Online retailers get physical to muscle in on customers

The conventional wisdom in the internet age is that digital is always better than physical, but reality doesn’t seem to be in agreement. A move back towards the physical world has been picking up steam over the past few years and looks like it could be an even bigger trend in 2016.

The reversal is particularly poignant in retail, a sector mired in doom and gloom - and store closings - ever since Amazon and eBay opened their virtual doors in the 1990s. Whether it’s the high-profile bankruptcies of mega-chains such as Blockbuster, Radio Shack or Brookstone or the ongoing woes of Best Buy and Sears, it’s clear that the economics of big box stores have been permanently disrupted.

It wasn’t so long ago that Borders, Walmart and their kin crushed smaller retailers by offering economies of scale that allowed them to sell a wider range of products at lower prices.

In their turn, online operations have blown those advantages up even larger, creating the same competitive deficiencies for big boxes that mom-and-pop stores faced a generation ago.

But it’d be a mistake to equate the fate of chain stores with all retail. If the point of all technology is to make existing processes better, then the advent of online retail is actually leading to the creation of better physical stores.

The trend is under way, with a raft of previously online-only operations opening so-called bricks-and-mortar outlets in recent years.

In the United States, for example, women’s clothing e-tailer Boston Proper has a number of stores around the country, as does Rent the Runway, which initially succeeded online by offering short-term rentals on luxury fashion.

Rapha, a high-end cyclewear e-retailer based in London, now has physical branches in Osaka, New York and Sydney. British jeweller Astley Clarke has also made the move to stores from online-only.

Even Amazon, the undisputed king of e-commerce, is following the trend. The e-giant opened an honest-to-goodness bookstore in its Seattle home last month, an experiment in physical retailing that it hopes will lead to a larger real-world presence.

The difference with this brand of physical retail 2.0, besides generally being smaller than the big chains, is that the stores are data-driven. Many are working off a wealth of customer data gathered from their websites, which is information they can use to tailor the in-store experience to shoppers’ tastes.

Amazon, for example, stocks 6,000 books in its store, with titles selected based on reviews and sales data. There isn't much filler - just the stuff people really want. "We've applied 20 years of online bookselling experience to build a store that integrates the benefits of offline and online book shopping," Amazon Books vice president Jennifer Cast told The Guardian.

Montreal-based online men’s clothing retailer Frank and Oak, which now has more than a dozen stores in North America, has customers fill out profiles that are similar to what might be found on a dating website. They list their style, size and colour preferences and can then make an appointment on their phone to come into a store and meet with a stylist, who prepares possible purchases ahead of time.

Customers can even get a haircut in-store.

“You literally have someone helping you out for half an hour. It’s highly personal,” founder Ethan Song says. “You can’t just sell a product anymore. Experience is one way that retail can innovate.”

Adding fuel to the trend is the fact that people don’t want to be digital - or staring at screens - all of the time. Surveys have shown that more than two-thirds of people under 25 prefer to shop for items such as clothing and shoes in actual stores.

Even bookstores are seeing a renaissance. Aside from Amazon’s foray, the American Booksellers Association counts 2,227 independent shops as members this year, up from a low of 1,651 in 2009. Some are data-driven, but they’re all tapping into the same vein of hyper-personalisation - something the big chains simply aren’t equipped to deliver.

Bigger obviously isn’t the key to retail success in the internet age - how smart a store is will matter. The successful retailers of the future are the ones who will deliver highly personalised experiences to customers, built off the data they gather about them.

Peter Nowak is a veteran technology writer and the author of Humans 3.0: The Upgrading of the Species