Here’s the deal – at this point year-over-year closures of retail establishments are up 200% as we inch closer to 2020. If that doesn’t raise an eyebrow, how about this – roughly half of the retail leaders out there are going to refuse to properly digitize and therefore be out of business.

If you own or represent a medium-to-large retail company, you’re in the cross hairs.

Will you be left behind?

Let’s talk about it. Let’s get into the Why’s and How’s. And listen, I’d much rather start on a positive footing, tell a joke or something, but those are the nuts and bolts of the situation.

Meanwhile, according to Capgemini’s report, “Making the Digital Connection: Why Physical Retail Stores Need a Reboot” published in 2017,

“Over half of retail executives in our survey feel that the digitization of their stores is moving too slowly as they struggle with a range of challenges, from adequate training for store associates to difficulties in measuring the ROI of digital investments.”


While I don’t disagree, there’s clearly a widening disconnect between consumers and C-level retail executives as well. Where are the digital incentives consumers are after? Why are retailers continuing to underestimate how dissatisfied consumers are with most physical stores/shopping experiences? Take a look at Figure 4 from Capgemini’s report below. It breaks this disconnect down into specific parts of the customer journey. And keep in mind, this was originally published in the WSJ in 2011.

future of retail stores

Not much has changed…

Consumer culture’s been spoiled by ecommerce – sleek, intuitive, user-friendly websites, products almost always in stock, mobile shopping, easy to compare, multiple delivery options, plenty of relevant incentives, and because of the nature of ecommerce you’re engaged with eTailers like Amazon or Zappos through social media, email newsletters, apps, etc.

Where’s the corresponding optimizations to physical retail stores?

Modernized/digitized retail stores aren’t hard to find in parts of cities like Los Angeles or New York, but how about the rest of the country. Going to the mall in most cities hasn’t changed since the late 90’s before the internet went mainstream!

Consumers today can get pretty much anything they want online, so when they go into a social shopping environment, they’re in most respects looking to invest in an experience – meaning more than walking in, finding something, buying it, and leaving. These days, “stuff” doesn’t mean as much.

In his 2015 article for Ad Age, “Not Just Millennials: Consumers Want Experiences, Not Things” Brian Schultz makes a few salient points on the subject:

The interesting trend I’m seeing is that these traits are bleeding beyond this demographic. Millennials are proving to be cultural trailblazers for older and newer generations. Consumers today are broadly catching on to the notion that experiences make you happier and are as valuable ‐‐ or more ‐‐ than buying fancy things… Experiences are also what people increasingly use to define themselves across social channels.

If you might have the only kind of distressed bluejeans a consumer’s looking for, that could be enough to bring them to the mall. If not, if it’s just, “Come into my store and buy the same kind of jeans you could purchase online from a large variety of brands at many different price points...” then that’s going to become more and more of an issue driving down revenue.

Where’s the digitization modern consumers have been trained to expect?

According to McKinsey and Co’s study, “The Case for Digital Reinvention” the current state of digitization by industry looks roughly like this:

retail digitization

So, you’re wondering where these investments in retail are currently going.

Good question!

But before we look at the numbers, what McKinsey found was that these investments are creating some core change but not quite enough yet to be considered even “reaching mainstream.” For example, most retailers aren’t chomping at the bit yet to help their brands integrate social media into the typical mall-jeans-buying or grocery shopping experience.

state of retail

From my perspective after working with both major retailers and brands in different industries, McKinsey’s picture is too rosy. I’d personally put retail much closer to the Minor Secondary Change section based on how I think consumers feel.

In her fabulous Sourcing Journal article, “The Cold Hard Facts About the State of Retail Today Tara Donaldson did a great job of putting together some context,

That consumer is doing more with less time. She’s more connected with the rest of the world than ever before. She’s moving back to the city, paring down in the “stuff” department. She’s prioritizing filling her free time with travel and experience and exercise over filling her closet with clothes. And when she does decide to shop, she’s spending more and more time doing it online.

Retailers are sitting on the cusp of a paradigm shift where they either take the steps necessary to digitize their physical stores and become a part of the new consumer lifestyle… or fade into history.

Let me give you a more detailed example to demonstrate where we’re at based on personal experience.

An Example of Retail Digitization Challenges

Because of contractual agreements I have to keep names completely out of this, but let’s say I was involved in a gargantuan deal between one of the world’s biggest toy brands and a major retailer.

The toy brand wanted an interactive digital display to compliment their shelf displays (and stand out) that makes it possible for interested consumers to search their entire catalogue of toys – and purchase what’s not on the shelf. Great! But do you know how hard it was just to get a stable wi-fi connection set up in the stores?

Yes, wi-fi. Ever had trouble getting basic connection in a retail store?

In this particular case the retailer didn’t intend on paying for wi-fi, so we didn’t find out until we were into the installation phase before finally discovering, then being told they have a security measure on the store network they recommended that kicks anyone off after 2 hours. Yes, of course we grilled them on the network itself beforehand – enough bandwidth, stability, etc. – because our system relied on the network to tie into a remote database.

  • Getting booted caused our interactive tablet-based displays for the toy brand to malfunction.
  • This made it so the brand couldn’t easily update their displays either.

Uh oh…so, at the last minute we had to agree to get access to the retailer’s hidden network to keep the displays online for consumers to use which became a hassle no one expected. At the end of the day, a mere stable wi-fi connection became a paramount issue for one of the world’s largest retailers.

How about figuring out who’s going to pay for the power needed for the display when ROI isn’t tested?

You’d think major retailers would lavish their brands with power for digitization, but that’s not the case. And if the retailer isn’t paying, displays being run in some retailers today have buckets of d-cell batteries underneath…which aren’t as efficient to maintain. That’s where we’re at folks. And this, in part, is why smaller specialty retailers are doing so much better than their big-box competition.They’re savvier, and making room to get digitized in ways that appeal to modern shoppers.

Here’s another powerful quote from Tara’s Sourcing Journal article that sums things up nicely,

The bright spot in brick-and-mortar has been at specialty stores, which have so far proven themselves better at really connecting with their consumers and telling them an appealing story—whether it’s that the product is locally made or has a sustainability slant or completely transforming what it means for a woman to buy a bra—it’s curated and it’s compelling. Simply selling stuff and then marking it down won’t cut it.

If you look around, or read many official executive-level newsletters (primarily revolving around Wall Street announcements), big name retailers are in panic mode and the best they can do seems to be playing a discount war with each other to see who can offer the least expensive goods in hopes of clearing stock pipelines.

Unfortunately, this isn’t going to play out well for most of them.

Instead, I’d argue they should be shifting resources towards updating and modernizing what it means to visit and shop in their establishments. Give their brands the incentives to digitize. Support their omnichannel efforts. Invest in digitization because right now consumers would rather pick their nails out with tweezers than visit over half of the retail stores out there.

Retailers have opportunities now, and it’s use’em or lose’em time. Let’s talk a little about ROI.


Retail Digital Transformation: Tapping into Billions

In January of 2017 Cisco blew the doors wide open with their paramount report entitled, “Reinventing Retail: Cisco Reveals How Stores Can Surge Ahead on the Digital Transformation Journey” just as internet numbers produced the best holiday sales growth in over a decade.

If I had to pick a summary-gem, it would be this one from Kathryn Howe, director, U.S. Commercial Digital Transformation, Retail and Hospitality Industries, Cisco.

“There remains a tremendous opportunity, with the potential for retailers to generate more than $506 billion in value that can be achieved through digital transformation. Retailers need to make more progress in digitizing their workforce and their core operations in order to execute on the innovative customer experiences they want to deliver, and to position themselves for success in the new retail landscape.”

Here’s a couple key highlights,

  • Simply enabling digital capabilities (updated IT, better operational efficiency, increased IT agility) is the first step. And, this phase is barely noticed by customers – it’s foundational work that frees up resources to optimize the shopping experience.
  • ROI is coming from custom-designed software/tech solutions that streamline and automate processes/operations which are bogging down employees while connecting consumers.
  • Digitization can create new revenue streams that differentiate companies, alluring competitive, digital-savvy brands to store shelves.

That being said, let’s say you’re an interested and willing retail executive ready to take the leap. Ready to come to the table with your brands with an open mind.

What’s holding you back?

According to PwC in their 2017 global Total Retail study, “10 Retailer Investments for an Uncertain Future“, here’s the most common obstacles for folks in your position (seen plenty firsthand here at Virtus Ventures):

If your company fits in there somewhere, have you considered the alternative (going out of business)? More than that though, have you begun to visualize and imagine the possibilities?

In that same PwC study, or survey (covering 6 continents, 29 territories, and 24,471 respondents), John Maxwell, Global Retail & Consumer Leader, points out recent global retail developments:

Nordstrom invested to become a model of omnichannel customer service and innovation, becoming a platform for vertically integrated brands… Saks Fifth Avenue launched stores in downtown Manhattan that mimic its website layout; Best Buy built a new business of bespoke retail technology assistance; and, in the UK, Marks & Spencer has set a new standard for integrating store and web offerings.

The bigger picture here is where you employ tech-solutions to increase operational efficiency, while delivering a seamless, modernized, and consistent shopping experience across multiple channels (social media, apps, in-store, etc.). You’re giving people what they expect, accessible on the typical devices they’re already using to interact with your brands.


Wrapping Up

I’m not exactly sure if everything went super-smoothly above, but the goal’s to plead to more retailers out there – digitize, survive, and thrive! The numbers are all there in black and white, supported by the trends and graphs galore. You’re sitting on so much exciting potential! Please let us know if we can help.

Thanks for your time, happy trails, and here’s to your success.


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