’90% of retail transactions are still carried out in physical stores’ – it’s time for a dose of retail reality
BLM met with global retail guru Jens Nordfalt to discuss the reality about what’s happening to our high streets and find out what the future holds for the retail sector.
What do you feel are the main issues affecting the retail sector?
Everybody in the retail world – whether you’re Amazon or bricks and mortar stores – are struggling with understanding what their role is and what type of business they are in, due to digital transformation.
Digital progress is the driver of change in the sector, but it is not having the detrimental impact that many thought it would. Five years ago, it was predicted that physical stores would be swept away by e-commerce but that hasn’t been the case.
The fact is that 90% of retail sales still go through the physical stores and only 10% is through e-commerce. Yes, most of the growth in the retails sector is through e-commerce but even that has declined in the last couple of years.
It’s interesting that online natives such as Amazon are making sure they have a physical presence. It’s not a coincidence that Amazon’s biggest investment was the purchase of a physical chain of stores – Whole Foods Market.
It’s also interesting to note that H&M have the highest online activity in the geographical region’s of their stores.
To conclude this point – yes digital is the primary issue affecting the sector but if you’re able to adapt and become omni channel you can thrive in the sector.
With many retailers still failing, where do you feel they are going wrong?
There are many factors that will influence whether a retailer fails or not and one of them is the ability to adapt to change in the sector. Interestingly, the number of physical square metres being used by retailers is going up but just not in the traditional way.
Retailers just need to find and adapt to their new roles because you don’t say much when a web page closes because it’s not as obvious as when a physical store does, but both will be happening.
It’s also worth thinking about some statistics from Westfield – who are Europe’s largest commercial real estate agents. If you open a store in one of their malls, online sales go up by 53 percent in the geographical region where the mall is. If you then close the store, you then lose a third of your online sales.
Physical stores work as an important advert and there are inherent problems with e-commerce because if you’re not in the top three or four in a Google search, you’re not visible. Successful brands need to have both a physical presence and a slick online operation.
The retail brands that aren’t surviving are often not adapting to this and it may also be a case of bad management. Another fact could just be plain old bad luck – like with the travel sector which has been disrupted by Air BNB or retailers that were selling DVDs or vinyl records.
In some cases, digital has taken over but if you’re failing in verticals like grocery it’s because you haven’t adapted, or you don’t have the financial muscle to adapt.
Can you give an example of a retailer that has got it right?
Walmart is a good example of a store that has adapted. They have been very clever behind the scenes and invested in operations, logistics and automation but if you were to look at their physical operation you wouldn’t be overly impressed. There are no drones just trucks and the distribution centre look old and it is very people intensive.
It’s not always the case that the stores that survive are on top of digital trends but it’s the ones that know what they should be good at and invest to become this.
Is there a sector in the retail space that is most likely to be disrupted next?
I’m never sure why the retail sector has been given so much media attention because it hasn’t been wiped out and I said earlier, 90% of sales are still in store.
But it is being transformed as a sector and whilst I wouldn’t say a niche is at risk any retailer that holds lots of stock, whether that’s seasonal or fashionable are going to have to be on their toes. This is because you must be careful about being overthrown by your own merchandise.
Shoppers often know what they want before they come into the store, so if they get to the store and can’t find it then they will leave and go online.
A solution to this is to be omni channel with some stock in store and a wider range online but with staff in store who can sell the online solution to you there and then, backed up by fast delivery. That way you can service the customer and not have to hold too much stock.
In your opinion, why has Ikea been such a retail success story?
You’re starting to see more stores stealing ideas from Ikea because they do so many things well. In store they are very good at presenting the merchandise in a way that you would want to use it in your home or office.
It’s almost impossible to go into an IKEA store and not be inspired. You may think it takes too long to navigate the store but there is always an idea or inspiration you can leave with.
At a more technical level there is also a science to IKEA. You’re not allowed to walk more than 17 metres before you must turn. This is because they realise that our eyes are positioned in our faces, not in our heads like rabbits and most stores don’t operate in this way. Furthermore, in retail a key area of the store is known as a hotspot and in Ikea you will walk towards more than 100 hotspots in a store – way above the average.
It is a unique retail experience, but it hasn’t been created by chance. Everything in the store is designed in this way to have an impact on the customer.
In your opinion, what impact is technology going to have on the retail sector?
I worked on a project that loaded loyalty cards with Near Field Communication (NFC) but regulations around GDPR has stalled this and I would say the next generation is now around facial recognition and how this impacts your journey in the store. Certainly though, NFC and iBeacons haven’t had the influence people expected and this has been due to regulation, friction and precision.
Another trend you’re also seeing is Smart Mirrors, where you can communicate with it by voice control. You can try a top on and ask what the price is, where it is made, and you can ask to see it in another colour. This is just around the corner and we’ll start to see it more and more.
And how about the impact that Smartphones will have?
This is interesting because we conducted a study around the use of Smartphones in stores and whether a person using one spent more money when they were in the store.
The results showed that shoppers who use their phone in store spend 40% more than those that don’t because often they’re on autopilot and don’t feel as stressed and compelled to leave the store quickly.
This report has changed the face of retail because management now encourage staff to use their phone and for customers to connect to WIFI in store.
What do you see for the future of Amazon Go stores?
You will see more stores like this in operation, but they won’t be for everybody. Shoppers fall into the categories of economic, social, ethical and apathetic. Social shoppers make up one third and they like to have interaction when they are in a store.
A fundamental question is – if you could buy everything from your sofa, would you do it? Or would you like to go out and meet people? Stores with no staff are a solution for some but not for all.
Can you tell readers about your early life in business and academia?
I am from Sweden and I have worked in retail and academia for all my life. When I find that academia is too slow, I go back into business and when I find that businesses are too sloppy; I often go back to working in academia.
My career started at the head office of Sweden’s largest retailer ICA.
It’s a grocery store and they have higher revenues in Sweden than IKEA and H&M, even though they aren’t as well-known globally.
Whilst working there, I realised soon that there wasn’t much analysis and insight around how you can get the best out of a store and knowledge around visual merchandising and in-store marketing.
Because of this I asked my boss at the time if I could become a doctoral student and continue to work at ICA. I then enrolled on a PHD at Stockholm School of Economics.
Following this I was asked by ICA to get up an experimental department within the business and as part of this I got to play with 2,500 stores and develop winning retail strategies.
I could create and change merchandise and layout within the stores and my work had a huge impact on the business models of ICA.
What did you do after this?
I was then approached by the former CEO of ICA who told me that the industry had an issue with engaging young people, so I worked with him to establish a research foundation and I became CEO of this. I was then asked by the Stockholm School of Economics to set up a retail management school for them.