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The Technologies Reinventing Physical Retail

In-store mobile apps and micro-fulfilment technologies can help address consumer pain points and improve the omnichannel shopping experience. Mobile apps provide a seamless shopping journey for convenience-driven or experience-seeking shoppers. Micro-fulfilment allows stores to fulfill online orders, improving conversion rates, and these technologies increase inventory visibility and order processing efficiency. Fashion executives should invest in technologies that specifically address operational challenges and integrate well with the customer experience.

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68 views

The Technologies Reinventing Physical Retail

In-store mobile apps and micro-fulfilment technologies can help address consumer pain points and improve the omnichannel shopping experience. Mobile apps provide a seamless shopping journey for convenience-driven or experience-seeking shoppers. Micro-fulfilment allows stores to fulfill online orders, improving conversion rates, and these technologies increase inventory visibility and order processing efficiency. Fashion executives should invest in technologies that specifically address operational challenges and integrate well with the customer experience.

Uploaded by

nitakuri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The Technologies Reinventing Physical

Retail
In-store mobile apps and micro-fulfilment tech can address consumer pain points
and enable companies to incorporate their physical retail networks into
omnichannel shopping journeys.

Engagement with in-store technology can lead customers to spend up to


four times longer shopping than customers who simply browse. (Getty
Images)
By
09 June 2022

KEY INSIGHTS
 In store, customers who engage with technology spend up to four times longer
shopping than those who do not.
 Mobile apps provide a frictionless shopping journey, whether a customer is
seeking convenience or an engaging, social experience.
 Micro-fulfilment technologies enable brands to process orders efficiently from
stores, reducing associated costs by up to 90 percent, and can lead to higher
conversion and customer satisfaction rates.

This article first appeared in The State of Fashion: Technology, an in-depth


report co-published by BoF and McKinsey & Company.
The rules of physical retail are changing. Pressure on the economics of operating
stores has been mounting, particularly since more and more consumers began
embracing the convenience — and safety — of e-commerce during the Covid-19
pandemic.

But physical retail is far from dead. A 2020 survey of European consumers
showed that 60 percent of respondents wanted to see or touch products in-person
before buying, while 50 percent shopped in stores so they can take items home
immediately. As pandemic restrictions subside, the percentage of customers
shopping online is expected to fall 3 percentage points from 2021 levels across
key markets, including Europe, the US and China. This presents an opportunity
for players to reshape the role of stores in their overall retail mix.

Engagement with in-store technology can lead customers to spend up to four


times longer shopping than customers who simply browse. But what is the right
mix of technologies to attract customers to stores, and keep them engaged when
they arrive?

Experiments with in-store technologies such as magic mirrors, connected hangers


and interactive holograms were once touted in the industry as a solution to
declining footfall and store engagement. These have largely failed to make a
meaningful impact on in-store conversion rates while requiring hefty installation
costs. Instead, fashion executives should direct investment towards in-store
technologies that specifically address operational pain points and fit seamlessly
into the customer journey.

For example, 20 percent of customers are dissatisfied with online delivery and
returns. Mobile-based technologies that tailor and streamline the in-store
experience and micro-fulfilment technologies that incorporate stores into
distribution networks could help address these challenges.

Mobile Apps for All


Brands can adapt mobile-based technology to the expectations of two distinct
consumer profiles: the shopper seeking convenience and the shopper seeking
experience.

For the convenience-driven shopper, mobile apps can combine digital and
physical shopping experiences in an efficient end-to-end journey. Fast-fashion
retailer Zara’s customer app, for example, allows shoppers to book fitting rooms,
see available stock, find products on the shop floor and join a virtual queue to
complete a purchase. The user experience of such apps needs to work seamlessly
within the customer journey, and the technology can build on existing backend
software, such as inventory management and point-of-sale software.
Fashion executives should direct investment towards in-store
technologies that specifically address operational pain points and fit
seamlessly into the customer journey.

Meanwhile, for customers seeking experiences, social connections and


entertainment from stores, mobile apps can help personalise visits. Nike’s House
of Innovation stores in New York, Shanghai and Paris aim to showcase the
brand’s storytelling. In New York, interactive AR challenges let customers
surface animations and product information by scanning QR codes located on the
shop floor. The in-store experience is particularly attractive for luxury players
whose customers expect brand immersion within stores. In its Shenzhen “social
retail” store, Burberry encourages customers to interact on a WeChat mini-
programme, post photos and access benefits such as “secret items” at the in-store
café.

These technologies also offer brands significant data insights into customers even
if they do not make a purchase, through scanned product tags or tracking items
taken into fitting rooms. Store associates can have apps designed for them, so that
they can use this customer data and improve workflow management, such as
requesting stock for a customer to be brought to the shop floor quickly.
How brands leverage available mobile technology depends on their strategic
priorities. In the mass market, a high proportion of sales may already be
generated through e-commerce apps. Here, a brand could develop an “in-store”
mode to bolt onto an existing app. In the luxury segment, e-commerce apps
commonly account for less than 10 percent of sales, which means it will be more
challenging to encourage customers to adopt app-based behaviours.

Improving Omnichannel Journeys


A customer’s in-store experience is not the only aspect of shopping in a physical
store that can benefit from a digital upgrade. Leading players are also adopting
technologies that allow stores to become micro-fulfilment centres. By using
stores to fulfil online orders, brands can maintain appropriate stock levels across
distribution and store networks and enable fast delivery. Conversion rates are
around 50 percent higher with same-day delivery compared with two days.

Some mass-market players such as Target are repurposing space within physical
store networks to create micro-fulfilment centres, helping them to adapt to quick
commerce and ultra-fast delivery expectations. This is often through buy online,
pick up in store (BOPIS) models or buy online, ship from store (BOSFS), where
the order is sent from a store where all items are in stock. However, to date, most
players have not gone digital. Typically, keeping track of stock is done manually
and in-store stock is not integrated into overall e-commerce stock.

Stock optimisation technologies can help speed up and automate a store’s value
chain. For example, fast-fashion giant Inditex uses RFID product tags that feed
into a single inventory system. This gives visibility into stock levels across
channels, allowing for online order fulfilment from store stock. This visibility has
reduced the time required for store associates to take a store inventory by 88
percent.

Cloud computing is an increasingly viable enabler of micro-fulfilment centres.


By running IT infrastructure in the cloud, brands can centralise their technology
capabilities and collaboration, and run data analytics in real time across store
networks, regardless of where they are located.
For mass-market executives looking to leverage these emerging technologies, we
identify three types of fulfilment models:

 A back-office delivery centre, in which orders are fulfilled with very


limited automation.
 A dedicated in-store floor section for e-commerce order fulfilment, with
some degree of robotic automation.
 A “dark store,” which is a physical store converted entirely into a
distribution or fulfilment hub, which could be entirely automated with
robotics.

The cost savings on shipping alone can be substantial with micro-fulfilment


models. In 2019, Brian Cornell, chief executive of Target Corp, said that when
one of its stores fulfils an online order, it costs around 40 percent less than
shipping from a distribution centre to a customer. When customers order online
and pick up in store, about 90 percent of the cost is saved.

But without technology that can streamline the fulfilment process, from order
allocation to packing, a brand will likely need either high-value orders or a
boutique model with low levels of in-store traffic to justify manual in-store
fulfilment.

Therefore, automation can play an important role across all types of fulfilment
models to help brands maximise cost savings. Brands can use stock optimisation
software, which incorporates all stock across their store and distribution
networks; last mile optimisation software, which boosts the efficiency of
allocating order delivery routes; employee task management solutions; and fully
robotic set-ups that include robotic grids and arms for picking, packing and
storing stock.

When deciding which stores to use for e-commerce fulfilment and what
fulfilment model to pursue, executives should consider the brand’s size, store
density and e-commerce activity, as well as physical store locations and customer
demand. For instance, luxury brands will probably not devote retail space
exclusively to fulfilling orders because of the high costs of their stores’ prime
locations. Instead, they will focus on stock optimisation algorithms to predict the
best location from which to fulfil an order and pick and pack manually —
something mass-market players simply cannot afford to do. For mass-market
brands, automated e-commerce order fulfilment can make financial sense if order
volume is high enough and in a dense, urban area — even more so if customers
are paying a premium for faster delivery.

However, regardless of order volume, using inventory optimisation software to


help predict the number of items returned to stores is a promising use case given
that approximately 30 to 40 percent of e-commerce sales are returned.

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