Physical Retail: Threats and Opportunities

According to the Spanish Confederation of Commerce, in Spain the retail industry accounts for 20% of national employment. However, in recent years many physical retailers have been forced to close their businesses due to the growth of online retailers. The good news is that according to the latest studies and surveys, physical retail in Spain is not going to disappear, although it must evolve.

There are two major groups of consumers: those who seek immediacy and those who want experiences beyond the purchase. According to a report by Goldman Sachs, only two types of retailers will survive in the future:

1. E-commerce capable of making deliveries in less than 1h (such as Amazon or Alibaba).
2. Physical retailers capable of creating unbeatable shopping experiences at store.

Physical retail must take advantage of its points of differentiation with e-commerce: the store and customer-facing employees.

Customer service at the point of sale

As we saw in previous articles, customer service at the point of sale is key to achieving higher conversion rates and sales. That’s because customer-facing employees are the ones who can influence customer decisions the most, turning store visitors into shoppers. In fact, almost 70% of purchasing decisions are made at the point of sale. This is where physical retail has the opportunity to take the lead over e-commerce.

It is critical that a customer-facing employee is in the right place at the right time to assist store visitors. Not only to increase sales and thus maximize the conversion rate, but not to lose sales opportunities.

Many customers who are not assisted by an employee with knowledge about the product or service, leave the store without buying. In fact, according to the State of Retail Report, 88% of consumers say they are more likely to buy when helped or recommended by store employees.

Many customers also leave the store because of long queues at checkouts. According to EPSON Report, 29% of European consumers often leave a shop when they see long queues at the checkout.  And 25% go to another store to buy the same product.

These lost sales opportunities are due to a bad dimensioning of the store or poor planning of schedules and tasks of employees. This can make the difference between being profitable at the end of the month or not.

Store asset planning

Not having a correct planning of the assets of the store affects the loss of sales opportunities as we have seen in the previous point. And as we have already mentioned in other articles, the most important asset that physical retailers have are their employees. Scheduling the number of employees needed at any given time depending on customer visits will ensure that you never have an undersized or oversized workforce. This way you will avoid long queues and waiting times for customers when there are not enough employees, or avoidable labor costs when there are more workers than necessary.

According to a McKinsey study, leaders in the physical retail sector who have invested in staff scheduling have reduced their costs between 4% and 12% and have significantly improved customer service.

The fear of the digital transformation in physical retail

The physical retail sector seems to be aware of the need for its digital transformation. Many companies are beginning to incorporate technological solutions, 90% of retailers say they have a defined digital strategy, but few are implementing it.

Only 35% have actually implemented digital solutions, and 71% of the retail sector believe that these figures are due to a lack of digital skills and training in companies and the fear of failure.

Many times the modern and attractive solutions based on augmented reality or robots make think that the new technologies come to bring new functionalities and not to improve the internal processes of the companies. The reality is that technology doesn’t have to be eye-catching, it has to solve problems and optimize processes to get the greatest benefit from operations.

For example, a smart workforce scheduling software like ORQUEST has a very fast return on investment compared to other store technology solutions. This is a tremendous opportunity for physical retail, considering that 57% of them still perform the weekly employee planning manually (WorkJam Report). This results in inefficient and unstable workforce schedules that generate low employee engagement, and therefore poor customer service.