Early this year when Target announced its financial results it struck me how quickly the world had changed. According to its statement, digital channel sales contributed 0.8 percentage points to the retailer’s 2.3 percent comparable sales growth for the period. How times have changed. Three years ago Target management sent an eviscerating letter to vendors saying it would not tolerate them using Target as a “showroom” for their online sales. Now, the company’s once dreaded nemesis contributes to its success. As it does for many retailers. It’s no surprise that many retailers have been slow to recognize the importance of the Internet and growing shopper demands for Omni-channel access. Online sales are still easy to dismiss. They still represent only 7 percent of total retail sales. And while they are projected to grow to 10 percent in the next two years (according to Forrester Research), sales in physical stores will continue to dominate way into the future. But here’s the rub, sales growth in traditional retail has stalled. Trips are down in many retail chains with no indication they will improve dramatically any time soon. All the while, Internet sales’ share is growing, stealing shopping trips from physical stores. This raises questions about the future of retail based on a real estate-driven strategy and financial evaluations based on “same store” sales.
"Beyond first mover categories, such as books, electronics and clothes, today, more shoppers report purchases of a wide variety of categories, and this has gradually increased the sale".
Meet the Omni-channel Shopper
In our How America Shops® research we have tracked online shoppers since 1997 when only 1 percent bought online. We saw the first real incursion of the Internet as a legitimate chan¬nel in 2008, when 34 percent said they purchased something online in a three-month period. By 2012 that had increased to 59 percent of shoppers, and the Internet then ranked as the #4 channel they shopped, after supermarkets, mass merchandisers and drug stores. (This is not about spending but what we call “share of shopper”) By 2015, the tide has truly turned: 63 percent report they now buy something online every month; one-in-four buy every week. Millennials (ages 21-34) and Generation X (ages 35-50) are the most frequent online shoppers. This is not surprising because Millennials grew up in a digital world and many are now buying for young families. They and Gen X-ers are the busiest, most time pressed and often economically burdened of shoppers. For them, the Internet means saving both money and time. Age is not the only influencer, however. The more affluent, who shop more overall, buy more online. One-third of households with annual income $100,000+ buy online at least once per week, 10 percentage points higher than those with lower income. In every How America Shops study we see His panics as the most digitally connected shoppers. That holds here. One-third buy online at least once per week, 10 points ahead of Caucasians and African-American shoppers.
Online’s Advantage: It’s Easy
When Target first challenged its vendor not to use its stores as showrooms the online advantage was low prices. Three years later low prices have slipped as the primary reason many shop online. Now price is just the “price of entry”. Today, convenience matters most: quick to find, quick off the list, quickest trip and quickest checkout are more important to more shoppers. Two-thirds say the #1 reason they shop online is convenience. Only half rate low price is #1.
The shoppers’ passion to save time is a powerful motivation for more categories to move online. Beyond first mover categories, such as books, electronics and clothes, today, more shoppers report purchases of a wide variety of categories, including every day consumer packaged goods categories, such as groceries, beverages, health and beauty products. More than half (53 percent) reported they bought at least one such category online in the last year, and 19 percent have purchased six or more.
But it’s not only category creep, it’s also “omni-channel creep”: 45 percent want retailers to let them order online-pick up at the store; 24 percent say they use subscriptions services, and 14 percent report using kiosks in-store to purchase products that aren’t readily available.
The Role of the Physical Store
Physical stores do not have one specific, over-riding advantage but several. Convenience is top of the list here too–but here it means taking the purchase home immediately or returning a product quickly. Second is being able to see and touch the merchandise. Third is price-using coupons or getting a good deal immediately at the shelf.
But here’s the challenge: as online shopping is now distinguished more by convenience, it challenges the physical store. Is the merchandise in-store organized in a way that’s easy to find? Is it in stock? Can I try it? Can I return it easily? Is there someone to help me? Online shopping does not represent significant sales volume but it does change the competitive environment, and substantially raises shoppers’ expectations for their in-store experience.
What is the Store?
When it began, shopping online was a revolution. However, for most shoppers it is now an evolution, increasingly absorbed into every day. Not everyone shops this way, but everyone knows they can; they know that they have choices, and many solutions to suit every buying occasion. Our latest How America Shops research shows that shoppers now have fewer boundaries for what they will or won’t buy online, which means all categories are in play. They move back and forth between physical stores, computers, smart phones, clicking and/or picking up, depending on time of day, immediate needs, or the desire just to explore. In this new world, retailers must create a better store, a better whole store, an omni-channel store. The greatest risk is that if retailers don’t, not only will they continue to lose a shopping trip, they may lose shoppers altogether. Welcome to the future.