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The future of brick and mortar retail in the digital era


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Incredible changes are happening in how consumers are shopping today. Pulling in some recent data from McKinsey's iConsumer initiative (a program to monitor and analyze the behavior of digital shoppers). For example, two years ago, about 15 percent of shoppers checked prices on the mobile devices when they were in a store. Now that number is closer to 50 percent. And of those 50 percent who checked, 2/3 of them changed their buying decision because of it. This rapid change in behavior is creating massive strains on brick & mortar retailers, who need to adapt even as competition from pure online retailers continues to chip away at them.

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The future of brick and mortar retail in the digital era

  1. 1. WORKING DRAFT Last Modified 3/19/2014 4:21 PM Eastern Standard Time Printed The Future of Brick & Mortar Retail in the Digital Era McKinsey on Marketing & Sales – Slideshare Brief September, 11 2012 Any use of this material without specific permission of McKinsey & Company is strictly prohibited
  2. 2. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 1 What percent of consumers have used their mobile phone to conduct research on prices? In how many categories is Amazon the most frequent first destination for people starting their online research? New consumer behaviors are shifting the future of retail SOURCE: McKinsey iConsumer survey What percent of consumers have signed up for location based services like foursquare, shopkick or loopt? B. 10% C.20% D. 30%A. 5% B. 5 C. 8 D. 10A. 3 B. 30% C. 40% D. 50%A. 60%
  3. 3. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 2SOURCE: McKinsey iConsumer survey New consumer behaviors are shifting the future of retail What percent of consumers who have signed up for text promotions have taken an action after receiving one? What percent of consumers have bought online and picked up in store? What % of all consumers have or would consider making a purchase on a mobile phone? B. 30% C. 40% D. 50%A. 20% B. 35% C. 45% D. 55%A. 25% B. 20% D. 50%C. 35%A. 10%
  4. 4. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 3SOURCE: McKinsey iConsumer survey New consumer behaviors are shifting the future of retail What % of consumers delay a purchase / buy elsewhere if they find a lower price by using their phone in store? What % of consumers first log onto a social network for content to read/ browse online? What percent of consumers aged 55-64 have used Facebooks‟s “like” function? A. 35% B. 50% D. 80%C. 65% B. 60% C. 80% D. 20%A. 40% B. 30% C. 40% D. 50%A. 20%
  5. 5. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 4 Assortment leadershipPrice leadership Category depth Avg. number of SKUs / category (5 categories) 100 random items Price index1 vs. SOURCE: William Blair pricing report, 2011; Wells Fargo SKU analysis, 2011; American Customer Satisfaction Index, 2011 1 Price including sales tax and shipping 2 Non-food and non-club, determined by 2011 revenues Customer experience Experience rating American Customer Satisfaction Index 2011 316 2,125 7X 86 76 13% higher scores 113Top 5 retailers2 105 100 5-13% lower prices Amazon's "triple threat" value proposition is eroding traditional retailers' value propositions
  6. 6. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 5 The future of US commerce will largely be shaped by 5 trends SOURCE: McKinsey Digital Marketing Practice, Expert interviews What we will see in commerce… ▪ Consumers are savvy shoppers, doing deeper research, expecting seamless experiences, and continuing to engage post- purchase 1 Iterative Decision Journey ▪ Mobile revolutionizing the “how” of retail, enabling window shopping 30x per day, price comparisons in-store as the norm, and enabling a new level of “impulse” purchases 2 Mobile ▪ Social winning the „digital clock‟, with consumers spending greater share of time and mind share – and becoming mechanism for search, recommendations, and commerce 3 Social ▪ Local core to the commerce experience, with shoppers increasingly „localizing‟ their experience (e.g., buy online / pick up in store, see in-store / ship to home) and expecting local alerts 4 Local ▪ Increasing demands in shipping and returns, with consumers expecting free shipping option (75% of consumers would wait 5 days if shipping were free) and same-day / 1-day delivery as part of the menu 5 Fulfill- ment
  7. 7. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 6 After a decade of online shopping, shoppers now have high expectations of retailers across the consumer decision journey SOURCE: McKinsey Digital Marketing Practice, Expert interviews Now: The consumer decision journeyThen: The funnel A systematic narrowing of choices ▪ Consumers narrow a broad selection of brands to single choice ▪ Follow linear process from awareness to purchase ▪ Brands focus on extreme ends to drive traffic and close sales Evaluate Buy Bond Consider Exp- erience Advo- cate
  8. 8. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 7SOURCE: Multichannel pricing survey, January-February 2012 : Question 22 Mobile technology is making consistency and value fundamental to capturing consumers early in the journey Increasing DecreasingChange since 2010 1 Percent of respondents who claim that they used their cell phone or smart phone when doing price research in the last 6 months; average across CE and APP 50 13 +37 20122010 Mobile price checks are increasing…1 When do consumers use mobile device to compare prices Percent … they occur early in the journey … 4 After I visit the store While I am at store 31 Before I go to store 65 How use of mobile device in-store changes customer action Percent … and have direct impact on behavior Would not affect purchase or future decisions 17 Would buy item, but impact future decisions 18 Would delay purchase/buy elsewhere 65 9 -1 -8
  9. 9. McKinsey & Company LastModified3/19/20144:21PMEasternStandardTimePrinted | 8 Retailers can harness Social across stages of Consumer Decision Journey SOURCE: McKinsey Digital Marketing Practice, Expert interviews Evaluate Buy Experience Advocate Consider Bond ConsumerCDJstage Retailer action Monitor what is being said Interrupt remarks real-time Lead changes in behavior Amplify current activity Brand monitoring 1 Customer service 3 Brand/ content awareness Product launches Targeted deals and offers 7 9 8 Solicit consumer input 10 Crisis & oppor- tunity management 2 Referrals and recommendations Brand advocacy 5 4 Foster communities 6