Whilst it may seem like online shopping has become more prevalent than ever in recent years, a large portion of the population still rely on traditional brick-and-mortar retailers.
For example, the online share of total retail trade in 2023 was 26.7 per cent in the UK (according to the Office for National Statistics), 15 per cent in the USA (US Census Bureau) and an average of 15 per cent across the European Union (Centre for Retail Research).
However, these figures are gradually rising, due to a growing number of e-commerce outlets, availability in more rural areas and increased awareness of the benefits to online shopping, such as convenience to product choice.
Consequently, retailers must focus on evolving their physical stores to introduce new appeal for customers and keep them coming back.
According to Shanthi Rajagopalan, senior director and global head of strategy for worldwide retail and consumer goods at Microsoft, physical stores have the potential to become “micro-fulfilment and experience centres that provide opportunities for customers to browse, discover and try products, whilst developing a very effective advertising surface.”
To unlock this value and maintain a dedicated customer base, retailers first need to ask the question: what do consumers seek from a positive in-store experience?
“Customers want stores to be clean, well-lit and well-merchandised,” says Rajagopalan. “They want products to be easy to find and available for purchase, and they expect to be able to checkout and pay with as little friction as possible.”
In addition, says Rajagopalan, customers visiting physical stores wish to have unique experiences that an online purchase wouldn’t provide to make the journey and physical effort worthwhile. “This could include stores offering a better price or selection of products, or value-added services such as subscriptions, personalisation or repairs,” she says.
Operating physical stores alongside e-commerce channels also provides retailers with an opportunity to deliver omnichannel experiences. “For example, they can offer ship-from-store and click-and-collect services to customers, which delivers additional value,” says Rajagopalan.
The term ‘digital transformation’ is one now heard frequently as a variety of organisations adopt and streamline technology solutions that provide new opportunities and optimise their operations. The key to achieving this lies in utilising data. However, for retailers working in traditional storefronts, this is proving difficult.
“It has always been a challenge for retailers to get data from physical spaces, so as customers go from online (known) to in-store (often unknown), they struggle to connect the dots and leverage data to improve the shopper experience,” says Rajagopalan. “This gap extends beyond the customer to areas like inventory as well. Getting an accurate count of items on the shelf or in the back room can be elusive for many. In addition, operational data, often focusing on temperature, lighting or foot traffic, is much harder to measure in stores where network connectivity might be limited, sensors have to be maintained, and data has to be collected in batches and then uploaded.”
Digital solutions and platforms such as Microsoft Cloud for Retail and Dynamics 365 can support retailers with this process by collecting and connecting information from all parts of the business.
“To bring the best experience to the customer, retailers must really know their customer, and data platforms like Microsoft Cloud for Retail can serve to aggregate insights,” says Rajagopalan. “From there, analytics can be used to optimise experience and operations whilst additional business applications can improve assortment, service and commerce.”
To add further value to the data platform, retailers can use a range of solutions from Microsoft’s partner ecosystem that are tailored towards the specific needs of physical stores, such as shelf analytics, sensors and more.
UK retailer Asda, for example, has improved its inventory processes with radio-frequency identification (RFID) technology from Microsoft partner SML. The firm’s solutions, including its RFID tags and Clarity software, helped Asda to increase the availability and stock tracking of its George clothing line, which improved customer satisfaction.
“RFID has been the biggest piece of strategic change the George business has seen in the last ten years,” said Kirsty Buxton, senior manager of RFID for George transformation at George Clothing. “This sentiment was echoed across the business with positive feedback from various stakeholders, from store floor employees to executive management, all noting the profound impact of this technology on daily operations.
Other Microsoft partners supporting retailers with the digital transformation of in-store experiences include Blue Yonder, which is combining the planogram capabilities on its platform with in-store customer data to help retailers optimise inventory and improve on-shelf inventory accuracy. The platform runs on Microsoft Azure to ensure a seamless connection between data and insights.
Furthermore, Xpand (formerly 1MRobotics), is helping retailers deliver autonomous checkout experiences. The virtual store interfaces allow customers to shop and collect their products at one terminal, providing convenience for the shopper and reducing workload for employees. The terminals can also be installed in third-party marketplaces, providing an omnichannel experience and enabling further benefits such as courier delivery services.
According to Rajagopalan, one of the advantages of physical storefronts is that they are often more “service-rich” than their online counterparts. However, providing great customer service requires people, time and training, which can be a challenge in a tight labour market. Retailers that have an established data platform with a comprehensive set of sources can harness the power of generative AI to take it to the next level.
“Generative AI and chatbots are a great way to level the playing field for all associates and help them provide excellent service,” says Rajagopalan. “If they have a question, they can ask it with natural language and get a response immediately. Likewise, if they spot a problem, they can create a task just by describing it, or if they want to better understand sales performance and root causes, they can just ask the question.”
AI is also paving the way for more intelligent technology such as robots that can further alleviate the day-to-day workload for some store employees.
Earlier this year, Canadian Tire Corporation collaborated with Microsoft partner Sanctuary AI to start the development and introduction of humanoid robots into its stores. The general-purpose robots are designed to alleviate tedious tasks in retail stores and distribution centres so that employees can focus on more valuable work. For example, the robots will be able to help with picking and packing items in stores, which will allow employees to spend more time on tasks such as customer service. According to Geordie Rose, CEO of Sanctuary AI, the results were “spectacular”.
Canadian Tire Corporation is introducing humanoid robots into its stores with Microsoft and Sanctuary AI
Generative AI also has the potential to streamline the shopping experience for customers. Tools typically seen online such as conversational product discovery chatbots are being brought into in-store kiosks for services such as digital stylists. These in-store tools have the capacity to collect data on local customers to help retailers get a better understanding of their direct target audience’s needs.
“If everyone in town is talking about an upcoming event, stores now have a way to extract those insights and use it to better plan for local assortments, inventory levels and staffing needs,” says Rajagopalan.
Whilst economy struggles remain prevalent, physical storefronts can be costly for retailers to maintain. Throw digital transformation investments into the mix and it may be difficult for retailers to identify how they can gain a positive return on their investments.
“Retailers have to start thinking about the store as a node in the omnichannel network, and less as a physical space where the investment put in must be offset by the revenue gained,” says Rajagopalan. “The revenue influence and impact from stores reaches far beyond the products physically purchased on that trip and retailers must weigh the value of the store based on customer loyalty, lifetime value, basket size and total revenue for the geography.
“This is now more vital than ever as customers learn about products from different sources, gather information from external influences or make purchases outside of the place of discovery through other online marketplaces.”
Rajagopalan explains that digital transformation can bring additional benefits that may not be visible at first glance.
“Investing in data and technology can help to improve operations from optimising inventory levels to reduce waste to improving energy efficiency and space utilisation,” she explains. “All these things help keep costs in balance while allowing the store to play a unique role in the customer’s omnichannel journey.”
Discover more insights like this in the Winter 2024 issue of Technology Record. Don’t miss out – subscribe for free today and get future issues delivered straight to your inbox.