Let's talk about the new retail landscape. In today's digital world, just about any product can be purchased from an online retailer. For example, Amazon.com sells over 250 million different products on its US website alone. Thus, addition to books, Amazon sells an astonishing variety of different products. Some of these products will be quite hard to find at your local physical retailer. For example, if you were a University of Illinois fan living in Salvador, Brazil, it'd be quite difficult to find this University of Illinois hat at your local retailer.
However, you could easily buy this hat from Amazon.com along with about 80, 8,000 other Illinois items, including sunglasses, scarves, and even toolboxes. In addition to large online mass marketers, such as Amazon, there are also many highly successful online retailers that specialize in specific product categories, such as eyeglasses, shoes, and even wedding dresses. For example, we recently remodeled our home and purchased our staircase from an online vendor. Thus, online retailing is a considerable threat to traditional physical retailers. Indeed, online competition has forced the closure of several retailers across many product categories, including music, books, and consumer electronics.
In the US, many indoor shopping malls are closing or have several vacant stores and no new indoor malls have been built in nearly a decade. Despite the rise of online retailing, most people still buy most of their products from a physical retailer.
Indeed, in the US and many other countries, less than ten percent of total retail sales are done online. Moreover, several physical stores are starting to use digital tools to enhance the shopping experience.
Like many big box retailers, Best Buy has had difficulty combatting online retailers. In contrast to online retailers such as Amazon.com, Best Buy has a much higher set of fixed cost, such as the lease for its retail stores, high energy, and the salary of its ever-changing sales staff. Thus, big box stores are shrinking in size in an attempt to bring these costs down. Best Buy has taken this size reduction to the extreme by installing vending machines stocked with top-selling products, such as smartphones, cameras, and headphones, across many high traffic locations, such as hotels, airports, and train stations.
At present, Best Buy has about 200 of these machines installed across the US. A second example of this changing landscape is the Tesco virtual stores. Tesco is the UK Walmart. So this British mega-retailer has installed a set of virtual stores at bus stops and subway stations in Seoul, South Korea. In essence, these stores are simply a large screen that displays various products. Shoppers just need to download a Tesco app on the smartphone. They can use this app to scan the barcode of the item they want to purchase on these virtual screens. The items that they scan can then be delivered to their home. This Tesco app is now the number one shopping app in all of Korea and has well over a million downloads.
The third example comes from Australia, and it's called the Rotate Store, and that's what it was. This interesting pop-up store operated in Sydney from 2013 to 2014, and this temporary store transformed its entire assortment every eight weeks. So every two months, it was a completely different store. This innovative approach encouraged customers to return to the store to see what was new. In addition to the new merchandise that was stocked in the store, it was also hard to find online.
Now that we have some examples, let's look at a definition of what we mean by new retail.
So this concept is closely linked to the ideas outlined in Darrell Rigby's article on the future of shopping, which I encourage you to read as part of this module. In essence, new retail is a collection of strategies, both physical and digital, that physical retailers are using to react to the challenges of operating in a digital world.
So what does this mean? Let me take a deeper dive into some interesting issues. There are lots of issues we could discuss. I want to focus on three key observations about this new retailing landscape. First of all, location, location, location. According to many real estate experts, location is the single most important factor when selling a home. Thus, it's better to have a bad house in a good neighborhood than a good house in a bad neighborhood. The importance of location also extends to retailing.
A substantial body of research shows that online retailing is heavily influence by location, which may sound surprising. For example, people who have easy access to well-priced physical stores are less likely to shop online.
Thus, online shopping is more likely among consumers living in small towns here in Champaign, for example, than in big cities like Chicago. Thus, the appeal of the digital is strongly influenced by one's physical environment.
Second, purchase versus information. In addition to providing a means of purchase, digital retailing also provides a considerable amount of product information. For example, Amazon.com provides a product description, extensive technical information, and also user reviews for most of the products that it sells.
Thus, consumers who visit digital retailers not only purchase products, but also obtain information about them.
They can also do the same for physical retailers, of course. In recent years, there has been lots of discussion about the showrooming phenomenon in which customers first visit a physical store and then buy a product online. Perhaps you have done this yourself. I have. Indeed, in the US, about two out of every three customers who buy online go to a physical store first and take a look at the product.
Although showrooming clearly does happen, in reality, more people engage in its opposite, which is called webrooming, in which they first obtain information about a product online, but then buy their product in a physical store.
Third, digital and physical. We tend to think of digital and physical as two entirely separate things. Indeed, these two forms of retail are quite different in many ways.
However, as shown by the Tesco example we just discussed, a growing number of retailers are seeking ways to blend these two together.
This blending of the digital and the physical is often referred to as omnichannel marketing and is based on the idea that retailers need to take advantage of the strengths of each of these two different shopping channels.
For example, physical retailing is more effective for returning products, obtaining customer service, while online retailing is better in terms of conducting product research and getting the best price.
Thus, a growing number of retailers are seeking to have a presence in both of these two channels.
However, you could easily buy this hat from Amazon.com along with about 80, 8,000 other Illinois items, including sunglasses, scarves, and even toolboxes. In addition to large online mass marketers, such as Amazon, there are also many highly successful online retailers that specialize in specific product categories, such as eyeglasses, shoes, and even wedding dresses. For example, we recently remodeled our home and purchased our staircase from an online vendor. Thus, online retailing is a considerable threat to traditional physical retailers. Indeed, online competition has forced the closure of several retailers across many product categories, including music, books, and consumer electronics.
In the US, many indoor shopping malls are closing or have several vacant stores and no new indoor malls have been built in nearly a decade. Despite the rise of online retailing, most people still buy most of their products from a physical retailer.
Indeed, in the US and many other countries, less than ten percent of total retail sales are done online. Moreover, several physical stores are starting to use digital tools to enhance the shopping experience.
Like many big box retailers, Best Buy has had difficulty combatting online retailers. In contrast to online retailers such as Amazon.com, Best Buy has a much higher set of fixed cost, such as the lease for its retail stores, high energy, and the salary of its ever-changing sales staff. Thus, big box stores are shrinking in size in an attempt to bring these costs down. Best Buy has taken this size reduction to the extreme by installing vending machines stocked with top-selling products, such as smartphones, cameras, and headphones, across many high traffic locations, such as hotels, airports, and train stations.
At present, Best Buy has about 200 of these machines installed across the US. A second example of this changing landscape is the Tesco virtual stores. Tesco is the UK Walmart. So this British mega-retailer has installed a set of virtual stores at bus stops and subway stations in Seoul, South Korea. In essence, these stores are simply a large screen that displays various products. Shoppers just need to download a Tesco app on the smartphone. They can use this app to scan the barcode of the item they want to purchase on these virtual screens. The items that they scan can then be delivered to their home. This Tesco app is now the number one shopping app in all of Korea and has well over a million downloads.
The third example comes from Australia, and it's called the Rotate Store, and that's what it was. This interesting pop-up store operated in Sydney from 2013 to 2014, and this temporary store transformed its entire assortment every eight weeks. So every two months, it was a completely different store. This innovative approach encouraged customers to return to the store to see what was new. In addition to the new merchandise that was stocked in the store, it was also hard to find online.
Now that we have some examples, let's look at a definition of what we mean by new retail.
So this concept is closely linked to the ideas outlined in Darrell Rigby's article on the future of shopping, which I encourage you to read as part of this module. In essence, new retail is a collection of strategies, both physical and digital, that physical retailers are using to react to the challenges of operating in a digital world.
So what does this mean? Let me take a deeper dive into some interesting issues. There are lots of issues we could discuss. I want to focus on three key observations about this new retailing landscape. First of all, location, location, location. According to many real estate experts, location is the single most important factor when selling a home. Thus, it's better to have a bad house in a good neighborhood than a good house in a bad neighborhood. The importance of location also extends to retailing.
A substantial body of research shows that online retailing is heavily influence by location, which may sound surprising. For example, people who have easy access to well-priced physical stores are less likely to shop online.
Thus, online shopping is more likely among consumers living in small towns here in Champaign, for example, than in big cities like Chicago. Thus, the appeal of the digital is strongly influenced by one's physical environment.
Second, purchase versus information. In addition to providing a means of purchase, digital retailing also provides a considerable amount of product information. For example, Amazon.com provides a product description, extensive technical information, and also user reviews for most of the products that it sells.
Thus, consumers who visit digital retailers not only purchase products, but also obtain information about them.
They can also do the same for physical retailers, of course. In recent years, there has been lots of discussion about the showrooming phenomenon in which customers first visit a physical store and then buy a product online. Perhaps you have done this yourself. I have. Indeed, in the US, about two out of every three customers who buy online go to a physical store first and take a look at the product.
Although showrooming clearly does happen, in reality, more people engage in its opposite, which is called webrooming, in which they first obtain information about a product online, but then buy their product in a physical store.
Third, digital and physical. We tend to think of digital and physical as two entirely separate things. Indeed, these two forms of retail are quite different in many ways.
However, as shown by the Tesco example we just discussed, a growing number of retailers are seeking ways to blend these two together.
This blending of the digital and the physical is often referred to as omnichannel marketing and is based on the idea that retailers need to take advantage of the strengths of each of these two different shopping channels.
For example, physical retailing is more effective for returning products, obtaining customer service, while online retailing is better in terms of conducting product research and getting the best price.
Thus, a growing number of retailers are seeking to have a presence in both of these two channels.
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