The Future Of Physical Retail

Pawan Gupta May 10, 2021

The future of physical retail is emerging as a hot topic of debate, which is not surprising since e-commerce has become such a huge part of our lives. There isn’t a doubt that our recent encounter with the pandemic has further fueled speculations about the perks and drawbacks of both physical retail and its digital alternatives. Preferences are evolving, we live in an era of instant gratification - consumers are busy, they want access to products with minimal investment of time and energy, they want options, and they want quick results. Interestingly, the rise of e-commerce is assumed to guarantee a corresponding downfall of physical retail but existing data suggests otherwise. While revenues earned through e-commerce have been growing steadily, they continue to remain a relatively small percentage of retail sales, the bulk of which is earned through brick-and-mortar stores, implying that the physical retail businesses do not seem likely to lose their position of relevance in the near future. That being said, there is no scope to ignore the fact that physical retail is evolving. The newer (and in many cases the old traditional) retailers are starting to identify the advantages of combining channels, and consequently, they are leveraging their physical retail business with a corresponding online presence. It needs to be noted that the perks do not come without certain challenges, particularly for the smaller brands, who do not possess the expertise to scale their business online.

Focusing particularly on the fashion industry, we can see how leading global brands including Zara and H&M have started selling their products online while their brick-and-mortar retail stores remain as popular as ever. Also, at this point it is evident that going forward, the in-store experiences offered by retailers will play a decisive role in their success, where technology and customer centric approaches will be highly important. The new generation of retailers want to globalize and online platforms serve as an ideal channel (also a relatively low-cost one) in reaching the global market. While some retailers are preferring their own websites, others are making the most of marketplaces like Amazon. In Fashinza’s experience with retailers, we have come to learn that the new generation is not only in favor of digitising their business at the selling end, but today they are equally keen to invest in a digitised and globalised supply chain. For instance, retailers based in the US prefer to source products from Bangladesh because they are cost-effective and guarantee superior craftsmanship, and with production platforms like Fashinza emerging in the scene, the sourcing process is now more simplified than ever.

Retailers exclusively dependent on brick-and-mortar stores went through a particularly rough patch in 2020 with the Covid-19 pandemic causing global lockdowns and disrupting business everywhere. On one hand, travel restrictions and labor migrations made it challenging to manufacture/procure products on time and on the other, even when the restrictions were eased, buyers remained apprehensive about visiting physical stores - it is only recently that things have started going back to ‘normal.’ This acted as an eye-opener that is forcing the industry to take precautions against similar future calamities, and hence there’s an accelerating shift towards a secure supply chain on one end and e-commerce on the other.

Now comparing the pros and cons of physical retail stores and ecommerce sites, with physical retail stores consumers can have a more personalized experience which helps them to connect with the brand and to verify product quality in person before making a purchase. Studies suggest that while high income groups are turning to online shopping, the low and average income groups continue to prefer physical retail stores, the mass of consumers thus being loyal to old school brick-and-mortar shops. Nevertheless, it is predicted that e-commerce will grow and hold 7% share in retail business by 2021. According to a 2016 survey published by Statista, the largest group (35%) of online shoppers belonged to the age range of 25 to 34 years, 18% belonged to the age group of 35-44 years, and 15% were more than 44 years old - implying that the older generations prefer to shop from physical retail stores. However, guessing from the trends, more and more people from the older generations are opening up to online shopping today.

The cons of physical retail business is that expansion becomes highly expensive and globalisation as such can be difficult for entrepreneurs with limited resources. From the consumers’ point of view, physically traveling to a store might seize to look like a convenient option in the future with innumerous alternatives available at fingertips. With ecommerce, some of the disadvantages from the retailers’ perspective is the high technological and labor costs, while for buyers, it’s only the absence of the choice to try and buy. The perks do seem to outweigh the disadvantages, which explains why digitisation and globalisation is set to go hand-in-hand for retailers in the future, but at the same time, it can be fairly predicted that physical retail stores will not lose their popularity anytime soon, but will have the scope to improve their positions with an enhanced focus on the in-store experience.

The author is Pawan Gupta, CEO and Co-Founder at Fashinza