A recent study performed by UPS suggests that more than 50% of all purchases are made online – a promising trend for the retail industry with sales growth expectations of 3.4% in 2016 over the last year, according to the National Retail Foundation (NRF) projections. Online and other non-store sales are expected to increase 7–10% in 2016.
As Philip Krim, Chief Executive of Casper, a startup selling mattresses online, fairly noted, “We think it's a unique moment in history where you can create brands that can be scaled quickly thanks to technology, but you can still maintain a one-to-one connection that delivers an elevated level of customer experience.”
Indeed, the traditional approach in retail has been replaced by bold, creative business and marketing strategies. Success stories such as Dollar Shave Club (which got acquired for $1 billion), Oscar with its creative approach to ads, and others, are in support of interesting changes happening with traditional business models focused on physical presence.
Heavyweight retailers can't compete with online sharks
Online retail has been widely successful and is shifting the balance towards online-only businesses due to a variety of reasons. One of them is the ability to add a highly personalized experience to browsing through assortment, pricing, shipping, returns and promotional offerings.
In addition, as Nasdaq suggests, physical stores outweigh with high setup and maintenance costs including the necessity for specialized skill to decide a store layout, fix places for products and promotions, make a quick test of ideas and arrive at the best decision to implement it across multiple stores.
Meanwhile, online retail is significantly lighter in terms of maintenance – data always points out meaningful insights to where the problems are and what exactly consumers do on the website. Needless to say, the costs of troubleshooting and customer experience improvement are incomparably lower as IT professionals nowadays can solve problems and pivot algorithms in no time.
High overhead costs of maintaining a store, wild market competition along with other reasons often force retailers out of the market, which lead to the thought that survival in retail in 2016 means a heavy-duty focus on online experience. And while a part of retailers is being pushed out of business completely (RadioShack, Wet Seal, Sports Authority and American Apparel), others are refocusing their efforts to remain relevant and possibly keep their last pair of shoes, which e-commerce giants like Amazon and Alibaba keep trying to steal.
Special role of mobile technology
As UPS suggests, 4 out of 10 mobile users have used their smartphones for online purchases. As mobile is becoming one of the primary channels of online shopping, businesses start to recognize the importance of shifting focus and optimizing business models to leverage the trend.
Nearly half (47%) of over 160 payments and financial innovation professionals recently surveyed by CAN Capital agreed that mobile payments are changing retail consumer spending with an increase in e-commerce coming next (35%) and then personalized marketing and advertisements (18%). In fact, global mobile payment transaction volume in 2015 was 450 billion US dollars and is expected to reach $620 billion in 2016 and surpass 1 trillion US dollars in 2019.