than Amazon. Nonetheless, price conscious shoppers kept Walmart stock value up even as the rest of the market and most retailers tanked.
Also in 2007, Apple released the iPhone and just two years earlier, Amazon launched Prime. The personalization of the mobile phone along with the increasingly broad inventory from Amazon and other e-retailers began the shift to shopping online. Worldwide ecommerce sales will amount to more than $3T this year, with Amazon grabbing a bit more than 10% of that. In the US, it captures closer to half of ecommerce sales. That’s still just a fraction of the $27T in retail sales worldwide, but Walmart doesn’t dominate overall retail the way Amazon does ecommerce. Its $500B in sales put it well ahead of other retailers, but there are plenty of niche areas where retailers flourish without concern for Walmart. It’s less so for Amazon’s ecommerce competitors, most of whom need to match at least some of Amazon’s services to remain viable.
It’s reasonable to look at this data and conclude that brick and mortar stores without a strong ecommerce play and good use of in-store technology are doomed, and that may be true. But there’s more challenging retail success than missing the ecommerce boat. Recall the sad saga of Sears, a company that had it all, thought it knew what it was doing and was epically wrong. In 1973 Sears had a total revenue of $62B. That’s $335B in today’s money. Correct for the growth in the US population and you’ll find that Sears would be pulling in $534B today. It was the Walmart of its day; you didn’t build a mall in the 70’s unless Sears agreed to take an anchor slot. But its missteps were just starting, because it failed to understand customer trends and the threat posed by up and coming competitors.
Sears continued to increase revenue until 1990 when its total revenue was $111B—not great when you consider the double digit inflation of the 1970s. Adjusting for inflation and population, that translates to $280B today. Aside from acquisitions, Sears never saw positive annual growth in revenue again. Today it’s exiting bankruptcy, trying to turn its ubiquitous footprint into financial success on a more limited basis.
Was the view from Sears Tower so bad that management couldn’t foresee the demise of the catalog, or that its products were out of step with trends, or that the mall was losing appeal, or that other brands had superior marketing and a better sense of what customers wanted? It must have been, because Sears missed it all. All this despite the confidence that leadership was fixing previous missteps at every turn.
Of course Sears wasn’t alone. General Motors and a raft of others failed just as epically and their stories share some common threads, mostly that management failed to properly understand the data in front of them and to recognize competitors were gaining quickly. History tells us that the behemoths of the ‘60s and ‘70s were relying far too much on past trends and gut instincts. It’s a pattern that repeats, and so today we have Macy’s, Gap, Kay Jewelers, Dollar Tree and others closing stores, and brands like Shopko and Payless ShoeSource filing for bankruptcy, most of them citing the Amazon effect. But is that really the primary culprit? It’s hard to believe that ecommerce is the only factor here. While huge and game changing, it still only accounts for 11% of retail sales worldwide.
The stubborn facts today are that some retailers are saddled with a brand premise or store locations that no longer resonate with younger customers entering the market. To fix their woes, many retail execs are looking to embrace technology both online and in stores with the intention of adding a modern feel to the shopping experience, but is that really what will bring people through the doors?
At least according to our generational retail survey, the issue is more nuanced. The survey’s surprise finding is that Gen Z and Millennial shoppers say they’re more excited about having an in-store experience than their elders. It seems counterintuitive. These tech natives are so comfortable with technology that it’s been commonly assumed that they’ll prefer shopping online, leaving their older counterparts to roam the aisles of physical stores. But it appears that their desire for new experiences and to exercise their increasing spending power trumps their love of tech.
The survey asks four generations about their retail shopping desires and habits and then asks retail executives similar questions on their plans for stores. As indicated above, one of the more surprising findings is that younger shoppers are more likely to say they’ll increase their in-store shopping. Gen X and Boomers said they’d increase their in-store shopping by 29% and 13% respectively. Meanwhile, 43% of Gen Z and Millennials said they’d shop more in stores. It’s fair to conclude that tech savviness isn’t the primary driver here. A more likely driver is a shopper’s changing earning potential and whether they’re likely to have the material things they want in life. That doesn’t mean tech savviness isn’t important, just not as important as other factors.
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From the survey data, it appears that retail executives have latched onto the fact that upcoming generations are comfortable with technology. Executives are likely to see new technology in stores being a significant motivating factor in younger people shopping there, and that’s where the disconnect begins.
The truly jaw dropping finding of the survey is just how out of touch retail executives are with the desires of their customers. Some 98% of retail execs say that Artificial Intelligence (as in chatbots and the like) and/or Virtual Reality (VR) will increase foot traffic by an average of 12%. And 79% say implementing advanced technology will slightly or significantly increase sales. Consumers are decidedly cooler to these technologies, putting them way down the list of what they desire from stores. Customers want stores to be consistent with online (36%), to offer simpler store layouts (35%), to get staff service with their mobile device (29%) and to provide self-checkout kiosks (23%).
Execs are also likely to overemphasize the importance of social media. Here, 98% of executives think social is important to building a relationship with customers. But only 12% of customers say social has a major impact on their view of brands; 33% don’t use social that way, and 55% say it has a slight or no impact at all on their brand relationship.
While the disconnect seems especially profound here, customers may think of social differently than brand owners. Social influencers are taking on a more pervasive role in driving buying through their presence on sites like YouTube and Instagram. For previous generations, it mattered which golf ball Tiger Woods hit or racquet Martina Navratilova used. With YouTube and Instagram, that now extends to expert hobbyists or pros in more obscure sports. The driver here is for brands and products, and not so much retailers who aggregate and deliver products, but social influencers are becoming a powerful tool in advertising that customers may not think of as a social media interaction.
In some instances, like with AI and VR, it could be that executives have a better view of the potential uses that these technologies will be put to. As Steve Jobs famously said, it’s not the consumer’s job to know what they want next. So it's possible that execs have cooler things in mind than most consumers think of. But overall, our survey indicates that retail executives are far more bullish about technology than are consumers.
Retail executives are also out of touch with the sorts of products that consumers prefer to buy in-store. Execs tend to think that big ticket items bring shoppers into stores with cars, recreational equipment, electronics and home furniture accounting for four of the top five items they think consumers prefer to buy in-store. But consumers concerns aren’t driven as much by ticket price as they are by personal preference and a tactile experience. Their top five in-store preferences are for groceries, shoes, clothes, cars and furniture. All areas where fit and quality are hard to assess online. Electronics and recreational equipment are second and third tier items respectively. These preferences hold steady across the generations. The data here also reveals that executives are more pessimistic about in-store shopping than are customers.
Even though our survey looks mostly at technology use and desire, it’s evident that consumers want a simplified shopping experience, a responsive staff and a quick way to check out. In other words, to find what they want, get help on their terms and get out of the store quickly and easily. When there’s a concern for the fit or tactile quality of the good they want, they’re still willing to venture out to a store. These seem like common sense considerations, but executives either think they have the bases covered on ease of shopping, or they’re ignoring that desire and looking to cool technology as a way to shine.
The message for executives is clear: you don’t know your customer as well as you think you do. That’s leading you to place false hope in technology efforts when you’ve still got work to do in making your store experience simple and easily accessible. Consumers would much rather that executives focus new technology on streamlining their buying journey, something that Amazon and Walmart figured out long ago, and continue to strive to improve. Bottom line: ask your customers, they’ll tell you.