Shaping the store of the future

‘The store is entering a new phase’

Facebook parent firm Meta has opened its first physical retail space. Amazon has opened its first suburban format Amazon Go cashierless store. In Europe, retail chain Carrefour France is installing in-store telehealth booths and the fashion retailer Zara has opened a store in Madrid with scan-and-go payment technology, click-and-collect points and a robotic storage area.  

It's fair to say physical retail is entering a new phase. 
 

Reinventing the store

The pandemic and lockdown measures sent shoppers online and accelerated the shift to ecommerce. This had a knock on effect on supply chains, giving rise to new digital sales channels and routes to consumers.  

In the post-pandemic future, we expect ecommerce to continue to grow in every retail sector. Edge by Ascential forecasts worldwide ecommerce will reach at least 35% share of chain retail sales in 2023, at least two years ahead of pre-pandemic projections. By 2026, ecommerce will account for 40% of chain retail.

The consequences for store-based sales are clear. As ecommerce accelerates, store-based share of chain retail declines - from about 85% in 2016 to 60% in 2026.

This new economic reality has major implications for the traditional business model of the store, and in essence, the store must adapt if it is to remain viable for the long-term.

Enter the store of the future

Physical retail is not dead. In fact, the opening of economies after years of intermittent lockdowns has proved the popularity of the store, and many high streets are fighting back as shoppers enjoy reconnecting in physical spaces.  

But the role and purpose of the store has changed for good.

Retailers with store networks must understand how to effectively take advantage of their physical assets to differentiate in their market and always ensure operational efficiency. Of course, many retailers are already innovating and rethinking their store networks as ecommerce becomes the number one driver of retailer strategy.    

At Edge by Ascential, our Store of the Future model identifies three priority areas for retailers:

  1. Optimize the value derived from stores through the characteristics of experiential, social, curated and frictionless using technology to sync the online and offline experience 
  2. Drive operational efficiency through margin control and management of operating costs (including labor and property).
  3. Store space used as a fulfillment solution, adding speed, convenience and capacity to the last mile.

Store of the future model

Many retailers have already been trialling new initiatives and solutions. We profile these in our Online and Offline Stores of the Month reports, available on subscription to our data and curated content Edge Retail Insight platform.  

In May, we highlighted:

  • Galp Energia opens Europe’s first autonomous forecourt store in Lisbon, Portugal
  • Carrefour Poland accelerates the development of its value-based Outlet Zones, bringing the total to 155
  • Amazon opens first physical fashion store, Amazon Style in Los Angeles, US

 

Here are 4 areas we predict greater investment and focus in physical retail. 

 

Continued growth and evolution of ‘just-walk-out’

Amazon has arguably led the way with its checkout-free Amazon ‘Go’ / ‘Fresh’ concept, although retailers globally are experimenting with their own versions of the technology as they look to deliver a seamless and frictionless experience for shoppers while also reducing store operation costs.  In January 2022 one of the world’s leading discount retailers - Aldi, even opened its own version ‘Aldi Shop & Go’ in London.
However, there are still challenges to this model - customers must scan to enter, which requires an app and linked payment card, and for some shoppers this is a major barrier.  It will therefore be interesting to see if Carrefour’s ‘Flash’ trial in Paris - which enables customers to enter without an app (although they still have to checkout in-store) will prove to be a more popular model.


Stores as fulfilment centres for last-mile profitability

Above all else, rethinking how a store operates involves close alignment with ecommerce and specifically utilizing the physical assets of a store to support fulfilment.  This is not a new trend but has become fundamentally important for any omnichannel retailer.
The pandemic accelerated adoption of click-and-collect and curbside services - which is both convenient for shoppers and for retailers plays a vital role in helping lower the costs of online fulfilment. We are also seeing retailers increasingly invest in automated fulfilment centres which are connected to the physical store. We expect that by 2026, up to one third of store space could be dedicated to support online retail in major channels and larger formats. This is in fact, already the case in some instances.
Use of self-driving vehicles and drones for delivery from stores will also become more commonplace, and in May 2022 Walmart said it was extending its partnership with DroneUp to cover 34 sites across six US states.


Stores will become subscription and service hubs

It is this third area that I think the store is about to come into a new phase of its evolution - providing the opportunity for retailers to drive loyalty with customers by leveraging in-store service and solutions.  Not only will this help them differentiate with pureplayers but also to develop new revenue streams and subscriptions.
For example, Best Buy’s Totaltech membership scheme includes VIP services and tech support for an annual fee.  In March 2022 the company said there were now more than one million members and it would “drive another $1.5 billion of sales”. Similarly, UK retailer Pets at Home is transforming its stores into experiential Pet Care Centres, with subscriptions to its pet care plan generating over £120 million in annualized recurring customer revenue.  


Acceleration in store media and new revenue streams

Finally, omnichannel retailers are starting to recognise the value of their customer data, building more sophisticated solutions which enable supplier partners to build targeted online and offline media plans.
In January 2021 Walmart rebranded its media business to Walmart Connect and is aiming  to become a top ten advertising platform in the US.  Carrefour unveiled its new data and retail media strategy with the launch of the Carrefour Links platform in June 2021 and more recently in November 2021, Tesco announced the launch of ‘Tesco Media and Insight, powered by dunnhumby’.
Retail media is set to become an important focus for retailers in-store, with Carrefour targeting an additional 200 million euros in operating profit by 2026 from its data and media services.  We can also expect more innovative solutions deployed at the shelf, using technology and data to deliver more personalised and targeted campaigns.


 

Nick will be speaking on Wednesday 22 June about the future of physical retail at the Consumer Goods Forum Global Summit 2022 in Dublin. Contact us to learn more about how Edge by Ascential can help your brand take advantage of store evolution and omnichannel shopping.

 

 

Nick Everitt
Nick Everitt
Director of Advisory - EMEA

Nick has over 20 years’ experience in retail, strategy and insight roles.  As a senior member of our advisory team, he delivers bespoke and tailored projects for our clients, focusing on go-to-market strategies, future retail trends and how to win in an ecommerce-driven world. Prior to joining Edge by Ascential in 2015, Nick spent over 11 years at IGD, where he was Director of Retail Insight and began his career at Tesco and Safeway, in a variety of roles including store location analysis and buying. 

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