Future of Retail: Future is Phygital
By Yahong Zhang |Table of contents
This article was updated in September 2024 by Sabrina KHADIVI.
The retail ecosystem: a pre-pandemic perspective
eCommerce is already gaining ground before the COVID 19
Ignore the future of retail for a minute. Way before the pandemic was declared, penetration of online retail was already quite high and on a growing trend, fostered by huge investments in apps and digital tools that aim to minimize consumers’ needs to interact with reps or try on each product.
E-commerce has been growing very strongly for many years. It has gradually become part of our consumer habits, unbalancing our relationship with physical stores. This started well before the COVID-19 pandemic, but it has considerably accelerated this trend.
Retailers then realized that they had to offer their customers different purchasing channels and impactful experiences. Thanks to digital technology, and in particular 3D, new experiences have emerged that allow customers to co-create their item by personalizing or customizing it and thus see what their purchase will actually look like before it is delivered.
Virtual try-on and 3D configuration technology, for example, enable shoppers to co-create a personalized or customized item and see how it would actually look on them without risking making an unsatisfying purchase, which simplifies the decision making process and empowers clients to shop whenever they want from wherever they want.
To understand how these tools, and more broadly 3D in e-commerce, integrate with physical retail, let’s explore the importance of “phygital.”
Curious to see how 3D is revolutionizing e-commerce? Check out this article to find out everything: What is 3D Ecommerce?
According to Sendcloud, 36% of European consumers were already considering changing their habits and purchasing more products online after the pandemic. In this context, it’s undeniable that our shopping habits are evolving to adapt to phygital. The e-commerce market is expected to reach $47.7 trillion by 2030, with various trends on the rise, such as social commerce, which allows platforms like Instagram, Facebook, and TikTok to facilitate direct sales. Nearly 67% of social media users are expected to have already made purchases by 2024.
With Gen Z at the heart of these changes, it’s also noticeable that they prefer shopping consciously and buying sustainable products. 23% of this generation have already boycotted brands, encouraging companies to emphasize quality products and services.
These are clear signs that eCommerce is already gaining grounds before the COVID 19 and has a tendency to gradually replace physical stores, especially for young generations.
It seems necessary too to adopt an omni-channel marketing strategy
Even more, it seems necessary too to adopt a omni-channel marketing strategy, as Forrester claims that consumers who buy luxury goods in both brick-and-mortar and e-shops spend 4 times more, which makes brands open to investing in creating a seamless experience across different channels and touch points.
To conclude, in the future of retail digital and physical worlds need to be connected,
Drew Green, CEO of the world’s largest made-to-measure suit maker INDOCHINO, points out that, regarding customer acquisition online-only businesses face higher costs than those with physical locations, which are able to attract walk-ins or even become destination points for tourists.
Moreover, he agrees that consumers who access both online and offline channels drive more sales. “In a market where we have a showroom, our online sales grow twice as fast as in a market where we don’t,” he declared in an interview with CBC News Canada.
Indeed, brick-and-mortar stores, says retail expert Doug Stephens, should not only be assessed based solely on their sales, but also their media value, since physical environments expose consumers to messages in a more controllable way.
As mentioned in another piece we published, physical locations and user experience are extremely valuable in omnichannel strategies, which are meant to cover each step of the customer journey and use to drive meaningful and memorable experiences that convert.
Discover the new values of luxury: what customer experiences bring
Retail is going digital rapidly in the time of coronavirus
The COVID-19 crisis have managed to speed up the digitalization process for retail, significantly increased the number of e-shoppers and changed their purchasing behaviors.
Before coronavirus, in the first week of March in the US, for example, only 11% of adults confirmed to have shopped for groceries more than usual; while by March 22, the figure increased to 37%, according to CivicScience. More over, during the 4 days between March 12 and 15, total order volumes surged by 210% compared to the same period last year.
While younger and digitally-native audiences are ready to jump on the bandwagon, Generation X members seem more reticent to the change. Still, they manage to adapt and have increased media consumption as well as changed shopping behaviors.
As research shows, 64% of those aged 35-54 years old and 51% of those of 55 years old and over have used Amazon to buy food and pantry in April 2020.
Demands for omni-channel experiences have increased too. According to Rakuten Intelligence, during the months of March, April and May, “click and collect” order volumes were up 202%, with a staggering 30% of orders belonging to first-time customers.
These demands are driving changes and are creating an extremely plausible scenario: consumers are forming new habits and the shift is taking place as we speak. This is why it is crucial for brands to seize the moments and reconsider the way they approach retail.
Future of retail: personalized, digitalized, connected and automatic
An engaging, memorable in-store experience
Maybe one of the retail industry’s most discussed myths is that brick-and-mortar stores are becoming obsolete. Indeed, digital experiences are shaping the way consumers shop. As experts create hypotheses on how retail is supposed to evolve, one point remains valid: physical shops are here to stay.
According to Deloitte, brick-and-mortar stores are still extremely important and are supposed to respond to consumers’ increasingly high expectations. In this context, excellent customer services provided by well trained front-line staff are a must, as is the store’s capacity to offer a connected omni-channel shopping experience, such as receiving returns of online orders.
Doug Stephens, also known as the Retail Prophet, emphasizes the brick-and-mortar store’s role in delivering complex experiences, rather than in just selling goods.
He, thus, highlights how important it is for shops to foster a service-oriented environment. For example, a place where customers may co-create products with the help of experts and technology. In fact, using 3D Visualization and Augmented Reality technology, consumers can now bring to life their own designs and then try it on.
Fred, the renowned French jewelry brand, brings this new perspective to the jewelry market. To showcase its Fred Force 10 collection and all the possible customizations, we created a 3D configurator supported by 3D visualization and Virtual Try-On technology, allowing customers to try on the bracelet after personalizing it. Consumers can co-create and try on the bracelet of their dreams.
The Virtual Try-On technology has repeatedly proven its effectiveness, increasing conversion rates by 30%!
Explore other Hapticmedia projects for various luxury brands!
Discover the video that describes this project:
Other examples can be mentioned, such as Tiffany’s Virtual Try-On, presented at Vivatech 2024 in collaboration with Hapticmedia. At the heart of this immersive experience are different groundbreaking experiences:
- An experience to customize your products and make them uniquely yours.
- A stunning Virtual Try-on for three rings.
Doug Stephens further supports the idea that the stores shouldn’t be assessed in sales, as the main objective will be to immerse consumers in the brand narrative and expose them to brand messages and an aspirational lifestyle.
In the next few years, it won’t matter where purchases are made, as professionals are beginning to understand the future of retail stores: an emotional center of gravity for the brand meant to attract, engage and loyalize consumers.
The full speed omni-channel and phygital approach
Direct-to-consumer platforms are more than ever fundamental for the development of brands, yet even in this context, digitally-native companies are looking to open brick-and-mortar venues. Notably, Gymshark, the famous fitness brand that started selling supplements in 2012, is now one of the most purchased and reputable brands in this field. It opened its first store in London in October 2022, with the goal of showcasing the brand’s values, which focus on building an engaged community, increasing visibility, and enhancing the customer experience. This decision was driven by the desire to present innovations in this domain and meet consumer expectations, particularly their desire to interact directly with the products.
Reason for this attraction to omni-channel is quite intuitive, customers need consistent, authentic, interactions both online and offline. What they assess in a brand is not the channel per se, but the consistency in the service, tone-of-voice and approach.
According to Deloitte, as retail is advancing and omnichannel is becoming the norm, supply chains need to be updated too to ensure fast and impeccable services. Since services are a main differentiator in the eyes of omni-channel shoppers, it is essential that brands provide short delivery times, excellent customer care and convenience.
As brands like Amazon are continuously raising the bar for fast delivery, companies with traditional supply chains face an even bigger demand for transformation, which means that they are expected to adopt a customer-centric approach to enable customers to identify and access the right products in the right timing while ensuring quality and lower costs.
Automation on every retail level: Data, customization, logistics, connected inventory
Data automation to digitize and automate businesses
Characterized by advanced technologies such as big data, smart factories, 3d technology, Artificial Intelligence, the internet of things, robots, advanced algorithms and machine learning, the 4th industrial revolution is happening as we speak and is triggering changes in industries and reshaping the way that companies manufacture products and the way that customers search for, engage with and shop for products.
As is anticipated, Industry 4.0 enables companies to digitize and automate their businesses, while reducing the involvement of human workers in actual production processes, thus increasing both productivity and profits.
On one hand, digitization enabling big data and advanced analytics allow brands to collect information from multiple touch points and consumers behavior in order to offer more precise and personalized services.
On the other hand, data make it possible for companies to connect each phase along the value chain and transfer information from downstream to upstream or vice versa.
Last but not least, this fast and efficient information exchange and processing enabled by data automation allows companies to create a fluid ecosystem within which each element is tightly connected and valued and new enterprise processes are successfully carried out, thus increasing the efficiency of the whole system.
Simplfied mass customization to enable a personalized touch and higher willingness to pay
Apart from technologies that allow companies to customize recommended products based on browser history and user profiles, which is no longer news in the marketing world, what is now secretly shaping the luxury business is the ability to allow customers to interact and personalize products on line, supported by mass customization.
According to Forbes Insights, 40% of marketing executives report that personalization has a direct impact on maximizing sales, basket size and profits in direct-to-consumer channels, such as e-commerce, while another 37% point to increased sales and customer lifetime value through product or content recommendations. More than one-third of respondents have seen increases in their transaction frequency as a result of personalization strategies.
This is why brands are now implementing new technologies to allow customers to personalize products on their e-commerce platforms in a totally easy and innovative process, which increases engagement as well as revenues. 3D interactions could increase conversions lead by over 30%!
Process optimization to improve efficiency and reduce costs
Automation enables processes to become faster and thus more effective, thus driving synergy across departments and channels. This ultimately leads to a reduction in costs of operations and human resources.
Businesses from around the world are trying to integrate new technologies in order to automate as many levels of manufacturing, packaging and shipping as possible. Amazon is one of the businesses that is leading this transition. The company is now expecting to have fully automated warehouses in the next ten-fifteen years.
Logistics: Efficient information flow, fast delivery and connected inventory
As research shows, 46% of people abandon their shopping cart when shipping takes too long, while 35% refuse to purchase products online at all due to the same reason.
Brands that understand the importance of fast delivery like same day deliveries invest significantly in logistics. This involves the digitalization and automation of supply chains, establishing an operating model which maximize the potential of logistics and translates into true values for customers.
It also means to nurture a strong network of suppliers and partners that are quick and flexible, develop the capacity to satisfy all channels both online and offline and the ability to enable a smooth information flow that allow stakeholders to access the right information in the right place at the right time.
Connected inventory is also a very helpful network, which enables other players to offer products that are similar to yours but currently unavailable or incompatible to consumers, by reaching to the entirety of stocks in the market.
This system may be applied both internally within in the same company and externally, by bringing together manufacturers, retailers and distributors.
Benefits of connected inventory include increasing product availability, gaining extra business opportunities, optimizing delivery and better serving consumer demands. Even more, retailers that integrate this system also secures higher conversion rates, as customers have already determined what they need.
Conclusions
Overall, the future of retail is looking interesting and promising. Brands are becoming even more competitive, developing strategies which will make businesses more efficient and customer-oriented. Excellent services, engaging in-store experiences, a high level of customization and automation, will be that criteria that redefine the new retail landscape.
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Resources
https://hbr.org/2020/06/what-will-the-retail-experience-of-the-future-look-like
Future of retail operations: Winning in a digital era
https://www.retailprophet.com/the-future-of-retail/
https://www.rakutenintelligence.com/blog/2020/rakuten-ready-first-timers
https://www.bain.com/insights/the-future-of-retail-winning-models-for-a-new-era/
https://www.emarketer.com/content/what-grocery-retailers-can-learn-from-the-past-weeks
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