The past year and a half has been a turbulent time. The pandemic severely disrupted supply chains and cut industrial output across many different industries. Meanwhile, ecommerce saw a few years worth of growth in a matter of months, causing a decline in demand for commercial real estate.
Consumer expectations for in-store shopping have now changed significantly too. The conventional retail store model is no longer enough for the majority of consumers.
“83% of consumers now expect businesses to offer flexible fulfilment options like ‘buy online, pick up in-store” - Deloitte
This has put online retailers in an interesting position. An abundance of cheap commercial property and demand for new shopping experiences has led some brands to experiment with new commercial setups.
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With stay-at-home orders and an increase in home office driven by the response to COVID-19, many commercial units — especially in retail — stayed shuttered for large parts of the year. Where rent relief wasn’t available, some leaseholders ran down their contracts or didn’t renew. This saw a big surge in commercial unit availability and a corresponding fall in rents.
Vacancy rates for retail store units rose to 12% by the end of last year, according to research from Moody’s, and commercial rents fell by 1.7% in the three months to start 2021.
Taking advantage of this reduced cost to market entry are a number of mom ‘n’ pop ventures, with the Wall Street Journal reporting that ‘quirky business ventures’ are booming in New York City, ideas that would have been previously priced out of the market.
But it’s not just individual entrepreneurs trying to make quirky ideas work in the world of physical retail. Brands are also taking the opportunity to expand their offering, providing new customer interaction touchpoints in the retail space to complement their online offerings.
It’s a play that makes sense — with reduced costs to failure, why not try something new?
US online sports betting business DraftKings recently announced it will be opening its first ever ‘brick and mortar’ stores. The brand will partner with sports bar chain Sports & Social to offer its customers live sports coverage in a traditional sports bar setting.
There’s nothing new about the concept of a sports bar. But, for DraftKings, it’s a big step. The brand has, until now, only offered digital services.
“Today, so much of sports betting is focused on the mobile technology aspect, however the in-person experience is an integral layer that we look forward to advancing” - Ezra Kucharz, chief business officer at DraftKings
Each state has its own gambling laws which regulate where and when betting and gambling can take place. In the case of DraftKings’s first two sports bar locations (Detroit, MI and Nashville, TN), betting is not allowed on premises.
This means there won’t be any betting desks or betting machines at either of these venues. Instead there will be odds boards and TVs displaying game scores live.
But allowing or encouraging customers to bet in a bar setting isn’t the main objective here. DraftKings wants to provide an up-market sports and entertainment experience, something completely different to its normal offering.
This will help the brand in a number of ways:
Promotions are an essential strategic tool for businesses in the betting and gambling industry. DraftKings and Sports & Social may well run some special promotional campaigns to raise awareness about the new sports bars.
Another example of a primarily digital brand making a foray into the world of brick and mortar stores is Amazon. Amazon has been opening physical Amazon Go convenience stores and Amazon Go Grocery stores across the US.
It has also now launched a UK store, branded Amazon Fresh, as well as Amazon Books stores and Amazon Four Star Stores which sell a variety of Amazon best-sellers. This is part of a wider push to diversify its offering outside of its core online marketplace.
But, like DraftKings, Amazon isn’t trying to compete with traditional brick and mortar stores that already exist in this space. The purpose of these new department stores is to offer customers new, tech-enabled experiences and options for shopping.
It’s all part of a shift towards omnichannel shopping that has been hastened by the pandemic. This mix between ecommerce and physical retail has been termed ‘phygital’. And it’s a trend that’s emerging across a number of different sectors.
Phygital is a term used to describe a commerce system that blends aspects of physical and digital retail. The phygital approach allows businesses to pick and choose the best parts of the online and in-store shopping experience.
Nike’s Nike Live stores are a perfect example. They offer a range of interactive, app-augmented features, like live stock level updates, quick-buy options and reserve pickup via smart locker.
Phygital retail systems help businesses learn more about their customers’ shopping preferences. They can use this information to provide a better, more tailored shopping experience.
“In Nike’s case, the phygital approach helped increase conversion rate by 6x and increased average order value by 30%”
While many brands are returning to the physical retail space, this trend certainly doesn’t mean we’re seeing a move away from ecommerce.
We recently discussed the growth of live shopping outside of Asia. Live shopping is a new, tech-enabled shopping format that allows customers to purchase products and interact with brands via live stream. It’s a great example of ecommerce evolving in response to widespread demand for more engaging ways to shop.
There are other signs of this new era of ‘phygital’ ecommerce too. Take luxury fashion house Balenciaga for example. In a controversial and somewhat bizarre move, Balenciaga recently unveiled a collaboration with Fortnite.
This collaboration is fully ‘phygital’ — you can purchase pieces from the Fortnite x Balenciaga collection both in-game and in real life.
We’ve already seen a clear move towards an omnichannel ecommerce model over the past few years. Most businesses now understand the importance of a seamless cross-channel shopping experience for their customers online.
But with commercial real estate in a unique set of market circumstances, primarily online businesses are now opening up physical stores, while others are blending physical and digital retail. This is ultimately due to changing customer demands and a desire for new, unconventional shopping formats.
As we move further into the post-pandemic world, we’re going to see a lot more businesses blending the boundary between physical and digital retail. This will require significant investment in software and in-store technology. But, as usual, early adopters will be best positioned to capture the attention of consumers.
Headless software stacks are the most flexible way to build a seamless omnichannel user flow tailored to your particular use case. For brands attempting to build a consistent experience across physical and digital touchpoints, using the power of headless commerce is the most effective method of ensuring quality customer experience.
To find out more about headless software, and the benefits it can bring your business, download our ebook – Headless commerce and microservices explained.
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