Episode 22: The future of retail: in-store vs online experiences

People walking around mall quickly and down staircase

Online shopping, as a habit, has carried over into the present day, leaving in-store shopping to catch up and close that gap. Extravagant in-store experiences are what some businesses are turning to as incentive to bring in consumers. Examples like the Canada Goose freezer changerooms to test out winter jackets and the Apple Store, where customers have access to the newest technology as soon as they walk through the door, as well as individual user-training sessions. These engaging customer experiences encourage people to make the trip to their local mall, and potentially even make the jump with a purchase.

So how should businesses be approaching this landscape? Is it more important to invest resources into online experiences, or in-store ones? Where should businesses be meeting their consumers– in an online space, while they’re in the comfort of their own homes, or in a store, where they can have a face-to-face conversation? Is it possible to invest in both of these areas of retail and have it be successful for brands and businesses?

Joe Aversa, an Assistant Professor in Retail Management, has experience in retail planning and big data analytics. He explains where the retail landscape currently sits, and what businesses are going to have to do in order to keep pace with the demands of online and in-store retail spaces. Dr. Joanne McNeish from Marketing Management shares her thoughts on what the customers may be thinking and what this type of marketing accomplishes for companies.

Transcription

Podcast Transcript - Episode 21
Cassandra Earle	The retail landscape has changed dramatically since the start of the pandemic. Consumers relied on online shopping as a necessary safety precaution, and the numbers were unprecedented. Amazon saw 108 billion in sales in the first three months of 2021, which was up 44% from a year earlier in 2020. Online shopping as a habit has carried over into the present day, leaving in-store shopping to catch up and close that gap. Extravagant in-store experiences are what some businesses are turning to as incentive to bring customers. Examples like the Canada Goose freezer change rooms to test at winter jackets and the Apple Store where customers have access to the newest technology as soon as they walk through the door. These engaging customer experiences encourage people to make the trip to their local mall and potentially even make the jump with a purchase. So how should businesses be approaching this landscape?
Cassandra Earle	Is it more important to invest resources into online experiences or in-store ones? Where should businesses be meeting their customers in an online space while they're in the comfort of their own homes or in a store where they can have a face-to-face conversation? Is it possible to invest in both of these areas of retail and have it be successful for brands and businesses? Joe Aversa, an assistant professor in retail management, has experience in retail planning and big data analytics. He explains where the retail landscape currently sits and what businesses are going to have to do in order to keep pace with the demands of online and in-store retail spaces. I'm your host, Cassandra Earle, and this is Like Nobody's Business.
Cassandra Earle	In order to understand where this area of business might be heading, it's important that we consider where it's been, particularly through the pandemic, the changes in supply and demand, a shift in consumer preferences and a lack of resources for a period of time have all played a role in where the system sits currently. Joe explains what the retail landscape has been through and where things stand now.
Joe Aversa	Yeah, well, I mean, one of the things I'll say, just sort of start off saying is that everybody during the pandemic thought that the shift in movement towards alignment meant that it was going to be the death of the brick and mortar, and it really hasn't been that, right? So there were lineups of people hoping to get back into physical stores to shop and consume. With that said, I think that what consumers expect from their retail experiences and their shopping experiences are fundamentally different from the online to the in-store. And there's obviously clear winners and losers, and there's retail sectors and categories that have experienced greater hardships than others, and there's organizations that have been able to adapt and change these changes in consumer preferences and others that have been laggards and unable to adapt, which has ultimately resulted in their demise. But I think there is, the retail landscape requires both, right?
Joe Aversa	It needs the online and it needs the physical stores. Now, with that said, retail stores historically didn't prioritize the consumer experience, and I think that's one of the major shifts that's starting to happen now, when consumers go into retail physical stores, they're expecting a very dynamic sort of experience. They're not just there to purchase product. The stores are starting to act as forms of media where consumers can go in, they can play. A really good example of this would be like the Samsung store at the Eaton Center. If you go there and you kind of pay attention, very few people are making purchases in the actual store. What you have is a bunch of people going in there and playing. They're experiencing the content, they're experiencing the brand, they're experiencing the different technologies that they offer, and then they're making purchase decisions outside of the physical store where they've made it or they have an intention to purchase, and then they go fulfill that through maybe a different means.
Joe Aversa	Maybe it's online, maybe it's at a different type of retailer, but nonetheless, it's really about the experience of going in and actually playing within those stores. And I think that's part of it. In the Canadian marketplace, shopping centers have gone through a major transition as a result of this growth in online. We've hit sort of a saturation point with shopping center development. And so what you see is primary malls and primary markets don't really have a problem, like your Eaton Center is, okay, the York Dales the square ones, it's those secondary malls. And I think part of that has to do with the shift, the shift that you're sharing. Consumers are not dedicated to just one means of consuming, and there's a variety of options now available to them, and that's move them away from going to a certain types of establishments or just relying on one type versus another. And so some stores are busy, some stores aren't busy, and I think it really depends on what they sell, where they're located, and what they're offering the consumer.
Cassandra Earle	Online shopping has only become more accessible and more popular as time goes on. The convenience, reliability and simplicity of the experience lends itself to being an easy choice for consumers when they're faced with the option. Is this a trend that will continue even with physical stores as an option?
Joe Aversa	Yeah. I mean, this trend existed way before the pandemic, Cassandra. This isn't necessarily new. Look, the retail sector has always been disrupted. Historically. There's been waves of different types of retail formats and waves of new entrances from different countries and different types of retailers. And so it's always been this sort of disruption piece. And the online side existed before, and those pressures existed before and before the pandemic. The physical stores were already under pressure to adapt and change. Look, what the pandemic really did was it expedited a trend. It made it quicker because you frankly didn't have any options for non-essential goods, right? So if you wanted to purchase, you had to migrate to the online either because you were forced to, and some people out of fear, right? They didn't want to go into the physical store. And so again, it heightened it and made it more sort of evolved quicker.
Joe Aversa	But the trend existed well before this, and it's really probably the best way to kind of explain this. It's really a balance between convenience and experience. And so what we're starting to see is people and consumers are really gravitating towards online for the convenience piece, buying day-to-day goods, things of that nature, but still wanting to go into the physical store to experience a different type of interaction with those retailers, whether it's to play to try on, to be immersed in the brand and in that culture, and even for recreational purposes, the recreational aspect of shopping and hanging out and being at a mall or being at a shopping center or being at a physical store. And so again, we have this balance between convenience and experience. Online does a really good job at the convenience piece, the in-store, and there's a lot of retailers that are doing a really good job in the experience side, which are drawing people into the stores. And I think that's become heightened post pandemic, and I think it'll continue to be a trend kind of moving forward.
Cassandra Earle	What about retail stores that rely on extravagant experiences to encourage customers to make that jump with a purchase? An example of this is with Canada Goose and the cold room, which gives customers the opportunity to test their potential jacket purchases in the environment that they would wear them in. Does this help the customer make the final decision ending in a purchase? Dr. Joanne McNeish from marketing Management shares her thoughts on what the customers may be thinking and what this type of marketing does for companies.
Joanne McNeish	I don't think it attracts someone to the store. I think what they haven't done well is they haven't communicated the freezer experience. However, if you've been in the store and realized it was there, it's then something you will talk about. So I think it's also in the basics. You got to build awareness that you offer this experience. The dilemma for in-store retailers though is especially when it's a higher price brand, is you don't want people there for the social media picture, the Instagram or TikTok video, other cautionary tale, and this is why retail is so complex, there's only some people who want to, there's a range of different kinds of shoppers. Some people are experiential shoppers, some people are transactional shoppers. They want to go in, buy their item and get out. And those are actually quite profitable customers because you don't need to spend a lot of time.
Joanne McNeish	They come pre-prepared. They tend to be browsers online. They tend to be, because online stats are hard. They talk about shoppers-- shopping means you visited the website, not that you made a purchase. So they tend to come with a lot of information, and they truly come committed to make a purchase that reduces the load on the company. That's why that integration of website, of online presence, mobile presence and in-store is so important. So these groups, none of which represent a hundred percent of your customer base. Not everybody wants to go in the freezer. Some people are just coming to buy a jacket or a hat. So the key is for, part of the key to this is integration at the backend, a seamless experience, allowing customers to choose how they want to shop.
Cassandra Earle	So consumers are pleased with having both the convenience of online shopping and the opportunity to visit a store in person. But are businesses thriving in this system? Can they accomplish both options and meet the demands of consumers in both arenas effectively?
Joe Aversa	Cassandra, the one thing I would say is that it really depends on the business. There has been a lot of hype around the death, the death of foreign firms. American companies can't last in Canada because Nordstrom decides to leave and everybody's making a big deal about this, or there was a big deal around it. But really, if you look back at why Nordstrom likely was not successful in the Canadian marketplace, it probably had a lot more to do with its it's retail sector. Department stores have had a very difficult time in North America. This wasn't unique to Nordstrom, right? We've seen this with Sears, we've seen it with Macy's in the US to some extent with the Bay. And so it kind of expedites that. I mean, what you have is basically people that have been sort of good at it, or sorry, you have retail categories that have experienced just natural issues and others that don't experience that. And so it's when you kind of look at-- sorry, Cassandra, what was the question again?
Cassandra Earle	That's okay. I'm just wondering how businesses are thriving in this landscape because consumers are, obviously.
Joe Aversa	Yeah, again, I think there's clear winners and there's a dynamic between why or there's characteristics, why some companies will be good at this versus others that are not good or will say that have less optimal online physical kind of interaction and product lines to satisfy their consumers. I think if you're looking at success factors for certain businesses, a lot of them have to do with how well they integrate their online with their physical presence. And I think this is something that's been quite new in terms of online is this big push in terms of this omnichannel, or we can even call it new retail where there's seamless interaction from the online to the physical store and the online compliments, the physical store and vice versa. And so I think that's what we're starting to see with a lot of businesses, especially the larger players in this kind of space. They're really trying to create this sort of seamless interaction between their online, the virtual and physical store. And I think that's where the success is going to be seen is that the companies that are able to do that effectively and are able to provide consumers with a sort of seamless experience, whether or not they're online or in the physical stores.
Cassandra Earle	And so creating that experience that's seamless, let's say, process or transition. How has online shopping then changed to fit in? It seems sort of like in-store shopping has always been solid, it always has its process, its success. How has online adapted to fit into that narrative to fit into that aspect of the business?
Joe Aversa	Yeah, I think, look, there's two parts to your question there. I think the first thing is really just how has online retailing changed, and it's changed significantly over the last half decade, even decade. This idea of increased accessibility, the fact that we have tablets, smartphones, computers, and we can now engage with retailers from basically actually from anywhere in the nineties. That wasn't the case even in the early two thousands. For some extent that wasn't the case. You had to be hardwired on a computer to be able to interact with retailers. It's not, we can basically, shopping is way more accessible to a wider audience group because of our ability to interact. The second thing is really the expansion of marketplaces.
Joe Aversa	What we have, when we think about initial online, it was really just bound to certain retail categories. You think about Amazon, it started as a bookstore, the largest bookstore, and then all of a sudden additional retail categories or retail product category lines, merchandise lines start to come into play. And I think that's another big piece is that we're starting to see things that traditionally people did not purchase online, like groceries, like perishable goods. You're starting to see people gravitate towards that or be more inclined to do it. We have evolving customer experiences with the introduction of virtual reality and augmented reality. We have shifts in consumer behavior, the fact that consumers want convenience and are striving for convenience for certain types of goods. And so they don't really want to go to a store to buy household products. It's not fun. It's not entertaining. You need to buy soap and dish soap and detergent and just mundane household items.
Joe Aversa	And so we're starting to see this movement towards that. And then the logistics side, one of the big things that sort of happened, Cassandra, is that online there was a delay. The final mile to get product to customers is expensive. And that last mile to get it to you also was a temporal problem. It took too long to get you product. And that's changed with same day delivery. And again, that's not for everybody. It's not for every single product, but that's growing. And as those logistical and fulfillment innovations start to sort of adapt and change and grow, what you're going to see is people gravitating towards more towards those online purchases because they're able to satisfy that need much quicker things with drone delivery and Amazon buying, really focusing on that final mile in terms of acquisitions and stuff like that. So it's really been prioritized by a lot of businesses, and that's really going to dictate its success is the fact that if that integration becomes seamless and if these patterns continue, it's going to become easier and more common for consumers to continuously gravitate towards the online for certain types of goods and services.
Cassandra Earle	Is there a way for businesses and retailers to successfully integrate their online and physical landscapes, or will one always prevail over the other?
Joe Aversa	The physical store can never be replicated online. It's very difficult. What you can do is make it as seamless as possible for consumers. And part of this is sort of the buy, see in store, buy online, see online, buy in store, buy online return store, buy in store return online. And so we're starting to see this sort of, I mean, the only way that you really kind of capture that in-store experiences by making it seamless where you kind of navigate between both channels without really thinking about the independent channels, it becomes this sort of truly seamless kind of experience that consumers feel, what the brand or the retail store that they're kind of dealing with, but look for certain types of goods. It's important to be in the physical store. And again, I kind of bring up that idea of the store as media.
Joe Aversa	The retailers, we can think about banking the frontline. We now bank online or banking online is a lot more prevalent today than it was 20 years ago. If we think about retail banks and their purpose, the tellers or the customer service representatives at the front were the first line of sales in essence, where they interacted through relationship building. And then they would refer you product or refer you to people to give you additional product. And that becomes a little difficult when you remove that element. And so from a retailer perspective, there's a place for the physical because it's easier to build some of those relationships and to provide that customer service, that personal interaction. Now with that said, it's becoming easier to do these things online with maybe not human, but the use of chatbots or live customer service reps that now engage with you online.
Joe Aversa	So there there's innovations that are trying to replicate the in-store experience, but it's very hard to actually replicate. And we saw this again with the pandemic. People wanted to get back into those physical stores and wanted to interact with individuals because it offered them something that they could not get online. And so I think that it is an important sort of piece of that relationship and sort of that puzzle. And again, if we think about the store as a form of media that's meant to provide information and to teach and to informed consumers, then it becomes this quintessential element of that retail system that they require you to go in and to engage. And again, it's going to differ by different categories, right? By different retail categories. Depending on what you're buying, it's going to, your need for the physical or for that customer service or for that interaction is going to be different depending on the product.
Joe Aversa	And I think that is one of the key aspects. It's that not everything's equal in the retail world. And unfortunately we think of it that way, which is retail, online shopping. It happens in this sort of vacuum and it doesn't, right? It doesn't exist that way. Some product lines are going to naturally be better fits for online. Other product categories are going to be a natural better fit for the in-store. But I think the presence of pure play, meaning that a retail that only exists in one channel only online or only in store, is going to become a lot less common. Amazon's toying with having physical bricks and mortar stores. So even the traditional online peer players, they're looking at alternative options. And so I think those are going to become a lot less prevalent. But again, consumers are going to dictate what they buy online based on convenience and experience. And that balance between the two.
Cassandra Earle	Age and generation surely plays a part in the decisions that consumers make. Gen Z has almost never known a time without the internet, whereas millennials and baby boomers have lived at least part of their lives without it. The choice to rely on the internet as a way to shop may vary on how much access you've had to it throughout your life. Research from Klarna, a FinTech company that provides financial services for online storefronts says that 56% of millennials and 51% of Gen Zs globally would opt for only online shopping if they had to choose. I asked Joe why he thought this might be the case.
Joe Aversa	Convenience is obviously one of them, and I think that's rooted in the fact that there's a massive product selection. You're not bound by what the store think about it. If you're going to prioritize what mall to go to, how are you going to choose? Well, the majority of people are going to choose the bigger mall. They're going to choose the bigger mall. There's more options. The bigger the mall, the more retailers in the actual mall, and the more likely you're going to be satisfied. Well, think about the online world. Well, the online world is every possible product that you could imagine you have access to, right? In theory, I mean, is that the case? Probably not. But in theory, that's kind of the idea. So consumers have a vast array of products that they can interact with, different brands that they can purchase, and they're not bound by geographies in the sense that maybe that product's only available in the US or maybe it's only available in Europe, but all of a sudden you're now able to purchase these products because of these online stores.
Joe Aversa	Competitive pricing, the ability that you can see what that price is, product reviews and recommendations. So we talk about the sales associate basically providing a review of a product or recommendation. That's one individual. I have access to an entire repository of information from a variety of different people who are basically willing to provide me in the moment details about the purchases that they've made. That's hard to replicate in a physical store. I think you've alluded to it, but Gen Zs and millennials or some millennials, I guess I'm theoretically a millennial, but I remember a time before the internet, I was born in the mid eighties, and it wasn't really until the two thousands that there was this massive proliferation of internet, really. I mean, people had it and it was around, but nothing close to what it is today. And so we think about Gen Zers specifically, you've grown up with it.
Joe Aversa	You don't know a time where this didn't exist. And it creates, you all have this sort of heightened digital literacy. So the fact that they're saying that is not surprising, the role of social media and these influencers and the way that you interact and the fact that you can purchase through social media and stuff like that. Now, the seamless mobile experience, it's become seamless in terms of where and how and when you can shop. And I think that's also an important piece. So I think all of these sort of together are likely the reasons why you're going to see people indicate that they would do that online. There's greater flexibility, right? Greater flexibility, and I think it makes sense for those generations. My parents would be a very different outcome. And if you were to ask them, I'm sure that those percentages won't be as high.
Cassandra Earle	The future of retail seems to be changing so rapidly, and it's hard to know what comes next, which creates some uncertainty among researchers. I asked Joe what some common misconceptions are about the retail landscape and what people should know about the future.
Joe Aversa	People make it sound very doom and gloom, and I don't, you read the newspaper and it's like, oh, it's the retail apocalypse. And then online is always this catalyst for the demise and the failure. And I think it's a lack of innovation on the retailer's parts. That is the real catalyst for that. You need to adapt, you need to change. If you think about department, I always go back to department stores. They're such a good example. They were such an important part of the retail landscape historically in Canada, pre-World War ii, Eaton's, which all the major, the Eden Centers named after Eden, which was a department store. And Simpson's accounted for about 10.5% of all retail sales in the country. Sorry, post World War II, right? 10.5% of all retail sales in the country. They didn't sell food. It's massive from two companies. So it was hugely important.
Joe Aversa	Our mall development, all the mall development you've seen in Canada was largely contingent on the department stores being willing to migrate to the suburbs. So there's hugely important. And what did we see in the nineties when we start seeing these category killers come in, start to dominate retail categories. So you got your Best Buys, your Home Depots, and what happens to those department stores? Well, the product categories start to shrink, and they've become really fashion retailers. So if you look at these department stores, their fashion offerings have basically grown, but they were truly general merchandise retailers. They sold everything, and that really put pressure on them to kind of change and adapt. And so the online gets blamed for a lot of this, but I think a lot of it has to do with, look, there's a constant disruption in any sector. There's constant new things, new technologies, new innovations.
Joe Aversa	And if you ignore them, then you'll fail. It's that simple. It's like Blockbuster. We were loyal to Blockbuster when I was a kid. You went on a Friday night to a blockbuster, it was rammed, right? There's tons of people in there. And you would assume this is a quintessential element of the culture in terms of how people rent movies or watch media at home or entertainment at home. Well, that migrated and changed and Blockbuster. And so what happened? Well, they got taken over. They got replaced by the next thing that was going to offer that convenient element. And so that's the only thing I would say is that it's not necessarily doom and gloom if you are cognizant of the changes that are happening and you think about the ways that you can reach your consumers and adapt to the times. And as long as you can do that, I think that the future's bright for a lot of businesses and retailers.
Joe Aversa	If you can't do that, then it becomes a bit more challenging. Now, with that said, are there certain sectors that are going to experience by default, more challenges? Of course, some businesses are going to have difficulty. Some smaller businesses are going to have difficulty managing the online because of the cost of investment and moving towards that. And so it's not going to be easy or equal for everybody. But if the consumer's prioritized and those changes in demand are being looked at, then there's opportunities for retailers to adapt and change to be able to fulfill those needs.
Cassandra Earle	And looking toward the future, what does this mean for retail? How will the landscape change with time? And what does that mean for businesses? Are retailers eventually going to have to choose between investing in resources online or in person?
Joe Aversa	I think what the pandemic taught us is that we need both. And I think that for retailers to be sustainable, they need to think about both options because each one offers a very different thing to the consumer. And if they don't prioritize the consumer and your preferences, then it becomes problematic. And the truth is that the preference of the consumer is both. So I think that the only way a retailer can be sustainable is if they prioritize these two elements and they treat them with equal importance in terms of prioritizing the way that they can leverage them. And when I say equal importance, I don't mean that more physical stores than online invest. I mean in the sense that they prioritize and understand their roles equally and keep that in mind when making any sort of decision. And so I do, I think the sustainability piece here is that if you want, and I understand from a retailer sustainable perspective, that you need to prioritize those two elements, or else it becomes largely problematic.
Joe Aversa	And we're starting to see this with a variety of businesses that have experienced challenges because they didn't prioritize this. And you think about Sears. Sears was probably primed to be the online retailer. They were the Amazon of its time, right? So if you think about what Sears offered when Sears first came to Canada through the joint venture with Simpsons, Simpsons had the physical stores. Sears had the catalog, which meant that people could purchase from really rural areas that didn't have access to department stores, because department stores traditionally pre-World War II were nestled in the downtown cores, highly accessible by streetcar or public transit. So if you were living in a rural community, it was very difficult to obtain high order goods from department stores. And so what Sears did was basically provide options for those individuals through catalog stores and depots and these types of things.
Joe Aversa	They were primed to make that transition, if you think about it, but they didn't. And that could be for a variety of different reasons. And I don't want to get into, obviously, I'm not a Sears insider, and I can't tell you exactly what went wrong beyond anything that the media has told us. But the fact of the matter is here you have a retailer that Sears, if you told someone in the seventies that Sears would fail, they probably would look at you and be like, there's no way Sears. There's no way that this company's ever going to fail. And fast forward a few decades later, and they're no longer here because of some of those challenges. So I think the only way to really be sustainable is to prioritize them. Prioritize them both.
Cassandra Earle	Like Nobody's Business is a presentation of Toronto Metropolitan University's Ted Rogers School of Management. For more information, visit torontomu.ca/tedrogersschool. Thank you for listening.

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