Retail

Prepare For The Interaction Revolution

eCommerce shopper

When the world’s largest fashion retailer announced this week that was closing about 16 percent of its stores, the move surprised the industry as well as Wall Street analysts. Inditex, the parent company of Zara and other fast fashion brands, had a first-quarter net loss of 409 million euros ($465 million), which included a 308 million-euro charge for closing stores. Net sales fell 44 percent in the three months from Feb. 1 to April 30 due to the pandemic. But a 95 percent bounce in eCommerce kept the company’s balance sheet ahead of many other fashion retailers that had kept their store count even. In short: Inditex was not acting from financial desperation. In fact, it was acting proactively to the consumer shift to digital shopping.

According to the company its total store count will fall from 7,412 to between 6,700 and 6,900 after the reorganization, which will also include the opening of 450 new shops. To capitalize on the digital shift it will spend 1 billion euros between now and 2022 and a further 1.7 billion euros upgrading its stores and integrating them with its digital platform. Inditex wants 25 percent of sales to come from digital channels by 2022, up from 14 percent in 2019.

Zara’s move could be one retailers see frequently over the next weeks and months as retail reopens and resettles. On one level it’s simple: move on from or recast underperforming stores and shift resources online. However, like most things in retail, it’s never simple. Niraj Dawar, author of “Tilt: Shifting Your Strategy from Products to Customers” and frequent contributor to Harvard Business Review, says retailers may not be looking at the online-offline split with the proper perspective. It’s not the sales and marketing that simply shift to eCommerce for retailers. It’s the interactions. In fact, Dawar doesn’t view see a post-pandemic eCommerce revolution. He sees an interaction revolution.

“Sales are just the movement of product and capital,” he says. “The conversation needs to change to where, how and why retailers add value. And it’s much easier in many cases for interactions to happen online as a customer. We’ve done a great job as retailers and suppliers of standardizing product quality. We’ve done a great job of consistently innovating. But it’s very hard to handle information and interactions in a lot of cases if you’re offline. They tend to be costly and inefficient.”

Some of the interactions Dawar specifies: product information, help with a product post-purchase, teaching how to use or wear or use a product or even when to dispose of a product. Some of these can be efficiently handled in a store setting; some are better online. For an example, take a woman in a Zara store shopping for a dress. If she’s hesitating and trying on several styles, a salesperson can be an invaluable advisor. If that scenario happened online, it’s harder (but not impossible) for an algorithm to detect and feed new recommendations. However, if the woman buys the dress and wants to know where it what was made and what materials were used, the salesperson may not know or might not be trusted. That information is better handled online.

“We’re heading toward an interaction revolution, not a digital revolution,” Dawar says. “Think of everything as an interaction instead of a sale. That goes for new data sets, AI and other intangible interactions. In fact, I would say that products that don’t need information or communication become commoditized. If you want to avoid commoditization, become a provider of rich information and rich interactions.”

Did the pandemic cause the interaction revolution? Dawar says it has been brewing since the dawn of the digital era and was accelerated by the pandemic. That’s why the digital shift is complicated. According to PYMNTS research, fear of getting sick or even dying from COVID-19 drove the increases in digital shopping, including the 95 percent spike for Zara. But it’s not enough to set up shop and expect the interactions to be positive. The digital shift will need to be accompanied by an interaction shift as well.

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