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Why may brick and mortar retailers never become digital?

Date: 25/11/2020   l   Category: Retail

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's 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.

Display

The traditional retailer uses visual real estate

Digital players optimize digital real estate of 0.1 sq ft of mobile display

Operational thinking

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

Merchandise width

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

Distribution focus

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

Organization mindset

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

Marketing mindset

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.

Product

Traditional retailer — product is what you sell

Digital retailer product is dynamic, it is the web page UI/UX