The arc of commerce over the past 30 years has been undeniably transformative, but also a familiar lesson in what that goes around comes around. Consumers have learned they like shopping online but also enjoy the brick-and-mortar experience. To the boon or bane of inventory managers, shoppers are evolving and demanding everything, everywhere. They are now willing to abandon once-loved brands for convenience, novelty, and value. Companies that hone their strategies to sell preferred products in a myriad of convenient ways will lead the retail rebound in this post-pandemic world.
Modern Commerce Evolution
The ‘50s and ‘60s Americana brought about economic prosperity, suburban growth, and the country’s first major retail expansion – the shopping mall. Post-war tax regulation, hoping to stimulate investment in manufacturing and construction, allowed for the accelerated depreciation of the useful life of a building (40 years) to be taken up front. Developers and investors capitalized on this opportunity, built as many malls as possible, maximized withdrawals, and sold the buildings for a profit thereafter.
For three decades, these retail behemoths fed both consumer closets and investor wallets. American consumerism was born. Although suburban expansion provided the fuel to keep shopping malls thriving for much of this time, the real growth driver was the investment return. When investors had little incentive to improve upon existing structures, and America’s fascination faded, these centers slowly deteriorated into hollow facades. Although the financial rewards from department stores and large footprint retailers softened, their era of prominence had a lasting impact on the way consumers consume. Their multi-decade boom helped cement convenience and venue as necessary components in the shopping equation.
The recession of the early 1990s put significant margin pressure on brick-and-mortar retail. In early 1994, Jeff Bezos noted a historic 2,300%* year-over-year increase in internet activity that forever changed the way we look at shopping. Abandoning the physical footprint altogether, eCommerce was born.
After contending with a sluggish consumer behavior cycle and limited at-home web access, momentum finally gathered as Prime was introduced in 2005, Facebook Ads in 2007, and Instagram Ads in 2013. The VC-backed direct-to-consumer (DTC) startups were ultimately the consequential catalysts to achieve the pre-pandemic eCommerce peak of 17% of retail sales1.
As COVID-19 descended upon the U.S. in 2020, consumers scrambled to get the goods they needed in the only way possible – online. The surge in eCommerce spend was driven by necessity, boredom, and a pivot in lifestyle. Despite many industry experts predicting a major shift towards online shopping, trend wasn’t a friend. We already see brick-and-mortar spending recovering at healthy clip.
Consumers are now loosening their purse strings and engaging in revenge shopping. Inherent in this pent-up demand lies a need for items that require a physical venue: work clothing, event attire, beauty products, etc. Over 42% of U.S. adults gained weight during the pandemic, with the average gain amounting to 29 pounds2. Shoppers want, and in some cases need, the ability to try before they buy.
Even as the furious spending dissipates, a new ultimatum has emerged; provide the perception of better value and innovation otherwise retention rates will plummet. It’s now imperative to deliver on a seamless experience in both the online and offline retail venues.
The Omnichannel
Moving beyond the acute pandemic and past the pandemic recovery, we find ourselves in a new state of retail. Not one of brick-and-mortar and not one of digital-first. The current era of commerce is the omnichannel. These phygital shopping experiences allow for consumers to browse in one platform, pay in another, and receive purchases at their preferred locale. This hybrid model is self-reinforcing by meeting the customers where they are, wherever that may be.
This era is venue-focused and customer-centric. Allowing for people to browse inventory online but also pick up in-store the same day creates the ultimate shopping experience. With 75% of U.S. consumers purchasing both in-store and online,3 omnichannel is the new norm. Digitally native companies are finding their footing in establishing a physical presence through partnership with classical retailers or standing up their own storefronts. On the other end of the spectrum, traditional merchants are expanding their total addressable market (TAM) through buy online, pick up in-store (BOPIS) along with additional curbside options.
Emerging as a catalyst for the phygital experience is social commerce. Social Media Influencers sold $3.6B in products in 20224 alone. An already popular shopping medium in China, social commerce is expanding its reach stateside. It’s no longer solely the DTC startups driving this revenue, Blue Chips are jumping on the bandwagon as well. The successful penetration across company vintages demonstrates the emerging impact of meeting consumers where they are.
Challenging the proliferation of this trend is the age-old retail headache – inventory management. Balancing the load of inventory – how much to have and where to have it – is a puzzle that $20B5 of VC-backed startups are attempting to solve. In order to make omnichannel omnipresent, dynamic AI-driven inventory systems will need to be at the helm. These technologies must be at the core of operations to enable companies to design a pathway for pro-consumer consumption.
Consumers are Tough
The consumer behavior cycle is currently in rapid rotation. Three years in a quasi-lockdown left customers revenge shopping for exactly what they want, when they want it. Brand loyalties are highly fluid, and shoppers are prioritizing desired SKUs and accessibility. Disrupted supply chains and supply-demand mismatches generated a sticky popularity for the social inventory movement – peer-to-peer and resale marketplaces. Consumers now have choices. Consumers have the leverage.
Without any impending quantum leaps in technology, convenience and exactness are the reigning value propositions. The strategy of trying to sell a better mousetrap is no longer viable. In order to establish relevance in a sea of competitors, a go-to-market (GTM) strategy must support novel innovation that increases the perception of consumer value.
Companies need to transition from a pull-strategy to a push-strategy. Finding the right product-market fit (PMF) is only the first step; successful startups are morphing into something molded by the market itself. A tactical approach will both temper market expectations and expand purchase pathways to generate maximum accessibility.
There is never one cookie-cutter retail strategy but in the post-pandemic environment, this has never been more true. A bespoke solution exists for all businesses across the spectrum of size and origins, but the shared and prevailing theme will include an omnipresent omnichannel.
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Notes
*Bezos misread the report and later corrected the fact that it was a 230,000% increase YoY
Data Sources
