Do you get a buzz out of buying something, a little tingle of excitement, it feels good doesn’t it?
That’s your brain producing dopamine. It’s the same rush you get from chocolate among other things.
During lockdown, people were increasingly forced to rely on the internet to get their retail dopamine hits. In fact, over $4 trillion dollars were spent buying stuff online in 2020, almost a third more than the year before.
Shopping is going through a radical shift right now and the pandemic has sped it up. Retailers have been forced to adapt and innovate. Driving this revolution, you, or to be more specific your data.
If you went shopping in the 16th century, you would get personalized service. For example: if you wanted to buy your suit of armor, you would go to an armorer who would knock it up to your specifications.
Bespoke services came with a premium price tag. Then came the industrial revolution with its big factories, assembly lines and automation. Mass production made goods cheaper but a lot less personalized and distribution was tricky – products had to be taken from factories to what was essentially a small warehouse near where the customers lived, basically a shop.
The only way you could buy was through these shops and you had very little choice actually, there were few shops near you and if you wanted something, your choice was between one of those shops.
Fast forward to the advent of superstores, and out of town malls, these choices grew but everything changed when the internet came along.
Suddenly, the shopper has more choice than ever, and it’s really up to the producer and the retailer to offer the consumer what they want, when they want it.
With more choice, came more power for the consumer. The internet has put consumers in the driving seat, calling the shots on what’s cool and what’s not through reviews, social media posts and influencers.
Leading the way in this retail revolution is China. Live streaming selling has helped to make China the world leader in e-commerce. It’s forecast that in 2021, half of everything bought in China will be bought online.
For Gen Z and Millennials, most of them prefer shopping online rather than going to a physical store because of larger range of choices and lower prices.
The Chinese internet market is very highly developed. The scale of the market is over $2 Trillion Dollars worth of consumption online. They have something called singles day where they do billions of dollars worth of transactions in an hour.
Three huge companies dominate – Alibaba, JD.com and Pinduoduo – which combined account for almost 80% of the market.
The other thing about the Chinese market that’s very interesting is that whereas western consumers have like Google in search, Facebook in social media, Amazon in e-commerce and PayPal in payments, they have put it all together in single organizations. So they have an entire ecosystems and many Chinese consumers live their entire lives in those ecosystems.
These super app ecosystems give the retailers intimate knowledge of exactly what their users like, want and buy.
Of course all of this requires a huge amount of data and the Chinese are much more willing at this point to allow data tracking of everything that they do than many people are in the West.
With more direct insights into customer demands, retailers can maximize their margins and cut waste. Some Chinese tech firms are even using people’s digital footprint to influence the way goods are produced.
Western retailers are playing catch-up. For years they rested on their laurels regarding the internet as secondary to the store, not helped perhaps by the fact that they had sunk a lot of money into store space.
America for example, has 2.2 square meters of retail space for every single one of its inhabitants. That’s six times more the level of China. The Western retailers also missed a big trick. Their customers big data.
Retailers historically had very little data about their individual customers. They used to have store credit cards, that was about it, but the online companies collected huge amounts of data about their customers. When you consider that against what the retailers had, the retailers and traditional brands were really flying blind. That is why the internet companies have beaten the incumbent retailers and brands for the most part over the last 20 years.
The pandemic was a death knell for many brands. 8,700 stores were closed by big chain retailers in America in 2020.
The companies that did harness the power of their consumers data are thriving.
Amazon exceeded $100 Billion Dollars in quarterly sales for the first time ever in the last three months of 2020. Amazon ”wrote the book” on individual customer data and its usefulness, and as they grew bigger, they had more data than anybody else. With its established logistical system and smooth purchasing process, Amazon may seem a useful online platform for brands to peddle their wares. Though Amazon passes on the sale to the brand, it doesn’t pass on much of the customers data, which means companies know very little about who is buying their products.
So some brands are cutting the Amazon cord to focus on what’s known as direct to consumer selling such as Nike. It decided to sell only online via the Nike website and what it did then was it developed ways of keeping much closer tabs on its customers, for example: a membership program.
Nike’s loyalty scheme allows it to create customer profiles of its 250 million members, 70 million of whom join during the pandemic. Nike’s apps offer the customer a personalized experience in return for a detailed insight into their behavior. If you sign up to their app, you will give them information about how much you run every day, what sports clubs you like, how much yoga you are doing, all that sort of stuff and this helps inform Nike about what to produce. They are able to see where you are and that also informs the way they think about where to put their stores. Nike’s apps let users customize their own shoes and in doing so learn the customers favorite colors and designs. By tracking how far they run, Nike can even let the customer know when it’s time to splash out on a new pair of shoes
You are sharing your data, your intimacy with Nike. It all basically creates a more intimate bond between Nike and its customers.
As shopping shifted online, the pandemic sparked a greater need for this type of direct to consumer selling.
Enter Shopify, an e-commerce platform which allows anyone to set up their own online store. The number of new stores set up in the first six week of the pandemic grew by more than 60% compared to the previous six weeks.
”We saw Heinz ketchup within a week or two of COVID hitting, setting up a store on Shopify to sell Heinz at home in the U.K. and we saw LINDT Chocolate go direct to consumers for the first time.”
Harley Finkelstein, President, Shopify
Inspired by the Chinese model, Shopify aims to create an ecosystem which integrates e-commerce with social media.
”What we are trying to do is simplify all of it which want to make it as an easy thing to do to have one centralized inventory and figure out which product should get pushed away and if you are seeing traffic at your online store coming from Pinterest, we are going to tell you, you should activate the Pinterest channel and you should push product directly to Pinterest to better engage with that audience, but I think we are just at the early stages of social commerce and I think people are beginning to understand that there’s a real opportunity here not just to meet new brands, connect with new brands but also to buy from those brands.”
Harley Finkelstein, President, Shopify
By being better connected to their customers, brands can work out not just what they want to buy, but where they want to shop.
Take one of Shopify’s merchants, the shoe company allbirds. During the pandemic where many brands were shutting up shop, allbirds were opening stores.
”You hear terms like offline and online are competing and online is hurting offline, you would never hear that from allbirds because at the end of the day what they are trying to do is create a great experience, build a great brand and sell you great shoes. However you purchase, whatever means or channels you utilize to do so, they are happy with all those kind of feed into each other. The future of retailers retail everywhere, if you want to sell to my mom, you got to have a great brick-and-mortar experience because my mother prefers to buy that way, but my sister who is in her early 20s, she’s looking to purchase things on Instagram.”
Harley Finkelstein, President, Shopify
It means the store isn’t dead, it would just be reimagined to provide an entirely new type of experience.
Nike has adapted its stores to create a bespoke service for the customer thanks to the information on their digital profile and the store presents yet another channel to capture their data.
In the midst of pandemic, it opened a huge store in Paris. You go in and immediately it offers you interactive experiences. It’s mingling both online and offline data and the whole point is to make the experience of shopping at Nike more intimate, more direct and more kind of one-to-one.
In-store data can also help inform stock control, ensuring less waste in the supply chain, improving sustainability, as well as profit margins. According to one recent estimate, the volume of data collected globally is expected to increase from 33 trillion gigabytes in 2018 to 175 trillion by 2025. This will be accompanied by rising concerns about privacy and exploitation of personal data.
It used to be the case that customers had to exhibit their loyalty to the store that they bought from. These days, it’s the retailers that has to prove their loyalty to the shopper and that loyalty really means looking after their data.
Retailers will know increasing amounts about customers behavior, habits and preferences. This may sit uncomfortably with some, but one thing is for sure, the inevitability that this retail revolution will be driven by your data.
