Why may brick and mortar retailers never become digital?
After listening to numerous webinars during COVID:
· Of retailers describing how they will become digital
· And vendors describing their products as building blocks of digitization
I now believe traditional retailers will find it very difficult (if not impossible) to become digital companies. They may acquire a few pieces of digital lego set but will be unable to orchestrate the way a digital company thinks and works.
The mindset of a digital company is completely different from a traditional company. They think differently about every function and use completely different metrics to gauge performance.
This challenge requires the recreation of a company DNA. No mean task.
I was a traditional retailer. As I have reinvented myself, learning to become digital by becoming a co-founder of tech startups (SAAS and Consumer Tech.), this belief is becoming stronger.
The traditional retailer uses visual real estate
Digital players optimize digital real estate of 0.1 sq ft of mobile display
Brick and mortar focus on creativity what looks good — it drives visual merchandising.
Digital guys focus on ingenuity — How they can excite a customer to engage and browse
Managerial thinking of how a customer selects
The traditional retailer believes Customer find products
Digital retailer believes they must-have technology to help Products find customers
Traditional retailers buy best sellers
Digital retailers buy wide, wider the selection better it is
Focus of business
Traditional retailers center their thinking on Shop location and performance
Digital retailers focus on geography opportunity
How money is made
Traditional retailers use Store conversion and margin
Digital retailers use Low margin large number of customers
Underlying business economics
Traditional retailers’ business is based on the economics of scale
Digital retailers win on economies of scope
Traditional retailers are based on Channel economics and Omnichannel is the panacea
Digital retailers are channel-agnostic
Sign of success
Traditional retailers measure success based on the number of stores
Digital retailers succeed based on the size of the customer network
A measure of customer success
Traditional retailers use Loyalty (an outcome measure)
Digital retailers use Traction, stickiness, and churn (lead measures)
Digital decision-making centers on
Traditional retailers look for tech “products” that can solve the challenge e.g. what eCommerce/tech platform/product shall we buy
Digital retailers build technologies e.g. How do we make products find customers?
Owner of the platform tech
Traditional retailer looks outside
Digital retailers own the technology
Traditional retailers Influence a customer to buy
Digital retailers excite and attract a customer (by discovering how are they thinking)
How transactions are measured
Traditional retailers look at the Value of a sale
Digital retailers look at the Value of a customer — payback of customer acquisition cost
What is customer service
Traditional retailers look at customer service at the store
Digital retailers focus on customer service is at every touchpoint including opening the box delivered
Traditional retailers look at marketing as a cost as a % of sales
Digital retailers look at marketing as a way of demand creation and customer acquisition
Focus of finance
For traditional retailers is about spreading the fixed cost over a sales location where rent is a fixed cost, a surrogate of customer acquisition
Digital retailers play on variable costs. Customer acquisition is a variable expense.
Traditional retailer — product is what you sell
Digital retailer product is dynamic, it is the web page UI/UX