Omnichannel’s growing omnipresence and Vectr’s investment into Hero

Moving past the hype, and how retailers today are adapting to evolving consumer needs

Then: The state of retail in the 1930s

My grandparents on my dad’s side were both Italian-Americans. Over the 1920s and 30s, their families travelled long distances from small southern Italian towns to Ellis Island in New York. Along with 12 million other immigrants between the 19th and 20th centuries, they came seeking a future in a land renowned for abundant commercial opportunity.

This mass flow of people across the Atlantic coincided with another cultural phenomenon: the rise of the department store. Europeans and Americans alike saw the birth of this format with the likes of Lord & Taylor, Le Bon Marché, Harrod’s, Macy’s, Bloomingdales, Saks Fifth Avenue, Barnes & Noble, and Selfridges.

The first Le Bon Marché department store, Paris, 1852. Things have changed. (Citeco)

Though the large-scale multi-category format in some ways resembles the department stores of today, times were a lot simpler in this pre-digital age: all marketing and commerce were conducted offline, communications were delivered using purely analogue methods, and retail productivity was measured by revenues per square foot from the singular offline channel.

Now: Fast forward to today, we’re approaching a new balance between offline and online

Here we are around a century later in 2019. It may be easy to assume with the proliferation of technology, the rise of e-commerce giants like Amazon and Alibaba is slated to render offline retail a thing of the past. And if you follow retail news you undoubtedly have heard about an ongoing apocalypse, with store closings in the US alone amounting to over 8,000 in the first eight months of 2019, compared with a total of 5,900 in 2018 (Coresight Research).

Measuring the hype: Google Trends worldwide result for “retail apocalypse”

But while headlines proclaim retail’s death, a pulse check reveals a few interesting stats:

  • Approximately 90% of commerce still takes place offline (US Census Bureau, Q1 2019)
  • Offline retail shows slow yet relatively steady growth over the last decade (Mary Meeker, 2018) *not including the effect of the 2008 financial crisis
  • Meanwhile, e-commerce growth is beginning to slow (Mary Meeker, 2018)
Excerpts from Mary Meeker’s 2018 Internet Report

What the numbers here seem to indicate is that we’re approaching a new balance between online and offline commerce. And while e-commerce is yet to eat into more of the retail market share, offline is still undoubtedly important and will continue to be.

Evolution is key here. Big names like Macy’s, JC Penney, Toys R Us, Payless and Barneys were slow to evolve from the playbook of the earlier days, contributing to the shuttering of numerous stores in recent years. In order to stay relevant, retailers should intelligently leverage the data available across all online and offline touchpoints and consider them as part of an integrated bigger picture, rather than track each individually based solely on footfall, revenues, impressions, etc. This forms the backbone of omnichannel retailing, a concept coined sometime in the mid-2000's:

Omnichannel: A type of retail which integrates the different methods of shopping available to consumers (e.g. online, in a physical shop, or by phone)

It’s all about understanding the modern consumer journey, and being prepared to meet consumers’ needs at each step. A shopper today may first research product reviews and check prices online, and scroll through the brand’s social media feeds. This can all take place prior to stepping into a store where their goal may not even be to make a purchase, but rather to touch and feel the product, or to speak with a knowledgable sales associate.

A few ways in which retailers today are adopting omnichannel

While the idea of omnichannel is nothing new, I’ve noticed increased adoption on the retailer side. So I’d like to shed some light on the retailers who have evolved from my grandparents’ days in the face of consumers’ changing needs and other modern opportunities, and the steps they’ve taken to capitalize on this evolution.

1. Offline & online interplay and alternative distribution

Knowing the variety of methods in which consumers gather information, that some physical elements of the journey are critical, and that purchases can happen in a variety of channels pushed Sephora to combine its in-store and digital retail teams to create one omni-retail department. The corporate restructure allows Sephora to leverage data across channels and deploy new concepts tailored to today’s consumer.

Retailers are also building additional distribution and logistics functionality into offline by linking up their inventory systems. 27% and 64% of US and UK retailers today allow customers to BOPIS, aka ‘buy online, pick up in-store’ (and sometimes ‘buy online, return in-store’ or ‘buy in-store, receive home delivery’). This adds a level of convenience and can encourage additional purchases.

Digital fitting rooms help online customers visualize the end product (Metail)

To bring an offline flavour to the e-commerce channel, digital fit and visualization assistants are used by the likes of ASOS, Foot Locker, Levis, and Tommy Hilfiger. This is because uncertainty about sizing leads to e-commerce conversion drop-offs and high returns, resulting in lost sales and costly reverse logistics. Offerings today include digital body scans, realistic 3D product visualizations, and brand-to-brand size comparison tools.

Fashion retailers are now placing trust in third-party online marketplaces (such as Rent the Runway and Farfetch) to distribute high-end goods. The two players have reached $1B+ in valuation and $1.4B 2018 gross merchandise volume (GMV) respectively, and have seen adoption from brands like Diane Von Furstenberg, Calvin Klein, Gucci, and Yves Saint Laurent. Second-hand luxury marketplaces like StockX, Stadium Goods, and The RealReal have made a name for themselves. Brands are learning to navigate this channel; Nike expertly uses the “drop” to cultivate hype through limited-edition releases, driving up value on secondary markets.

2. Never underestimating the physical touchpoints

Sephora opened its 2000-square foot (185-square metre) “Studio” destination offline retail location in NYC, which offers a smaller, more intimate version of their personalized makeup-artist-to-customer experience. Last year, Macy’s acquired Rachel Shechtman’s fun and evolving-concept retail shop called Story. Chanel opened its Atelier workshop to expand its reach to younger consumers, allowing visitors to test out different products for free.

The primary goal of these locations is not to drive purchases. Instead, they are used to inspire visitors, allow for touch-and-feel of goods, and create a positive association with brands and products.

Story’s rotating-concept retail shop (Forbes)

3. Using data to better serve the consumer

Kate Spade, Michael Kors and Indigo Books are among a group of retailers adopting clienteling, personalizing the offline consumer experience. In-store associates are provided with a mobile device to pull up current inventory levels and customer’s past purchases. This data-driven, white-glove approach allows associates to call shoppers by name, recommend personalized styles, and continue the interaction post-purchase to send out notifications when online orders or new styles arrive in-store.

Hero Technologies raises its Series A

I’m confident that the factors mentioned above will cause an overall uplift in retailers’ adoption of these types of solutions, opening up more opportunities for investors.

With that said, I’m super excited about our recent investment into Hero Technologies. Their software is helping retailers bridge the gap between offline and offline using a lightweight solution, designed with the end-users in mind.

With offices in London and New York, they’ve created a communication platform that provides retailers’ e-commerce visitors with a personalized shopping experience. Via a chat & video tool on the e-commerce site, shoppers connect in real-time with an offline associate to inquire about suitable sizing, colours, and product pairings.

Hero’s live stream technology in action (Hero’s Blog)

Levi’s, Nike, Gap Inc, LVMH and Richemont are using Hero to harvest improvements in e-commerce conversions, returns, and offline foot traffic. They also gain rich context on shopper inquiries, and associate- and store-level performance. For those interested, head to Hero’s website and in the Series A announcement here to learn more.

Disclaimer: The views expressed on this post are mine and do not necessarily reflect the views, strategies or opinions of anyone else, including Vectr Ventures.

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