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The apocalypse of physical retail & solutions (part 1)

by Anh H. Nguyen

What do RadioShack, Toys 'R' Us, Forever 21, and Payless have in common? Once upon a time, they were thriving retailers pertaining to different wants and needs of the vast swath of American middle class, valued at hundreds of millions of dollars. Now, all of them have filed for bankruptcy and are slated to close many, most, or all of their stores. This phenomenon is known as the retail apocalypse and is affecting more and more retailers each year. In 2019, US retailers announced a shocking number of 9302 store closings - a 59% jump from 2018. At least 2400 more are confirmed to close in 2020, including consumerist mainstays like Macy's, Sears, Walgreens, and perhaps most shocking of all, Barneys New York.

Toys "R" Us closed all its US stores in June 2018

Every time a long-standing retailer made that dreaded announcement, hordes of bewildered customers acted nostalgic, recounting fond memories of earlier days shopping at those stores, and asked the same question over and over: Why? Like the Four Horsemen of the Apocalypse, there are four massive problems facing retailers. They are as follows:

1. Lack of data-based direction:

Back in the days of mom-and-pop stores, the decision making process of business owners hinged on a mixture of intuition, experience, and point of sale data. Now, how appalling and unfathomable it is that retailers with hundreds of stores and thousands of employees, some of whom are paid astronomical sums, still mostly follow the same procedure. Upper-level executives are often hired based on their expertise (translated: degrees and previous experience) and it directs how they make business choices. The problem is that no one knows or can predict everything in retail: there is no guarantee that just because a store does well in California, a similar one will not fail in New York. Retailers would shake things up sometimes: changing store layouts without knowing which one would bring in more traffic, launching marketing campaigns and hoping for the best, training sales staff and judging them based on insufficient criteria. They know if certain items are in high demand but not why. All in all, it is akin to shooting wildly in the dark and crossing your fingers that something would stick. Not only is this approach a complete waste of resources, it also frustrates customers and leads them towards competitors who understand them better. In this day and age, there is no excuse to follow this aimless business model. As Edwards Deming said, "In God we trust, all others must bring data."

2. A longstanding conflict between sales and marketing:

To outsiders, it seems like if anything, sales and marketing people should be on friendly terms since they both work towards a common goal: to increase revenue. And this is likely the case when the company is still in its infancy stage, since the sales and marketing teams are often the same people and/or work closely together. But as teams grow, they also grow apart. When sales are poor, the marketing department blames the sales force for botching their brilliant rollout plan. The sales force, in turn, claims that the marketing team are out of touch with the customers at large, that they bring the wrong set of customers to stores, and that they rack up too much expense that should go towards the sales budget. The longer this goes on, the more divided they become. If not resolved, this misalignment may end up breeding resentment, poor coordination, and hurting the company.

3. Lack of information about each stage of sales funnel:

Before the digital revolution, all brick-and-mortar stores were on the same playing field. But ever since the inception of online retail, offline retailers have been at a distinctive disadvantage. There are both easy and sophisticated means for online retailers to track every step of the customer journey, from when they start searching for keywords, when they click on their web page, how long they view products for, and how they make purchases. As a result, online retailers could accurately measure the conversion rate from each stage to the next, an essential tool to help them fix problems, determine patterns, and create more opportunities. In stark contrast, traditional retailers only have a hazy picture of their customers save for when they actually buy the products. Their views are therefore myopic and they are unable to analyze customer behaviors with any concrete outcome. No wonder online shopping is often cited as the cause of the retail apocalypse, but not for the reason people may think. Customers did not flock to online shopping overnight; it was retailers' failure to understand their customers and maximize the potential of the customer journey that make them shift.

4. An inability to enhance the customer experience:

The number one reason consumer shopping habits change is convenience. In that regard, online shopping moves forwards at the speed of light, while traditional retailers are still stuck in their old ways. Online retailers develop new formulae to streamline the shopping process, come up with novel techniques for customers to browse, to search, to shop, to pay, and reduce the shipping time to an almost supernaturally short period. Traditional retailers' mistake is that they focus on beating online retailers at convenience, a battle they are bound to lose. Come on, let's be realistic, no amount of engineering could make shopping in stores easier than online shopping, which practically brings the stores to customers' homes. Instead, traditional retailers should try to turn shopping into an enjoyable, special, even exquisite experience for customers. In order to do that, retailers need to provide consumers with the kind of satisfaction that they could not get elsewhere. Highly personalized customer services, for example, could transform shopping as an errand into a pastime.

With all those plaguing maladies, the future for retail looks depressing indeed. Yet like the phoenix, it could still rise from the ashes. It is useful to view retail as an industry in transition, desperate for changes, but not yet hopeless. 90% of overall purchases are still made in physical stores. Most of the top ten retailers in the US, including Walmart, Cotsco, CVS, Target, Home Depot, are brick-and-mortar. And many successful online retailers are looking forward to setting foot in the real world with plans to open physical stores. The answer to staying in the game is AI solutions. For details on how retailers could mobilize AI for a splendid retail renaissance, stay tuned for our next article.

(to be continued)



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