This post originally appeared in Total Retail.
We’ve heard a lot about the struggle of brick-and-mortar retailers feeling the heat of competition from online pure plays. So why are the biggest online retailers moving the other way?
The latest news is that Alibaba.com will pay $2.87 billion for a 36% share of the Sun Art Retail Group, China’s top grocer. The reason was spelled out very clearly by an Alibaba executive in a news release that provided a key insight that every traditional retailer should take to heart:
“Physical stores serve an indispensable role during the consumer journey and should be enhanced through data-driven technology and personalized services in the digital economy,” said Alibaba CEO Daniel Zhang. Alibaba has been a leader in this trend, investing $9.3 billion in brick-and-mortar businesses since 2015, including a variety of coffee bars, grocery stores and concept shops in the past year, according to the Reuters news agency.
Sound a little familiar? It should. Just last summer, Amazon.com paid $13.7 billion for Whole Foods Market, and in the process took a giant step into very desirable, high-density markets almost overnight. In addition, Amazon announced a partnership with Kohl’s to enable free Amazon returns in 82 of their Los Angeles and Chicago stores. Amazon also opened 13 bookstores, mostly on the East and West Coasts, with two more “coming soon.”
While headlines warn of an impending retail apocalypse and ominous watch lists such as “12 major retailers that could go bankrupt” appear, it’s clear that retail is in a state of transition. With all eyes on the established retail sector with its troubles, it’s easy to overlook the moves by Alibaba and Amazon as they creep into the physical world.
So why are these online giants turning their attention to the offline world?
They've realized a physical presence is a fundamental piece of the total customer journey in many instances. The truth is that for many shopping experiences, consumers still want to touch and feel the merchandise before buying. How many of us would buy high-end kitchen appliances purely from an online catalog? The more common use case would be a trip to the local showroom to see the merchandise up close, before proceeding to order online. And if a customer found themselves needing to return a purchased item, many would still prefer the safety net of returning to a local, physical store.
For example, if you somehow managed to order a Spanish copy of the best-selling Albert Einstein biography by accident as I recently did, returning that purchase to Amazon can prove to be a real pain. Am I really going to package and ship a $20 book back to Amazon? No. That’s why the partnership with Kohl’s is so effective for Amazon (although the jury is still out on how this will impact Kohl’s). Amazon is taking steps to solve for a real-life challenge that a physical presence is much more effectively positioned to address.
And does making inroads into the offline world make good business sense? Absolutely. While Amazon has captured 43% of the current US e-commerce market, approximately 90% of retail sales still happen offline. Even in China’s fast-growing $4.9 trillion retail market, 80% of transactions take place in stores. So much of our life is online, we often overlook the fact that the vast majority of retail sales still occur offline.
Retailers can learn from these recent moves by online giants by leveraging their strength in local markets through their physical stores. For example, Nike recently announced its intention to develop “local business on a global scale” by deeply serving customers in 12 cities with flagship stores. This could potentially lead to highly targeted products being developed for those key cities, which are expected to make up 80% of the company’s growth over the next few years. Retailers also need to think about innovative ways to solve for the last mile of customer experience. Ikea's creative acquisition of online handyman service Task Rabbit will serve to ensure customer satisfaction by removing one of the more challenging parts of the customer journey—furniture assembly.
Retail is in the midst of a great transformation. Customer experience doesn’t end when a customer walks out of a store or closes a browser. The key to the new world of retail is leveraging data-driven, experience-based e-commerce solutions with physical brick-and-mortar stores to drive seamless customer journeys.
Wanda Cadigan is Vice President, Commerce, at Sitecore. Find her on LinkedIn or on Twitter @wandac
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