If you want a good look at how physical retail might evolve over the next 5 or 10 years, just take a look at retail banking today.
More bank branches in the U.S. closed in 2014 than any other year in the last several – 1,407 to be precise. And more closures are on the horizon.
Nearly a third of consumers report never having stepped foot in a bank branch in the last six months; 58 percent of those under 30 hadn’t been in the last 30 days.
Online and mobile channels are how consumers want to engage with their banks. Mobile engagement is up 52 percent from just a few years ago, according to the Fed’s study on mobile financial services. And almost as many consumers used online banking as ATMs last year, and more consumers used mobile banking than telephone call centers that year, too.
Yet Accenture reports in its annual study on financial services that 81 percent of the 4,000 consumers they surveyed said that they wouldn’t switch banks if their favorite local branch closed. Two years ago, that was 48 percent.
It appears that consumers care more about whether they get a great online and mobile banking experience than whether they can drive or walk to a bank – an attribute that consumers ranked higher in importance than location (obviously) and, surprisingly, even fees. Consumers want the ability to handle their routine banking transactions via digital channels when it’s convenient for them.
And, it’s a fact that’s also not entirely lost on the retail banking C-suite.
A few months ago, Fifth Third CEO Kevin Kabat, who simultaneously announced the shuttering of 100 branches and the sale of property intended to house the construction of new bank branches, remarked, “Consumer demographics and our customers’ preferred channels of banking are undergoing significant changes. Technology continues to impact our service delivery and revenue generation tactics and strategies."
In response, bank CIOs have doubled down, quite literally, on their investments in mobile and online capabilities – far outpacing their investments in new products, call centers and operations.
All in an effort to enhance and strengthen the online banking foundation introduced in the mid-1990s and have been improving steadily ever since.
A digital foundation that more than half of all bank customers report using regularly and like using a lot.
A digital foundation that now allows retail banks to rethink their product delivery model and the cost to serve those consumers, costs that have increased at the same time transactions in physical bank branches have decreased.
FMSI, a company that has helped banks for the last quarter of a century optimize employee productivity, reports that branch transactions have declined by 45 percent since 1992, with nearly half of that decline occurring in the last four years. That’s not at all surprising given the consumer’s shift to online and mobile banking channels.
Also not surprising then is the rise in the cost per transaction in physical bank branches – across all types of financial institutions: community banks, credit unions and the largest retail banks in the country.
That’s a trend that banks have the ability to reverse now.
Banks have succeeded in building a sticky digital platform that now gives them the license to reinvent the physical retail banking environment with customers who have already embraced digital services and digital service delivery.
That digital services model of course, started with ATMs in the late 1960s. But fast-forward a few decades and we’re now starting to see banking kiosks and smaller and more specialized format bank branches pop up to handle the transactions consumers feel they aren’t comfortably done by phone or online. These branches have fewer teller windows and more retail banking services experts who act as product “consultants” to consumers with more complicated banking and financing needs. Whole new classes of smaller and more specialized retail banks are emerging, too, delivering “banking concierge-like” services for their customers who need and want personalized face-to-face interaction alongside a robust suite of digital banking assets. These retail banking specialists even have paperwork ready for customers to come in and pick up and/or complete, or deliver to a customer for completion and then return.
If all of this sounds vaguely familiar to how the physical retail world is unfolding, it should.
As I’ve written about a lot, physical retail is undergoing its metamorphosis to digital. Retailers are experimenting with new and different ways to accommodate the changing preferences of a digital consumer in search of a good reason to step foot inside of a physical store. And they’re looking for ways to use new technologies and channels to help them accommodate the digital shopping preferences of their consumers with the best that their brand has to offer.
It’s why retailers are intrigued with shoppable Pins on Pinterest – it extends their reach in a marketplace where consumers go to be inspired to buy. It’s why Nordstrom and Olivia Kim are teaming up to launch Space – the “shop inside a shop” concept that will host up-and-coming designers this fall in selected Nordstrom stores.
But where retailers have the ability to channel their inner retail banker is using digital methods to shift “routine transacting” to digital channels, reserving the physical footprint for the things that routine shopping doesn’t satisfy (e.g. a great experience, a specialized need) and/or where the immediacy of need — delivery and/or pick up – can leverage their physical footprint to fulfill in a timely and convenient way.
While keeping that customer loyal.
It’s why BOL/PUIS – buy online – pick up in store – has become such a retail industry buzzword.
BOL/PUIS isn’t all that new. And, in the food services sector, it’s been around for more than a few years. And, in food services, it’s been around for more than a few years. It’s why Domino’s Pizza considers itself a digital retailer – more than 50 percent of its business now comes from online orders. Initially positioned to consumers as a way to avoid the line during busy times, online order-ahead has become a way for QSRs to manage their labor costs, too. As more volume comes from consumers using apps to place their orders, the staffing mix needed at those locations can also shift – and even be reduced. And, with the data that comes from having an accurate record of traffic patterns and ordering preferences, staffing and inventory can be managed with more precision, while also saving time and money.
But the phenomenon isn’t just limited to food services and QSRs.
Now, some of the biggest players in retail tout the ability for consumers to buy online and pick up in store the same day. And, retailers love it when consumers do. According to RetailNext VP, Shelley Kohan, some retailers attribute 30 percent of their business from offering BOL/PUIS. What’s more, 65 percent of those who place their orders that way and fly into the store to pick them up, buy more when they get there – the shoes to go with the dress, the cheese tray to go with the wine glasses, the cookbook to go with the new set of cookware.
The implications of BOL/PUIS to physical retail go well beyond just providing a better consumer experience.
It can help keep customers loyal.
Macy’s CEO Terry Lundgren told Fox Business news recently that BOL/PUIS is “the fastest segment of [retail] growth,” giving consumers the immediate gratification of buying something then the experience of touching it, experiencing it and adding more stuff to the shopping basket while in the store getting it. Lundgren believes that “the more the customer touches us online, in-store, the more loyal they become.
And the more data driven retailers become too.
Data also becomes an important byproduct. Knowing what consumers want and when can help inventory be better allocated among store locations. Staffing models can be rethought and reduced, and compensation models restructured. Instead of cashiers, sales associates with iPads and CRM systems and notice of when customers will be popping into the store to get their things can be armed with recommendations and even products that can turn a quick visit to pick something up into a personalized and hassle-free shopping experience for the consumer.
But what retail bankers have done successfully over the last couple of decades is deploy a secure, consistent and highly valued digital platform that their customers interact with daily and use to conduct routine “transactions."
If the numbers are to be believed, BOL/PUIS could be a start, but with lots more work to be done.
Consumers who’ve embraced BOL/PUIS pay for something one way online or in app and another way once they get into the store to pick up their loot and add to the bundle, introducing friction and a clunky experience for both consumer and retailer. Reinventing retail for both consumers and retailers must focus on how to make the shopping experience a totally seamless and digital experience, even if that consumer is standing in a physical store.
So, imagine if a consumer was “checked in” when she entered the store to pick up her stuff, and a “tab” was opened for her to easily add to if she saw other things she wanted to buy while there. A sales associate was notified that she was in the store and a message sent to the shopper with details about where to meet her to pick up her loot. The sales associate also had the shopper’s shopping history and profile at her fingertips beforehand, as well as a list of recommendations and inventory availability – recommendations that were also sent to the consumer in her app. Seeing those recommendations could prompt detours to other departments where scanning the tags of the items the shopper wanted to buy simply added them to her ‘tab,” a tab that also prompted her with a message that spending $50 more qualified her for a 10 percent special sale promotion that day on everything she purchased. Thirty minutes after entering the store to pick up the one thing she bought online, the shopper leaves the store with that plus a few more things that she, with the help of a sales advisor, added in the process.
The incentives are certainly there for the retailer to hustle up and explore options like these, the technology is available that make it less of a pipe dream and the appetite is there for the consumer to give it a try.
Just like on the retail banking side, consumers like using digital channels for part or all of their shopping experience. Like on the retail banking side, labor costs are a growing concern. In retail, the cost of labor can run as high as 75 percent of gross margins, and even a modest reduction in cost can improve net profits measurably. And just as on the retail banking side, there are technology and use cases for reinvention to happen by enhancing and strengthening the digital platforms that consumers are already comfortable using.
It’s now up to the innovators to help retailers envision, create and deploy the trusted digital commerce platforms that will make consumers sticky, the consumer experience better and their own operations more efficient.