Consumer behavior has been significantly altered by the convenience, endless aisles, and personalized experiences provided by online retailers, which have attracted customers away from traditional retail stores and toward online retailers.
And as the pandemic brought in-store purchasing to a halt for many months, online shopping rapidly became the default choice for many, presenting new challenges for retailers.
Despite a 6.5% increase in in-store foot traffic this year, major department retailers such as Macy’s, Nordstrom, and Bloomingdale’s have continued to close their doors. This is due to the fact that brick-and-mortar retailers are required to manage substantial administrative expenses, such as rent, utilities, stock range storage, and personnel, in contrast to their online counterparts. Traditional store models have become less sustainable due to the necessity for extensive physical inventory, the challenge of replicating the personalized online purchasing experience, and these expenses.
Rather, retailers are evaluating their footprint and transitioning to small-format stores. Retailers can offer a more curated selection of products and superior service in these locations, which are a fraction of the scale of big-box department stores, without incurring additional overhead costs.
However, retailers continue to encounter numerous obstacles, regardless of the benefits of compact format stores. For example, consumers are still not guaranteed the same level of personalized recommendations as they receive when purchasing online. These smaller spaces also restrict the product offerings in comparison to larger stores, and the backroom capacity is diminished, which limits the amount of inventory the store can hold.
Therefore, how can retailers resolve the deficiencies of small format stores while simultaneously preserving their fundamental advantages? Digital technology is the solution.
Although it is possible that digital technology has discouraged consumers from visiting physical stores, it also has the potential to attract them back. Retailers can preserve the advantages of in-store purchasing, such as the ability to see, feel, and try on products, while also recreating the online shopping experiences that consumers desire by incorporating digital elements into small format spaces.
There are three methods by which retailers can optimize limited format spaces by utilizing digital technologies:
Utilize artificial intelligence to optimize the customer experience
Online retailers have developed the ability to anticipate consumer preferences through the use of algorithms. In-store experiences, on the other hand, often lack this level of customization. Although staff members are capable of offering suggestions, these interactions are frequently impeded by factors such as time constraints and associates’ inadequate product knowledge.
Small format stores are being implemented by retailers to address this disparity in personalization. The sales associates can provide more detailed recommendations and gain a more comprehensive understanding of the products with a more focused and curated product selection. However, in contrast to larger stores that can accommodate a larger team, small stores frequently have a lean staffing capacity. This means that during peak hours or unanticipated surges, associates may encounter difficulties in providing personalized service to each customer.
In order to enhance the efficacy of their staff, retailers may integrate AI technology into their small format stores. The integration of digital technology into the physical retail sector can not only bridge the gap between online and in-store shopping, but also offer shoppers a unique and novel experience that is not available elsewhere. This will free up staff time to focus on building deeper and more meaningful interactions with shoppers, as nearly six in 10 consumers (59%) are interested in using AI applications when they shop.
Real-time personalized recommendations can be provided to shoppers at the instant they begin utilizing AI technology, whether it be on their phone or in a store interface. These recommendations are based on their current browsing patterns, product interactions, and even prior purchase history. These suggestions assist consumers in locating products that are in ideal harmony with their personal style preferences.
AI enhances revenue by identifying upselling and cross-selling opportunities, which in turn increase customers’ basket sizes. As consumers continue to interact with the technology, they will receive even more personalized product recommendations, which will further improve their purchasing experience and encourage repeat business.
Product inventory can be effectively displayed through digital self-service.
In contrast to their online counterparts, physical stores are restricted in terms of the amount of space available for product display. This is an even greater challenge for small format stores, as they are required to consistently rotate exhibit spaces in order to present their entire product line. This restriction results in a loss of both direct costs, which are the sales that are lost as a result of customers being unable to locate the desired item, and opportunity costs, which are the sales that are missed due to customers being unaware of the complete product range.
Retailers can provide consumers with access to their entire product ecosystem, regardless of whether the specific items or sizes are physically available in-store, by strategically placing digital platforms throughout the aisles. Shoppers will be able to locate the exact item they are seeking, even if it is not on display, and even be presented with products they were unaware they needed, thereby preventing them from exiting the store without making a purchase.
Between the Flags, an Australian specialty store chain, is an example of a retailer that has effectively implemented this strategy. Between the Flags is the preferred destination for both locals and tourists who are in search of the most popular Australian Sheepskin Boots, due to its proximity to the world-renowned Bondi Beach. Between the Flags discovered that it was impossible to exhibit the entire collection of footwear in the limited 6 feet of available exhibition space, despite the fact that its smaller stores were perfect for the beach. This resulted in a wasteful backroom inventory dedicated to slow-selling boots, as it was difficult to monitor customer preferences for specific designs due to the limited space.
In order to resolve these concerns, Between the Flags collaborated with digital retail platform tutch to install a display featuring an interactive screen in close proximity to the boots. Customers were promptly drawn to the platform to investigate the entire footwear collection, which is accessible both online and in-store. As the platform gained a deeper understanding of customers’ preferences, it also began to provide real-time personalized recommendations for other items in the store. Consequently, Between the Flags experienced a 64% increase in its overall revenue.
Compiled insights can be gathered to monitor the purchases of consumers through integrated technology.
In small format stores, the necessity of stocking products that consumers actively pursue is exacerbated by the limited backroom space. However, it is challenging for retailers to achieve this objective if they rely on outmoded inventory monitoring or simple intuition.
By utilizing digital technologies like mobile devices and self-service platforms, retailers can accumulate data regarding the products that consumers are purchasing and those that they are not. In this manner, they can make well-informed decisions regarding inventory management, guaranteeing that popular items are consistently available while simultaneously reducing the amount of space devoted to slow-moving products.
Tutch’s digital platforms assisted them in determining the most popular sheepskin boot styles and those that were not. This was achieved through the use of Between the Flags. They were able to effectively utilize their limited space by stocking the most popular footwear in-store and simultaneously offering online ordering for others, thereby maximizing their space. Consequently, they reduced their overall supply inventories by 28% while maintaining the availability of the entire collection for online ordering.
In response to the obstacles presented by online purchasing, small format stores have emerged as a viable alternative. These spaces can provide the best of both worlds by seamlessly integrating digital technologies: the tactile experience of in-store browsing coupled with the convenience and personalization of online purchasing. Collectively, these represent the initial stage toward a future in which the physical and digital retail experiences converge to satisfy the expectations of consumers seeking a positive purchasing experience.