Home Nike items Technologies that are reinventing physical commerce

Technologies that are reinventing physical commerce

0

This article first appeared in The state of fashion: technologyan in-depth report co-published by BoF and McKinsey & Company.

The rules of physical commerce are changing. The strain on the economy of operating stores has increased, particularly since more consumers have begun to embrace the convenience – and security – of e-commerce during the Covid-19 pandemic.

But physical retail is far from dead. A 2020 survey of European consumers showed that 60% of respondents wanted to see or touch the products in person before buying, while 50% shopped in stores so they could take the items home immediately. . As pandemic restrictions ease, the percentage of customers buying online is expected to drop 3 percentage points from 2021 levels in key markets including Europe, the United States and China. This represents an opportunity for players to reshape the role of stores in their overall business mix.

Engagement with in-store technology can cause customers to spend up to four times longer shopping than customers who simply browse. But what is the right mix of technologies to attract customers to stores and retain them as soon as they arrive?

Experiments with in-store technologies such as magic mirrors, connected hangers and interactive holograms were once touted in the industry as a solution to lower store footfall and engagement. These have largely failed to significantly impact in-store conversion rates while requiring high setup costs. Instead, fashion executives should direct their investments towards in-store technologies that specifically address operational pain points and integrate seamlessly into the customer journey.

For example, 20% of customers are unhappy with online delivery and returns. Mobile technologies that adapt and streamline the in-store experience and micro-fulfilment technologies that integrate stores into distribution networks could help address these challenges.

Mobile apps for everyone

Brands can tailor mobile-based technology to the expectations of two distinct consumer profiles: the convenience shopper and the experience shopper.

For the convenience-focused shopper, mobile apps can combine digital and physical shopping experiences into an efficient end-to-end journey. Fast fashion retailer Zara’s customer app, for example, allows shoppers to book fitting rooms, view available stock, find products in the store and join a virtual queue to shop. purchase. The user experience of these apps should work seamlessly into the customer journey, and the technology can build on existing backend software, such as inventory management and point-of-sale software.

Fashion executives need to direct their investments towards in-store technologies that specifically address operational pain points and integrate seamlessly into the customer journey.

Meanwhile, for customers looking for in-store experiences, social connections and entertainment, mobile apps can help personalize visits. Nike’s House of Innovation stores in New York, Shanghai and Paris aim to showcase the brand’s history. In New York, interactive AR challenges allow customers to bring up animations and product information by scanning QR codes located on the shop floor. The in-store experience is particularly attractive for luxury players whose customers expect brand immersion in stores. At its “social retail” store in Shenzhen, Burberry encourages customers to interact on a WeChat mini-program, post photos and access benefits such as “secret items” at the store’s cafe.

These technologies also provide brands with important insights into customers, even if they don’t make a purchase, through scanned product labels or tracking items brought into fitting rooms. Store associates can have apps designed for them, so they can use this customer data and improve workflow management, like requesting stock to get a customer brought to the store quickly.

State of Fashion Technology Report Table 5.

How brands leverage available mobile technology depends on their strategic priorities. In the mass market, a high proportion of sales can already be generated through e-commerce applications. Here, a brand could develop an “in-store” mode to piggyback on an existing application. In the luxury segment, e-commerce apps typically account for less than 10% of sales, which means it will be more difficult to encourage customers to adopt app-based behaviors.

Improve omnichannel journeys

A customer’s in-store experience isn’t the only aspect of shopping in a physical store that can benefit from a digital upgrade. Major players are also adopting technologies that enable stores to become micro-distribution centers. By using stores to fulfill online orders, brands can maintain appropriate inventory levels across distribution and store networks and enable prompt delivery. Conversion rates are around 50% higher with same-day delivery versus two-day.

Some mass-market players such as Target are reallocating space within brick-and-mortar store networks to create micro-distribution centers, helping them adapt to expectations of fast commerce and super-fast delivery. This is often done through buy online, pick up in store (BOPIS) or buy online, ship from store (BOSFS) models, where the order is sent from a store where all items are in stock. However, to date most gamers have not gone digital. Typically, inventory tracking is done manually and in-store inventory is not integrated with overall e-commerce inventory.

Inventory optimization technologies can help accelerate and automate a store’s value chain. For example, fast fashion giant Inditex uses RFID product tags that power a unique inventory system. This gives visibility into stock levels across channels, enabling online order fulfillment from store stock. This visibility has reduced the time it takes store associates to take store inventory by 88%.

Cloud computing is an increasingly viable enabler for micro-distribution centers. By running IT infrastructure in the cloud, brands can centralize their technology capabilities and collaboration, and run real-time data analytics across store networks, wherever they are.

State of the art fashion.

For mass market leaders looking to take advantage of these emerging technologies, we identify three types of execution models:

  • A back-office delivery center, where orders are fulfilled with very limited automation.
  • A dedicated in-store section for e-commerce order fulfillment, with some degree of robotic automation.
  • A “dark store”, which is a physical store fully converted into a distribution or fulfillment center, which could be fully automated with robotics.

The cost savings on shipping alone can be substantial with micro-execution models. In 2019, Brian Cornell, chief executive of Target Corp, said when one of its stores fulfills an order online, it costs about 40% less than shipping from a fulfillment center to a customer. When customers order online and collect in store, approximately 90% of the cost is saved.

But without technology that can streamline the fulfillment process, from order allocation to packing, a brand will likely need high value orders or a boutique model with low levels of in-store traffic to justify manual execution in store.

Therefore, automation can play an important role in all types of fulfillment models to help brands maximize cost savings. Brands can use inventory optimization software, which integrates all inventory in their store and distribution networks; last-mile optimization software, which improves the efficiency of order delivery route allocation; employee task management solutions; and fully robotic facilities that include racks and robotic arms for picking, packing and storing inventory.

When deciding which stores to use for e-commerce fulfillment and which fulfillment model to adopt, executives should consider brand size, store density and e-commerce activity, as well as physical store locations and customer demand. For example, luxury brands are unlikely to dedicate retail space exclusively to order fulfillment due to the high costs of prime store locations. Instead, they will focus on inventory optimization algorithms to predict the best location from which to fulfill an order and manually pick and pack, which mass market players simply cannot afford. For consumer brands, automated e-commerce order fulfillment can make financial sense if order volumes are high enough and in a dense urban area, especially if customers pay a premium for faster delivery.

However, regardless of order volume, using inventory optimization software to help predict the number of items returned to stores is a promising use case given that approximately 30-40% online sales are returned.

The State of Fashion Technology banner