Ahead of the Seamless Asia conference, I spoke with Jaime Syjuco, MD of Havaianas Singapore and Malaysia, about how retailers can experiment with technology to create the right Store Experience. (Syjuco is a speaker at the Seamless Asia conference, happening 19-20 April in Singapore.)
I’ve been hearing a lot of offline retailers talking about creating the right Store Experience. Why is store experience such a big buzzword lately?
You’re right, creating the right Store Experience now seems to be the biggest retailer obsession. It wasn’t long ago that the buzzwords were eCommerce, then Omnichannel. Now its Store Experience. I think it’s because Store Experience is the offline retailer’s last refuge. eCommerce didn’t save brick-and-mortar retailers. Omnichannel is a must-have, everyone needs to have it, but it is no longer a competitive advantage. Store Experience remains the last attempt to maintain customers in offline stores.
Before offline retail was disrupted by eCommerce it was relatively straightforward because we had so much control over channels. We more or less dictated how consumers heard our brand stories, who spoke about us, where they could buy our products, and how much they had to pay. Then digital came in, and now consumers prefer finding peer-to-peer information; our products are available in channels we don’t own, at prices we don’t set. So, it’s no wonder that industry traffic is down, customers don’t listen to retailer marketing, brands get utilized in ways we don’t want, and are exchanged between buyer and seller at prices they decide without us.
In the old days, with so much control of our channels, retailers focused our Retail Tech investments towards optimizing an ingrained and working value chain to enable profitable store operations. POS, ERP, Merch, WMS and CRM systems were big investments for retailers; but, looking back now, gains from those systems were never game changers. Retailers typically benchmark 10% net profit margins, and no matter what technology was bolted on, those margins stayed the same, because everyone was doing the same thing. So what legacy Retail Tech ended up achieving was making operations and marketing more efficient and scaleable so that we could expand the number of stores. That was the real business case: more efficiency and scalability = more store expansion.
Nowadays, the investment math may no longer support expansion, so retailers need to utilize Retail Tech to create our own unique store experiences, to hold on to what we have. A majority of customers still visit our stores, but because retailers now control less of the channels to our consumers, the in-store experience is where we retailers may make our last stand.
Then how do you create the right Store Experience?
The main thing to remember is that good store experience is not about gimmicks nor just store design. It’s not about just giving out free ice cream in the store, or offering mobile games, or magic mirrors or having yet another ‘wow’ flagship store. Because there is now such a vibrant investment environment into retail technology and use of data, there are so many good solutions out there. But using them improperly and haphazardly to just create gimmicks in stores will not sustain customer visits nor conversion.
What we need to do is focus on removing customers’ barriers to purchase. Don’t forget that offline retailers have no lack of store visitors. More visitors will not solve retailer’s problems. What retailers devastatingly lack is the ability to convert visitors already in stores into customers. And this is why store experience is so important.
For example, for every 1,000 customers that enter a typical retail store every day, on average about 10% will convert and purchase. This benchmark has been around forever. The elephant in the room is, what happened to the other 900 visitors that were already in the store? Why didn’t they buy? If retailers could just increase their conversion to 15%, in this case just 50 more out of the remaining 900 visitors, sales would increase by 50%; and, assuming this incremental revenue has a typical 50% cost of goods, then profit is increased by a whopping +200%! All of a sudden, it would be financially feasible to expand retail stores again.
A good example of a retailer I’ve seen able to remove barriers to purchase is the optical retailer Owndays. If you visit one of their offline stores, you’ll notice that buying prescription eyewear can be a daunting many-stepped journey, yet Owndays has focused on making each step of the journey an easy and pleasurable experience.
Another great example is how McDonald’s is removing barriers to purchase by using self-order-pay screens, which greatly improves the in-store experience by minimizing standing time in queues to order. Perhaps they could go further and deliver the order to your table.
So the remaining question then is, how do we create the right Store Experience? Since every retailer is different, and there is no one formula, each retailer will need to discover it through a program of experimentation.
How do you experiment with store experience?
The biggest roadblock for legacy retailers is that you can’t experiment with Legacy technology. Closed legacy technology investments in the past took too long, were too expensive, could not integrate with each other, were controlled inside and outside the organization by an immovable few, and were resisted by legacy-minded retail employees. With roadblocks like these, every experiment is doomed to fail. But as long as retailers could continue expanding profitably, we made it work.
But gloriously, things have improved tremendously because of 3 enablers: 1) Cloud-based servers, 2) Open-sourced databases, 3) A.I. & Data sources.
Without getting into too much detail here, these 3 enablers remove almost all the roadblocks, allowing progressive retailers to start conducting rapid experiments with integratable and open solutions with much less cost and risk. In other words, Retail Technology has been democratized.
This doesn’t mean retailers can take a shotgun approach and just try everything until something sticks…we still can’t afford that luxury. What it means is retailers need to set-up their ecosystem so that they can experiment in an environment that allows a ‘directed and escalating testing program’. Make sure your experiments are only targeting a few performance variables at a time; for example: directing them first and measuring them towards top-of-funnel ones like ‘drive to store’ or ‘customer engagement’. Only do small quick tests that you need to validate the idea, and make sure you capture the data and results. Plan and budget for failure, decide quickly to abandon, pivot or persevere, and develop the ones that work further. In this manner you can quickly get from ‘drive to store’ to ‘conversion’ in a fraction of time and risk.
How much does all this cost? Can all retailers big and small now afford all this?
Yes and No.
Big retailers are worried about Amazon’s online, offline and drone-delivery business. If the question is: can big retailers afford to compete against Amazon? I believe that yes, they can afford to, if they are smart about directing their experiments towards the right customer experiences. But nevertheless, the actual dollar investment cost is still quite large and limited.
Small and Medium retailers have less leeway. Less dollar and people resources means that their runway is shorter and their experiments need to take off sooner. Therefore I suggest utilizing outside funding and partnerships.
For example, in our case, we are a medium-sized retailer with about 60 standalone stores. We believe that building a mobile platform is an important part of our competitive strategy. The mobile platform we envision will eventually incorporate eCommerce, offline-to-online, membership & CRM, gamification, advertising and social networking + integration with our other retail systems.
Even with current technologies and agile processes, to build such an app will cost between $300K-$400K and take 2 years. Obviously that’s a non-starter for us. Even Medium-sized retailers can’t afford this risk by themselves, so we are experimenting with an approach to getting outside funding and partnerships.
To attract outside funding and partnerships, we are designing the app to service other retailers, not just ourselves. If other retailers can also make use of our mobile app, we can scale economies, and investors can see the app itself as an independent viable business.
To kick-start the project, instead of building all the features right away, we are prototyping just 1 component first, which will only cost us $30K over 6 months…just $5K per month. If the prototype works, then we can offer the app to other retailers and raise the remaining $370K to further develop the app as a standalone business. The only other alternative was to not build the app, so as a medium-sized retailer we really have no choice.
I know there are a lot of ‘ifs’ in that last part, so I’m crossing my fingers!
Syjuco is set to join more than 200 other e-commerce, retail and payments professionals speaking at Seamless Asia. For more information, download our brochure here, or go right ahead and register here.