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A battle is raging between technology giants and retailers over who has the most compelling relationship with the customer. The prize will be billions of pounds worth of sales as online retailers, traditional store groups and, increasingly, social media networks fight for a slice of consumers’ spending.
It used to be the case that retailers had control over the customer every time they walked into their shops. But the rise of the smartphone changed all that. Shoppers can be in one store while surfing a rival’s website to see who has the best prices.
The convenience of online shopping has helped to power the success of Amazon in the US and Alibaba in China.
But the addiction to the smartphone is helping to drive another challenge to both physical and online retailers. Consumers are spending more and more time on social media. Consequently, the social networks are looking to add so-called social commerce to their operations, tantalised by the additional income this could bring.
Social networks such as Facebook, Twitter and Instagram are rushing to add facilities that enable consumers to buy through their networks. Analysts at SunTrust Robinson Humphrey, a US investment bank, estimate that Facebook’s “buy button” could increase its annual revenue by 5-10 per cent.
Nick Beighton, chief executive at online retailer Asos, says social commerce is the latest stage in the evolution of online retail. Earlier phases focused on the choice of products online and convenience of delivery.
“The third wave is the big ‘E’ in ecommerce — emotional commerce and emotional connection with your customer,” Mr Beighton says. “What do you stand for and why should the customers engage with your proposition beyond the transaction requirements of shopping? Social media and social shopping are part of that.”
Mike Moriarty, a partner at AT Kearney, a management consulting firm, says: “There are two kinds of social media selling places. Etsy, Ebay and Alibaba link sellers and buyers together. Facebook and Pinterest lead buyers to sellers’ sites.”
For retailers, Instagram is seen as the holy grail of social commerce, because the photo-sharing app lends itself so well to shopping. Instagram does not yet store payment details that would enable shopping directly from a photograph, but retailers and technology companies are coming up with their own systems to make shopping from Instagram possible. Some are making the photographs posted by customers on platforms such as Instagram “shoppable” from their own websites, either using their own technology or that of software companies such as Olapic.
Olapic, a technology company that more than 200 brands and retailers use to make customers’ selfies available from their own commercial websites, estimates that shopping from selfies can increase the proportion of visitors to a retailer’s website who then go on to buy, from about 5 per cent to 10-12 per cent.
Demand for shopping via the internet shows no signs of abating. According to AT Kearney, online represents about 7.5 per cent of sales globally. Within this, the UK leads the way at about 13.5 per cent, with about 10 per cent of US sales made online. By contrast, about 4 per cent of Japanese sales are online, but 90 per cent of these are made via mobile devices.
But physical retailers are not taking this attempt to dominate their revenue streams lying down. First, they are looking to engage their customers through social media. Burberry led the way with its own social network, Art of the Trench, in 2009. It was also one of the first companies to sell via a tweet. It has used Periscope, the live video streaming app, to transmit events and, more recently, it became the first brand to show the shooting of photographs for its advertising campaign live via social media platform Snapchat.
Asos, the online fashion retailer favoured by 20-somethings, uses social media to engage with its tech-savvy young customers. “If there is a platform that our 20-somethings are using, and there is hype about it, we will try to join in on that,” says Mr Beighton.
There are rules of engagement, however, when it comes to connecting with and serving customers via social media.
Felix Scarlett, insight director at GDR Creative Intelligence, a retail trend consultancy, says there are rules when it comes to engaging. He says a rule of thumb is that only one in every four or five messages should be about selling, and then not overtly. “That way, the brand is talking like a friend,” he says. “Your friends don’t try to sell you stuff all the time. They have friendly conversations with you.”
Traditional retailers are fighting back against the tech giants in other ways too. For example, Amazon has focused on convenience, with one hour delivery slots available through its Amazon Prime subscription service. Argos, the British retailer transforming itself from a dowdy catalogue business to a digitally focused company, has introduced same-day delivery across the UK.
Meanwhile, some tech giants and online retailers are opening doors on stores in the real world.
Amazon recently opened a physical bookstore in Seattle, and has been testing physical retail with Kindle kiosks, vending machines, at locations such as shopping centres and airports. Google, meanwhile, has opened a shop within a shop in the London outlet of Currys, a UK electricals chain.
Farfetch, the online luxury retail site, has bought Browns, one of London’s best-known fashion boutiques. US online retailers, such as men’s outfitter Bonobos and glasses service Warby Parker, have also opened physical stores.
“Progressive digital brands, born to create new ways for customers to engage with and buy products online, are moving into the so-called ‘traditional’ offline world,” says Michelle Du-Prât, a director of retail design agency Household. “It’s where purchases from any channel can be fulfilled instantly and easily. Where products can be tested with customers before scaling online. Where playful, tactile and educative discovery experiences can add brand value and drive sales, and where focus on the service experience is key to conversion.”
Paul Schottmiller, a retail strategist at Kurt Salmon, a consultancy, says the opening of physical stores by online retailers also reflects a growing trend to develop contact with human beings in the online journey. Other elements include people to help with the shopping journey, and personalised offers and promotions.
“That does make a difference in terms of the level of satisfaction,” he says.
Indeed, Richard Hyman, an independent retail analyst who runs the Richard Talks Retail website, believes it will be not technology that wins the battle for the customer, but understanding what the customer wants and working backwards from that starting point.
“Tech is the support player in all this. It is not the major player,” Mr Hyman says.