The Dilemma of the Digital in Traditional Businesses

When bricks and mortar companies succeed at the digital how does it affect their traditional business?

The Data

The holiday season of 2016 gave considerable insight into the impact of e-commerce and Amazon on traditional businesses. According to First Data reports, during the period of 01st October 2016 to 02nd January 2017, e-commerce sales grew 12% and the sales in bricks-and-mortar only grew 1.6%.  The total share sales for the bricks-and-mortar sector also fell a marked 5 points from 2015 coming to 79%. Amazon however, took in 37% of the sales from the period between 01st November 2016 and 16th December 2016.

Evolving with the current trends in digital marketing is imperative and it cannot be overlooked. Devin Wenig, the President of eBay Marketplaces explained his take on the impact of digitisation and why it is important that traditional businesses try to evolve accordingly.

Why does digital disruption cannibalise your own business?

In an expert panel that discussed smart disruption of the digital on traditional businesses, Merijn Helle said,

“Traditional brick-and-mortar stores are putting a lot of capital into digital initiatives that aren’t paying enough back yet in the form of online sales, and they’re cannibalising their profits so they can deliver a single authentic experience. Customers don’t see channels, they see brands; and they want to interact with brands seamlessly in real time, regardless of channel or format.”

So what is the problem?

The problem occurs when the digital sector begins to feed off the traditional businesses.

One of the best examples of the digital cannibalising the traditional can be observed in the case of Target.

“It is doing the best online of all the brick-and-mortar retailers. And this ugly quarter is what ultimately happens. That is a pretty grim fate for the group.” – Jim Cramer’s thoughts about Target

The self-cannibalization of Target when it went digital, proved to be one of the most profound trends that appeared in the retail arena.  Brain Cornell, the CEO of the Target Corporation, had been under pressure for several years to show growth in the company’s digital business segment. However, considering the fact that Target’s digital business grew by 40% during the last couple of months of 2016, while a 3% drop was observed in the bricks-and-mortar segment, it was apparent that the significant positive growth of the digital business drew their customer base away from the bricks-and-mortar business.

How can we escape the offline/online mentality and incorporate digitising to not affect bricks-and-mortar negatively?

Founder and CEO of O’Reilly Media, Tim O’Reilly provided the perfect example of how this can be done by using the Apple Store as an example.

When Tim sought help on the Apple website, he was directed to make an appointment and visit the store through an online tool. Once he reached the store, he was helped via an “in-store genius” who was able to transact for any costs that Tim incurred. He went on to say that the entire process was absolutely perfect, had no hiccups as a consumer to him and from the point of the business, it was a clear indicator of their expertise. He, therefore, said that store associates hold a high value when it comes to providing personalised support to consumers and that this is one great way in which bricks-and-mortar could break the ice with digitised business.

• Empower associates – give them access to online info and train them to assist customers better towards a purchase. This could lead to brand loyalty and enhanced sales in the future.
• Giving shoppers multiple access points to information – encourage customers to refer to the online sources of the retailer that will give them info on the product, reviews or even store maps.
• Provide them with surplus information – retailers need to make it easier for consumers to access deep product info like user guides, demos and reviews and well as promotions. Availing scannable coupons for promotions to be validated in-store, SMS alerts on store savings, stock availability and circulars could greatly help.

• Competitive Advantage: According to a recent report by L2, free-shipping could prove to be a valuable investment for retailers, even though it incurs a cost in the short-term. In the long-run, offering free shipping could draw in more buyers. Bricks-and-mortar businesses have the advantage of earning back the expenditure on shipping by methods like upselling and in-store-conversions at the point of return.