Finding new value in physical stores

Oliver Guy at Software AG argues that retailers shouldn’t be deserting the High Street and describes the value that bricks and mortar stores can bring to a retailer

Empty store fronts are becoming a common sight on our high streets. One in seven now lie vacant across the UK following a third lockdown. Gap is the latest retailer to pull the plug on brick-and-mortar, recently announcing its closure of 81 stores in the UK and Ireland to move solely online.

With consumers expected to spend a record £120 billion this year, having grown more accustomed to online shopping during the pandemic, it’s not surprising retailers are looking to ramp up their e-commerce offerings.

But shutting down stores is not something that should be taken lightly, and to close all of them is jumping the gun. That’s because there’s significant value in brick-and-mortar.

Being able to see and touch products prior to purchase is something the online world can never achieve – not to mention the level of brand exposure a physical location can bring. But physical stores can serve a further purpose, as distribution hubs that can support delivery capabilities and significantly complement an online offering.

Delivering a fluid experience

The success of e-commerce is centered on speed and convenience. Recent research from PwC found that consumers agreed “fast/reliable delivery” was the most important attribute for online shopping. To keep up with customer demand and expectations, it’s clear fast and secure delivery of online orders must take priority.

To get this right, however, is no mean feat. In a study that took stock of the situation, McKinsey looked to Germany, whose e-commerce network is evolving rapidly at a speed similar to the UK’s. It calculated that for a business to provide Amazon-like same-day fulfilment to the 20 largest cities, they would need to establish 11 new distribution centres – all at a huge cost.  

Amazon’s network of major distribution centres might be unparalleled, but brick-and-mortar retailers have a network of stores already at their disposal, close to centres of the population. And taking advantage of these stores as distribution nodes has the potential to be a better alternative to the cost and time delay of buying new warehouses.

McKinsey’s case study reveals that broadening the role of 30 stores could provide similar rapid order fulfillment capabilities to Germany’s top 20 cities – and all at a much lower cost.

Retailers can achieve higher customer satisfaction by delivering a fluid experience – but it also raises the bar of expectations. In the fast-evolving world of e-commerce, where there’s a wide pool of competitors, a reputation for quality service is vital.

Location, location, location

Gartner advocates a similar three-pronged approach, advising retailers that stores need to diversify to a mix of traditional, fulfilment and experiential locations. Quite simply, the future of the store is as a hub that supports the provision of a “harmonised” retail experience – one where every stage of the consumer journey is consistent and completely fluid.

Location plays a major part in achieving this. Stores are positioned in the heart of city centres and local high streets for good reason. Pre-pandemic research found that a new store location increases a retailer’s website traffic by 37% in the following quarter.

But in addition to building brand awareness, this also makes them even more suited to acting as distribution hubs. The closer stores are to their customer base, the faster retailers can ensure customers get what they want, when they want it – making it far easier to achieve a seamless Click and Collect or same day delivery experience for customers.

Bringing it all together

While using stores as distribution hubs is far less costly than establishing entirely new hubs, the technology requirements should not be underestimated. As the store’s purpose expands, the ability to connect across systems, channels, stores, partners and devices is key. It’s essential to prioritise investment in the right technology and processes which can achieve this.

This means adopting technology that can provide retailers with an agile ability to connect and orchestrate across multiple systems quickly. Process mining and management, for example, can help avoid bottlenecks that either slow down service or increase costs (or both). API management in a hybrid cloud or on-premise technology environment can help connect different parts of the business more easily.

In reality, this means seamlessly linking together warehouse, stock, point of sale, e-commerce, billing and customer service channels. The customer sees one experience, but the technology used to deliver it must stay ahead of that expectation.

The best of both worlds

Rapid delivery is the new normal for retailers. But this doesn’t mean an end to bricks-and-mortar. Rather, it’s about re-inventing the purpose of stores – not just for places to try things out in person, but to go hand in hand with an online offering and deliver seamlessly on customer demand across different channels. 

There’s huge potential in expanding these stores into distribution hubs. Quick and easy connectivity of supporting technology can help retailers streamline this transformation, allowing them to get the best out of both the physical and digital world in retail – while creating a more harmonised experience.


Oliver Guy is Senior Director, Industry Solutions at Software AG

Main image courtesy of iStockPhoto.com

© Business Reporter 2021

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