March 3, 2014, 11:20 AM

The digital future of stores

E-retailing's momentum has retail chains scrambling to engage shoppers with technology so stores don't slip into obscurity.

Lead Photo

Store executives intend for the retail store of tomorrow to blend the advantages of e-commerce and Internet technologies with an enhanced bricks-and-mortar environment. A glimmer of this future is already visible in technology some stores are rolling out today. Retailers are roping in e-commerce's technological and logistical capabilities—personalized recommendations based on a consumer's shopping preferences and the seemingly endless variety of SKUs available for quick shipping, for example—and mixing them with their physical stores to make those stores more appealing to consumers, and more profitable for store operators.

Whether it'll be enough to fight off e-commerce's assault on traditional retailing is up for debate, but some store retailers are mounting a defense.

Consumers are spending less time shopping in stores and shifting more of their retail dollars to the web. The Bureau of Labor Statistics' American Time Use Survey shows that between 2004 and 2012, the average amount of time consumers 15 and older spent shopping for goods on weekends dropped 14.3%; on weekdays, it dropped 11.8%. Even during the hectic holiday season last November and December foot traffic in stores fell 14.6% compared to the previous year, according to ShopperTrak, which monitors traffic and sales at major malls and retail chains. Meanwhile, online sales are growing at a double-digit pace; they were up 16.9% year over year in 2013, according to the U.S. Commerce Department, whereas total retail sales, which include e-commerce, grew 4.2%.

Store retailers, experts say, have some decided advantages over their web-only competitors, such as their proximity to consumers, enormous amounts of data about consumers and what they buy and their ability to convert in-store shoppers. But their disadvantages—namely the high costs of running physical stores relative to the costs of running a web-only retail site—puts stores in jeopardy.

Some prominent retailers have already perished, including Circuit City, Linens 'n Things, Filene's Basement and Borders. Each of those nationwide chains failed to adapt quickly enough to competition from Amazon.com Inc. and other web-only retailers that emerged in the past decade and a half. To stave off a similar fate, store retailers are changing their strategies, structures and services to provide consumers with what they want, however, wherever and whenever they want them—whether that's online, in a store or somewhere in between. At the same time, they're also striving to improve their bottom lines by streamlining stores. Pursuing this strategy will cost them money and require them to realign their resources, but these moves are necessary for survival. It will also require them to think creatively and test the various technologies that are available to satisfy consumers enough that they'll set aside the convenience of tapping a few keys online and instead travel to shop.

Some retail chains are just getting started. Others have made changes and are taking what they've learned from their initial forays into the pursuit of the omnichannel ideal to make their next investments more valuable.

Take, for instance, B&Q plc, a unit of the United Kingdom's Kingfisher plc conglomerate. With 350 U.K. bricks-and-mortar home improvement stores and more internationally, including 39 stores in China, it is the third-largest home improvement store globally by sales after The Home Depot Inc. and Lowe's Cos. Inc. It opened three B&Q Manifesto test stores—one is 33,000 square feet, one is 46,000 square feet and one is 95,000 square feet—to match its existing store formats.

But size is practically the only thing those stores have in common with the retailer's existing stores, says Tom Scott, head of business solutions for B&Q. The stores are packed with technology that merges B&Q's e-commerce site, DIY.com, with in-store functionality. Consumers can order online for in-store pickup, store clerks can use iPads to show and sell consumers products available online, and clerks can also use the iPads to customize their recommendations based on a customer's prior purchase data, which they can call up using the shopper's loyalty card data. "We'll know everything else you've purchased, or if you have a delivery outstanding," Scott says. There are also kiosks in the stores where consumers can e-mail themselves how-to guides for home improvement projects, and order products to be brought to them from the storeroom. "Our stockrooms [at the test stores] look a lot like an e-commerce fulfillment center," Scott says.

The mix of technology and in-store services has been "almost universally positive," Scott says. He says over the next three to four years he sees B&Q stores becoming smaller as a result, which Scott calls a "right-size store program."

Experts give a fighting chance to stores that evolve. Jay Holan, senior consultant for FitForCommerce, says stores will survive, but will have to change. For example, a store retailer will have to be able to access all its inventory companywide to provide the item an in-store shopper wants.

"To win, [retailers] have to deliver new omnichannel experiences that delight their customers," writes Darrell Rigby, a partner in the retail practice at consultancy Bain & Co., in a 2014 outlook report. What's far from clear is if the moves retailers are making now will "delight" customers and prevent more stores from closing. "I definitely think there is a future for stores, but I don't think retailers have seen that future yet," says Nikki Baird, managing partner at Retail Systems Research LLC, a research and consulting firm.

Many retail chain executives recognize they must act now to retain their customers, although often, in public, they put a positive spin on the challenges they face.

"We believe that over time there will be this fusion of the web and stores, and the technologies that enable that are things we want to start exploring now," says Luis Fernandez, chief omnichannel officer at regional department store chain The Bon-Ton Stores Inc. "We want to learn and develop and hone our skill set and understand how to leverage them in a strategic way."

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