Services and Retail
Digital transformation Enterprise Excellence

Physical retail stores need a reboot. Here’s why.

Shopping behavior of 21st century consumers has changed dramatically and the physical store is losing ground compared to e-commerce. Needless to say, the physical store has lost its charm.
Simon Wostyn

In a recent study, the Digital Transformation Institute at Capgemini investigated the value of physical retail stores for consumers by means of a global survey spanning 6,000 consumers and 500 retail executives. Results from this study highlight several factors that point to a mismatch between changing customer expectations and the current physical retail stores. Here, we summarize some of their key insights.

Shopping behavior of 21st century consumers has changed dramatically and the physical store is losing ground compared to e-commerce. One third of consumers prefers washing dishes over visiting a retail store and 40% sees shopping in physical stores as just another chore that has to be done. Needless to say, the physical store has lost its charm.

Consumers in a digital age

In recent years, consumers have discovered several benefits of e-commerce such as home delivery or easy price comparisons. Current physical stores often function merely as a space to buy products, which is why consumers feel no urge to visit them.

Installing physical stores that regain interest from the digital customer will require adding some functionalities to current stores. Checking product availability before a store visit or same-day delivery of in-store purchased products are some of the most important consumer expectations of physical stores. However, this will only match the functionalities of the store with those of the digital channels and will not lure customers to physical stores. Therefore, to regain interest from consumers, the store should leverage some benefits it has over digital channels such as the ability to touch and feel products or the possibility to engage all five senses of consumers in a full customer experience.

Mismatch between customer and store

On average, 81% of retail executives believe a physical store to be important, while only 45% of consumers agree. Researching the Net Promoter Scores (NPS) for several brands, revealed that retailers underestimate customer dissatisfaction to a large extent. The mismatch between what consumers want, as was explained in the first paragraph, and what stores offer is expressed in several frustrations during the shopping experience. Long queues, difficult comparisons between products or not being able to locate products are some of the reasons why consumers avoid going to physical stores. This is confirmed by the result that 71% of consumers would be happy to bypass retailers and buy directly from manufacturers through small, local retail stores to handle the last-mile logistics.

Retailers are lagging behind

The survey showed that 54% of retail executives think the digitization of physical stores is happening too slow. Three reasons are mentioned as to why this digitization is not gaining speed: ROI of digital initiatives is difficult to assess, store managers/associates are not promoting digital initiatives enough and digital requirements such as Wi-Fi or data integration are still being rolled out.

Next to these digitization obstacles, another mismatch between retailers and consumers is observed in the sense that not all digital in-store initiatives are useful. Those that do implement the right initiatives are termed the ‘digital sprinters’. Some key characteristics of these retailers are that they have a clear vision and strategy, they prioritize digital transformation and have strong governance practices. They also use data to the best of their knowledge and motivate people to relentlessly focus on customer experience.

The new physical retail store

As was stated above, matching digital channels on proximity, selection and price is a must, but will not lure consumers to physical retail stores. Physical stores are obliged to go the extra mile and prioritize customer experience. In general, appealing to consumers of the 21st century will require injecting technology into the physical stores. However, this does not mean adding some fancy high-techy stuff to the store, but applying technology as enabler to address consumer requirements.

Several initiatives (usually powered by niche startups) showed benefits of some interesting technology applications. The benefits are mostly found in boosted sales, although cost reductions can be achieved as well. Some examples of customer-facing initiatives are personalized messaging, in-store navigation, facilitating social experiences or in-store convenience (e.g. cell phone chargers). Technology can also affect operations by supporting store associates, installing robotics for inventory management or using in-store analytics.

The road ahead for retailers

Next steps for retailers depend on their current situation. ‘Early gainers’ have realized some benefits of digitization, but should scale their efforts. Usually they should focus on using consumer data better to boost customer experience. ‘Strugglers’ have invested heavily in wide digitization initiatives, but have failed to realize the expected benefits. According to the survey, these retailers should rethink their vision and governance for the digital future. ‘Laggards’, at last, are failing at each aspect of a digital transformation. To boost their efforts, prioritizing digitization at the C-level is a crucial initial step for them.

Möbius to the rescue

As the survey showed, unlocking benefits of digitization is not easy and involves tackling many different aspects. Möbius can offer the required expertise and experience to assist companies to succeed in the digital transformation from vision to implementation. At Möbius, our approach to digital transformation consists of addressing these different aspects through several steps:

  • Walk the customer talk: get to know the specific needs of your targeted consumers
  • Reinvent your core: rethink daily operations to support the desired outcome
  • Inject technology: use technology as an enabler in the customer experience
  • Stabilize your culture: install a culture of digital leadership and an innovative mindset

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Simon Wostyn