Physical Stores Can Play Key Role in Omnichannel World, but Must Evolve

It's no secret that ecommerce sales are rising much faster than retail sales at physical stores.

Supply Chain Digest Says... The "warehouse" part of the store will use mechanized or automated materials handling systems, and actual racking systems similar to traditional DCs. What do you say? Click here to send us your comments Click here to see reader feedback

In fact, according to Commerce Dept. data, ecommerce sales in the US have seen average growth of 16.3% annually since 2010, versus just 3.1% for physical retailers.

But as seen in the chart below, that gap has jumped enormously here in the pandemic, with on-line sale growth of around 40% in Q2 and Q3, and predictions for about the same for Q4.

While grocery stores and a few other retailers have thrived in the pandemic, many are struggling - and will have to rethink their store designs in an ecommerce world.

That according to a new report from real estate firm CBRE.

The report, in fact, says that "One of the most important takeaways for retailers during the COVID-19 era is that physical stores are an important component of their omnichannel strategies. Whether use as distribution hubs for last mile fulfillment of digital sales or for introducing new in-store experiences as the pandemic subsides and traffic gradually returns, it is evident brick and mortar can serve as a key role in the multi-channel consumer purchase journey."

CBRE expects physical stores to be around for the long haul. However, it sees big changes, as "stores will be used in new ways, and portfolios rationalized differently to preserve the brick and mortar retail experience while accommodating the fulfillment of soaring digital sales in one holistic ecosystem."

The result: the arrival of a new hybrid store model and "entirely new asset class" integrating retail and industrial real estate, CBRE says.

The new store model will both drive the consumer experience as well as enable logistics capabilities for on-line order fulfillment - a strategy that of course a number of retailers including Walmart and Target have already embraced.

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The in-store design will include seven key elements, CBRE says:

1. Curbside Pick-Up: That should include a dedicated pick-up area that doesn't overlap the main store entrance.

2. Digital "Wayfinding" Signage: Actual signs or mobile apps will help consumer navigate their way around the store.

3. Dedicated Click and Collect and Returns Areas: It is important that these functions don't clutter the in-store shopping experience.

4. Customization Studios: Areas dedicated to customer engagement and customization, as well as events and demonstrations, often using virtual and augmented reality.

5. High-Tech Product Experience and Fitting Rooms: Consumers will have private spaces for product experience, and use technologies such as "smart mirrors" that enable consumers to virtually try on apparel, for example.

6. Check Out Areas: Consumer should have ability to check out using store associates or via self-serve kiosks. Contactless pay options will also be key.

7. Hospitality and Media Lounge: A place where shoppers can access digital platforms that enable them to interact with the brand, products and social media.

Similarly, these new hybrid stores will have three key logistics capabilities:

1. State of the Art Systems: The "warehouse" part of the store will use mechanized or automated materials handling systems, and actual racking systems similar to traditional DCs. Inventory will be used for on-line fulfillment, store pick-up, and to replenish store shelves.

2. Inventory Optimization Technology: Software that supports continues and optimal store replenishment will be key, CBRE says, with RFID or other technologies to ensure high levels of accuracy.

3. Better Training of Store Employees: CBRE says in this new world retailers might want to hire some workers with warehouse experience.

There will be many challenges to execution of the store of the future, CBRE says. Those include store staffing, site selection and lease structures. Retailers will in effect be pursuing two different business models in one physical space.

"Although retailers may continue to experience decreased brick-and-mortar traffic and sales from the COVID-related ecommerce surge, measuring the store's value must include its contribution to greater online sales, customer interaction, personalization and service," the CBRE report concludes.

Any reaction to CBRE's vision of the store of the future? Let us know your thoughts at the Feedback section below.