The global retail sector has been through a market-shaping over the last few years due to the pandemic. Consumer behaviour evolved overnight as health and safety concerns suddenly became purchasing drivers, and we witnessed the uptick of technological adoption that would normally have taken years to occur in a matter of months.
We expect these continued effects to be felt even after the pandemic abates.
Since its onset, grocers, home improvement suppliers, and mass merchants have benefited from changes in shopping habits. Others, such as department stores, have struggled and are approaching the upcoming year with cost-cutting as an imperative.
Despite these differences, retailers have been unified in their desire to adapt and increase resilience by transforming their businesses and rewriting the rules of the retail industry.
The dramatic shift to e-commerce platforms, customised shopping recommendations, contactless payment options and the streamlining of logistics and supply chains have become defining trends of the past year.
As a result of the evolving retail landscape and consumers’ willingness to spend, The National Retail Federation revised its annual forecast for 2021 earlier last year, anticipating that retail sales will grow between 10.5 percent and 13.5 percent to more than $4.44 trillion.
A key example of the market’s ability to innovate can be found right here in the UAE. Our nation’s rapid digitalisation was recognised by Kearney’s Global Retail Development Index (GRDI) who recently ranked the UAE in 14th place due to supportive government regulations, as well as a modernised e-commerce market, high internet penetration rate and well-developed digital payment and logistics ecosystems.
However, as online platforms became the channel of choice for the retail sector in 2020 and 2021, can we afford to overlook the physical retail landscape?
Successful retailers around the world are investing more in online platforms and improving their digital presence, but are also integrating traditional brick and mortar and e-commerce experiences for the consumer.
For example, in the US, online sales have grown year-on-year over the past few years, but according to Census Bureau, e-commerce sales in the third quarter of 2021 accounted for just 13 percent of total sales.
That means surely that physical stores aren’t going anywhere. In fact, e-commerce giants are investing in brick and mortar, including Amazon who acquired the Whole Foods Grocery Chain in 2017 and have plans to open several large physical retail locations in the US that will operate as department stores.
While Amazon was the largest beneficiary in the retail sector during the pandemic in terms of sales growth, it has since posted its slowest sales growth in nearly seven years in the third-quarter of 2021, as the crisis-fueled surge in online shopping eased.
The physical retail landscape has definitely had its share of external pressures, but it is still important for retailers. Customers today are not just looking for products when they come to a store – they are looking for an experience. Many of which are based on personalised, in-store engagement, and that is what should be delivered.
According to KPMG research, the top reason why consumers prefer to shop in physical stores is to see, experience and test products in person before buying them. This is the tactile experience that e-commerce lacks, and can help to tip the customer over to make the purchasing decision. Physical stores also help to increase traffic to online stores. According to research by the International Council of Shopping Centers, when a retailer opens a new physical store location, it leads to a 37 percent increase in website visits over the next few months.
Going phygital, a portmanteau of physical and digital, will play a key role in driving the growth for retailers, attracting and retaining both new and existing customers, but also bridging the digital divide.
While the convenience of online shopping may seem appealing, we cannot discount the engagement and brand-building that comes from a physical customer experience journey.
Shahram Shamsaee, CEO of Merex Investment Group.
Follow us on
