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Stores hold key to maximising online efficiency as retailers urged to adapt them to distribution

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Technologyis one of the key drivers to reshaping stores (Image: shutterstock)
Technologyis one of the key drivers to reshaping stores (Image: shutterstock)
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Up to a third of physical store space could eventually be dedicated to online fulfilment: study

Using stores to reduce last mile costs will maximise online capacity and efficiency for retailers, putting those with a store portfolio back in a dominant position, research suggests.

 

According to the Edge Retail Insight’s Winning Strategies: Store of the Future 2021 report, the reallocation of store space to accommodate new shopping habits could mean that up to one third of store space could be resourced to fulfil online orders in major channels and larger store formats as ecommerce share of global chain retail sales grows - reaching 34.8% by 2023 and almost 40% by 2025. Ecommerce growth jumped two years ahead of Edge Retail Insight projections made prior to the COVID-19 pandemic.

 

The report also warns that, with same-day delivery now a table-stakes offering, retailers must use their physical assets as delivery intermediary fulfilment centres – as Waitrose and Sainsbury’s have been trialling with Deliveroo in the UK and Asda with Uber Eats – autonomous vehicle hubs, ultra-rapid delivery spokes and click-and-collect hubs to offer greater convenience and proximity to customers.

 

The report’s authors warn that the traditional store-based economic model is now under threat from the shifting consumer landscape and emerging technologies that are transforming discovery, selection, and purchase.

 

Deren Baker, CEO at Edge by Ascential, says: “The global pandemic accelerated the adoption of online retail across all key categories. With record numbers of store closures since the outbreak of the pandemic, store-based retail is now at a tipping point. However, a lot of value remains in the bricks-and-mortar model - you just need to look at Alibaba and Amazon’s investment into the high street as evidence of that. But retailers and suppliers must invest in a range of new capabilities to drive successful actions in the future store, which will have very different characteristics to the model that worked until about 2010.”

The changing landscape for store-based retail (Source: Edge Retail Insight)
The changing landscape for store-based retail (Source: Edge Retail Insight)

The report also says retailers have no choice but to adapt their store formats to remain relevant in the post-pandemic retail landscape. It shows that from 2021 through to 2026, the share of online sales in major markets is set to grow rapidly - up to 70% in categories such as electricals, which is 10 basis points higher than today. The leisure and entertainment category in the UK and US is moving towards an ecommerce share of 50%, while Germany is further ahead, already at 50% and will account for 60% in 2026.

 

Ecommerce share is lower in the health and beauty and grocery categories, particularly outside the UK and the US, but the overall trend is upwards in all major markets for ecommerce in these categories.

Ecommerce store share by country (Source: Edge Retail Insight)
Ecommerce store share by country (Source: Edge Retail Insight)

In 2015, store-based share of global chain retail sales stood at about 87%. In 2025, it will drop to 62.4%. This move is undermining the viability of a store designed for the pre-digital age.

 

David Gordon, Director, Omnichannel Insights, Edge Retail Insight, adds: “Against a backdrop that has never been more challenging for legacy retail and in a new reality where online and offline channels will be increasingly blurred, to differentiate, the store of the future must become a physical portal into brand and product experiences - becoming places where consumers can be inspired, learn, co-work, socialise, and experiment with new products, while using digital touchpoints, such as mobile phones and social media, and other technology advancements to drive in-store traffic and enable physical stores to operate as part of a broader, interconnected ecosystem. This will mean, among other things, that the store network will become an increasingly vital part of last-mile fulfilment. ”

 

The Winning Strategies: Store of the Future 2021 report highlights several key characteristics that will be critical drivers for a successful and profitable store of the future model:

  • Experiential – In-store experiences should drive traffic, stir excitement, educate, and foster levels of shopper connection between the brand and consumer that are ultimately unmatched online.
  • Social – Retailers must find ways to create spaces for connection and community engagement to retain their future presence in shoppers’ daily lifestyles. This could be via promoting their status as a ‘community hub’ or destination for consumers, such as integrating key community services, from health centers, to electric vehicle charging, and localising elements of the store to connect with local communities.
  • Frictionless – Frictionless store initiatives will be a long-term trend to provide simpler, faster and more seamless experiences and will intersect with digital integration and technology to evolve the shopper journey. This could be via personalised promotions and try-on tools, digitally-enabled payments and seamless fulfillment options.
  • Curated – Momentum is building to differentiate in-store assortments through exclusive partnerships and faster innovation cycles. Cause-related curation is becoming a relevant trend.
  • Operational Excellence - The store operating model ultimately must be as cost efficient as possible and that means increasing creativity in space utilisation, a focus on margin-enhancing categories and assortments and increasing task automation through robotics and artificial intelligence (AI) technology.
  • Fulfillment Solution - rethinking the physical store as a fulfillment solution, adding convenience, such as curbside collection, and additional capacity such as dark store picking zones, to support the last mile offer.
The store of the future (Source: Edge Retail Insight)
The store of the future (Source: Edge Retail Insight)

Florence Wright, Senior Analyst, Edge Retail Insight, concludes: “Physical retail will remain an integral part of the future of retail, but it will be increasingly frictionless and digitally-driven, like the concepts pioneered by Amazon with its checkout-free Fresh supermarkets and Alibaba’s hi-tech Freshippo supermarkets being rolled out across China. Strategies will vary across markets depending on digital maturity and categories and there will be no one-size fits all approach. But regardless of the speed or nature of the transformation, the characteristics and end goal of stores of the future will be universal.”

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