3 Ways Physical Retail Can Capture a Slice of $4 Trillion

By Vishwas Anand, Samad Masood June 2019   |   Article   |   8 min read   |   Email this article   |   Download
Physical retail can pick up sales and customer loyalty by targeting the friction points in online retail. Money is being left on the table by poor digital experiences, but better harmonization with physical stores can close the gap.
3 Ways Physical Retail Can Capture a Slice of $4 Trillion

Physical retail stores are under strain. A quarter of U.S. malls are expected to close in the next five years,1 while in the U.K., store openings plummeted in 2018, meaning a net 1,123 stores disappeared from the top 500 High Streets in the nation. This reflects the findings of our own survey of 5,000 shoppers,2 which found that 31% of shoppers went to a store less than they did five years ago. To turn this around, retailers can take three important steps: better integrate with digital channels, change returns into an opportunity, and introduce service and technology innovations.

The $4 trillion-plus opportunity for physical retail

The rise of online retail is largely to blame for physical stores’ woes. But digital shopping is by no means perfect. On the one hand, cart abandonments impact sales significantly and provide proof that customer opportunities are being lost. According to data tracking from Domo, a cloud tech company, $7.6 million is abandoned in online carts every minute.

Extrapolated over a whole year, this represents $4 trillion of money left on the table in 2018 alone.3

On the other hand, digital retailers are also struggling with returns hitting their bottom lines — especially in the fast-fashion space.4

Research also says that 81% of online stores are very concerned about the rising impact of customer returns,5 totaling $600 billion per year across all retail.6 About 30% of online orders are returned, triple the rate of items bought in store.

Recently, online fashion giant ASOS toughened its returns policy and deactivated several accounts of serial returners. A number of retailers have also taken a tougher stance with returns in the past year. Even Amazon banned customers from its site for returning too many items.

What’s the total worth of the top and bottom lines being hit by online retail? The cumulative value of cart abandonments and returns stands north of $4 trillion. To put it in perspective, this is comparable to the $4.4 trillion of revenue generated by the world’s top 250 retailers in 2016.7

Harmonizing physical and digital retail

Of course, the $4 trillion is just illustrative. It is not possible to realize this entire figure into revenue. There will always be returns in some form, and many abandoned carts were never going to be true sales opportunities in the first place. But it’s worth understanding why shoppers are leaving so much money on the table so often. We believe that it is something that could be solved or improved by better integration and support from a physical store.

This stronger link between physical and digital retail is something that we call harmonization. It’s a key tenet of our belief that the future of retail has to incorporate both physical and digital properties, which are designed to fit the customer’s life and his or her needs and preferences. Steve Dennis, Forbes columnist and a top five global retail influencer, agrees.

“It turns out that when retailers see their stores as assets to be leveraged, rather than liabilities to be optimized — and -recognize that the customer is the channel — the combination of strong digital capabilities and reimagined brick and mortar is often pretty powerful,” Dennis told us in a recent conversation on the subject. “More and more it will seem like all the store’s a stage as brands create highly immersive and memorable experiences that can only be found in their brick-and-mortar locations.”

Physical retailers — especially traditional brick-and-mortar stores — that aren’t optimizing their websites will fail to capture shopper data and insights from online retail. To compete with pure-play online retailers such as Amazon, Etsy and Alibaba, physical retailers must look at their stores as assets to organize, keeping customers central to their reinvention.

Pragmatically speaking, though, where should a retailer start its journey toward harmonization? A good starting point is to target two areas where online retail is struggling: cart abandonment and product returns.