FRONTLINE
The online vs offline Debate
2017/12/11
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Hong Kong’s retail industry is finally on the road to recovery. Luxury brands’ willingness to shoulder high rents indicates their confidence in the market

 

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Amazon, the world’s largest online shopping platform, opened its first physical bookstore in 2015

Online shopping has proved a popular option for young consumers. But though research finds that physical stores and online shops complement each other, and the future of retail lies in a combination of both channels, such strategies appear to be feasible only for big companies. Opportunities however still abound for smaller and traditional businesses in the retail sector.

By Sze Man Young

Translated by Elmo Wong

 

Online shopping has proved a popular option for young consumers. But though research finds that physical stores and online shops complement each other, and the future of retail lies in a combination of both channels, such strategies appear to be feasible only for big companies. Opportunities however still abound for smaller and traditional businesses in the retail sector.

Online shopping has been gathering steam, but brick-and-mortar stores are not to be written off just yet. According to the latest data from the National Bureau of Statistics of China, online retail sales on the mainland jumped 34.2 percent in the first three quarters of 2017 compared to the same period last year, reaching RMB4.879 billion (around US$735 million). This accounts for 14 percent of total retail sales of consumer goods in mainland China.

Meanwhile, year-to-date online purchases in the US, one of the world’s biggest consumer markets, accounted for 10 percent of the country’s total retail sales, said market intelligence firm Forrester Research. Online retail sales in the US is expected to reach US$294 million this year, the firm continued.

As current market data indicate, brick-and-mortar stores remain the bedrock of the retail sector – representing some 90 percent of the market in the US alone. They therefore should not be underestimated nor ignored amid the online shopping craze.

Physical presence

A study by the Hong Kong Trade Development Council noted that physical stores are launching fresh strategies to win online shoppers back. These include providing value-added services, improving the stores’ retail environment, offering more convenience for consumers and organising more activities for personal interaction with customers, to name a few.

While online shopping continues to gain followers, retail districts around the world are on the road to recovery. In late October, Tiffany & Co announced it had confirmed the lease on a boutique in one of Hong Kong’s prime shopping areas at a staggering monthly rent of HK$7.48 million (around US$958,000). Such a lofty investment reflects the confidence of big brands in the earning potential, value and significance of physical stores.

Traditional shopping districts in the US are also combating the online threat. To strengthen their customer base and make actual shopping appealing, a number of stores have introduced value-added services such as the free charging of mobile phones. This novel approach enables customers to take their time browsing and shopping in the stores while their phones and tablets are being charged. The devices are locked in a drawer that can only be opened by the owner. The free charging service is believed to enhance the shopping experience of consumers and establish trust in the brand.

Retail environment

When it comes to the retail environment of new stores, Apple is undoubtedly the expert. Its goal is crystal clear: To entice consumers with strong spending power as well as the younger generation that loves technological innovation to visit the store and spend time there rather than at cafés.

Moreover, many Apple Stores are used as venues for concerts and talks. The company also plans to hold regular workshops at the stores to provide training on the various functions of Apple products.

Many retailers in the US, in fact, intend to practise stock management to ensure they always have sufficient goods to sell in their retail outlets – yet another advantage of physical stores. In contrast, online shoppers may have to contend with delivery problems, delays due to poor weather conditions and their selections being out of stock.

Personal interaction

Other retailers, for their part, are banking on the face-to-face interaction of in-store shopping to boost sales.

Where online shops can only suggest additional purchases during transactions, it is easier to upsell and convince customers to buy more when they are at the store themselves. Another sales opportunity likewise presents itself when the customer visits the store to pick up the goods they ordered.

Hong Kong jewellery retailer Lukfook Jewellery also regularly holds simple DIY workshops and talks for their VIP members at their stores, allowing the company to both increase footfalls and engage with their customers.

Brick-and-mortar stores are not the only parties to realise the value of a physical presence. Many online shops acknowledge the wealth of growth opportunities in offline retail environments and are thus establishing physical stores. The world’s largest online shopping platform, Amazon, has opened 11 physical bookstores in the US, with two more set to welcome customers by year-end. It also plans to open more stores in 2018.

According to online shops that establish an offline presence, not only do physical stores allow direct sales, they also serve as showrooms that help establish customer loyalty, build up the brand’s image and attract consumers to shop right away.

 

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