As part of EuroShop 2023 in Düsseldorf, we had the opportunity to conduct an exciting interview with renowned retail expert Prof. Dr. Gerrit Heinemann on the topic of omnichannel. We spoke to him about the current challenges, opportunities and trends in retail and how the integration of online and offline sales channels can help to create a seamless shopping experience for customers.
Prof. Dr. Heinemann, as a scientist, your top priority is to preserve existing knowledge and systematically gain new insights with the help of research. Under the motto "The future belongs to online retail." you work at the eWeb Research Center to analyze the online-induced purchasing behavior of consumers.
Whether now over or still in full swing, the consequences of the pandemic are present. There is no doubt that consumer behavior has changed significantly. In your opinion, how have the needs of consumers in Germany changed as a result of the pandemic and what behavioral changes have resulted in terms of consumption?
First of all, we've noticed that not as many people are returning to the city center as before. Shoppers are no longer spending as much time shopping, as they are shopping in a much more targeted way. What's interesting is that retailers are finding that customers aren't shopping less, they're just shopping in less time. This only works because customers are better prepared. Even before the pandemic, customers were already doing most of their shopping online and the pandemic has accelerated this trend. Customers are therefore much more prepared when they go into a store than they used to be. I would even go so far as to say that they have actually already made their purchase decision before they leave the house.
The focus of the purchase is the product, which means that the customer doesn't care which channel they use to buy, they are purely looking for availability and that the purchase is made as easy as possible for them. So the motto is: "Channel doesn't matter". I can also apply this to myself. I'm completely open to whether I buy a product online or in a store, but I buy it where it's easiest for me and where I can be sure that the product is available.
For example, I find a product in an electrical retailer's online store, a Miele vacuum cleaner that I want to buy, I go into the store, see it, want to take it with me, but it's not available in the store. So I drove to the store for nothing, looked for a parking space for nothing and was then told in the store to buy it online from our online store. However, the online store tells me that this item is not available in my zip code area. So I had two hours of effort, but in the end no vacuum cleaner. As a result, I will never go to a store for an electronic appliance again, but will order online instead. Now you can ask me where I bought it: In the Lidl online store. It's much bigger than many people think. It is one of the top 10 largest online stores in Germany. So I can only emphasize it again: "Channel doesn't matter"!
This is an opportunity for brick-and-mortar retailers. Retailers don't have to have an online store if they know how to make the most of the advantages of bricks-and-mortar stores and make shopping on site as easy as possible for customers: no time wasted, no queuing, fast and competent advice. There are already some retailers who have understood this and are implementing it very well, and I think that's what has changed with the pandemic: Customers are more informed and make more targeted purchases.
Now that you've talked about the opportunities, what are the risks for the retail sector that go hand in hand with this?
Familiar recipes no longer work in stationary retail. The term "experience orientation" comes up again and again. However, customers don't care whether they are greeted at the door or not. Since my promotion on the subject of experience orientation over 30 years ago, nothing has really changed in terms of importance. It is not a criterion that motivates customers to buy something somewhere. The heart of retail remains the product range, and if it's not good, the customer won't buy. There is certainly a risk if, as a retailer, I don't give the customer the opportunity to prepare their purchase online, i.e. if I don't have a digital presence with the customer.
Does that actually mean that we need to do a lot more to educate customers about the digital transformation and get them excited about change and omnichannel in order to counteract potential resistance?
Yes, but that will only help if I as a retailer am open to it. There are many initiatives in this regard, but they are generally never aimed at the entire retail sector and are therefore not the big solution for everyone. At the same time, this is a phenomenon that always occurs with innovations. In innovation theory, there is always initial resistance to new innovations, and many then fail because they don't understand or don't want to see the benefits of the innovation and therefore can't use them for themselves. This is how structural change occurs.
In your eyes, who is not a resister and has already implemented omnichannel well and knows how to create a cross-channel shopping experience for their customers?
You have to differentiate by product group. For example, in the fashion sector at Breuninger, where you can see the online share, which is now estimated to be over 50%. For books, it's Thalia, for perfume Douglas, for electronics Mediamarkt Saturn, for pet food or pet supplies Fressnapf. There are great examples, no question. Conversely, there are also chain stores such as New Yorker that continue to completely negate the issue. Interestingly, this also seems to work there.
Many experts say that the pandemic has acted like a fire accelerator and has significantly accelerated many processes. What do you think, will the rapid development now slow down or can we expect the pace to remain very high?
Yes, we are already seeing a slowdown in this development and many - especially fashion retailers - are now saying that it's a good thing we waited. Last year, there was a lot of pent-up demand with insane growth rates of around 50% for brick-and-mortar fashion retailers. But if there has been a 50% drop in brick-and-mortar fashion retail since 2019 during the pandemic, then to get back to where I was, I have to be 100% up. 50% is simply not enough.
And of course, many are now saying that the online issue is over, even Zalando is no longer growing and is laying off employees. This has always been speculated about Zalando, but it hasn't happened to the same extent. That's why I believe that whenever brick-and-mortar retail improves, the need to invest in online is put into perspective again. And it must also be said quite clearly that the pandemic has cost many retailers an infinite amount of money and has therefore also used up the funds that would basically now be necessary to invest in these digital topics.
In this discussion about the importance of channels, I hear that there is still a tension between online and offline. Do retailers need to change their way of thinking in this context?
Yes, channel doesn't matter, I can only say. Ultimately, it doesn't matter which channel is used to generate sales. "The main thing is that it's done by us and not by the competitor", that's a statement from Argos, an electronics retailer from the UK from 15 years ago.
In your eyes, they have understood this and are still successful. What have they done differently and why are they so successful?
Yes, there is still a picture of the business system from 2005 showing how they think. You said that we align our organization with customer behavior. That's exactly what Amazon does. Customer-centric thinking means not organizing the company according to functions. Because the customer doesn't care how the company is organized. Argos said at the time that the purchasing process begins with researching and browsing the Internet. This means that they have positioned themselves in such a way that they are active regardless of the channel. No matter where the customer shops - whether online, stationary or mobile - they should be able to find the product in all channels while browsing. In the second step, when it comes to ordering, they have then made it relatively easy for them to buy the product in all channels, coupled with the information that it is available or when it is available. And when a customer comes into a store - the stores at Argos looked different back then, they were basically small pick-up stations where you couldn't see the entire range, but where you could pick it up - then they can also buy online there and take the product with them directly. But they can also have it sent to their home, just as they like. This documents this "channel doesn't matter" and many retailers in Germany still have some catching up to do.
Thalia has already come the furthest. Here, stationary customers are able to check out themselves using the app. This is reported as online sales under commercial law, even though the customer was in the store. And based on the organizational structure and the delineation of responsibilities, I assume that many German brick-and-mortar multichannel retailers don't consider this feasible because so-called brick-and-mortar sales theoretically migrate to online when the customer is in the store. That is actually a nonsense. The turnover of a customer must be considered independently of the profit and cost accounting and this must not affect the incentivization of employees.
And this is precisely what many players in the retail sector are opposed to, as they still think strictly in terms of functional areas - but does this also mean that if you want to be omnichannel, you have to break down these silos?
Yes, and also because there are still responsibilities for results by channel, and this naturally still leads to competitive thinking between the individual channels. On the other hand, retailers must of course also be in a position to compensate for the outflow of sales from the sales floor.
And there are bricks-and-mortar retailers that are already relatively advanced in this respect, such as Zara, where 30% of total sales are currently made online. Zara is also currently implementing a payment app, no other fashion retailer is as far along.
Then there is another company that many people don't even have on their radar, which is also at the forefront, namely Hornbach. I assume that it will become the market leader sooner or later because Hornbach has gained massive market share over the last few years, especially during the pandemic. We tested this with a competitor, interestingly enough a few years ago. The customer goes into the store and sees an item there. However, they don't want to buy it in the store, but compare it again online at home and then order it from the online store. And then he realizes that the item is not available in the online store. For example, because the online store only offers a limited range or because the item was declared differently in the online store and therefore cannot be found by the customer. So, for me, "channel doesn't matter" also means not assuming that a customer is a so-called 'advice thief' if they don't buy stationary, but that there is a chance that they will buy at home in my online store if I have one. And as a retailer, I would then do everything I could to ensure that the customer also buys from my online store. In other words, I would accompany them home. I would offer to call them again at home, perhaps send the last consultation stand home or help them find the item at home in the online store. But I wouldn't just let him go, especially not if I had invested time and advice in the store for the customer.
So the relationship with the customer also plays a very important role when it comes to "channel doesn't matter"?
Absolutely!
...and this is built and maintained by the employees. Does the retail sector therefore need to invest in new skillsets for its employees and also in their training and development in the context of digitalization so that it can still survive 'tomorrow'?
I would go even further and say: We already have a staff shortage! I won't get any more sales staff tomorrow. Various things come together here, and it's not for nothing that large food retailers such as Edeka and Rewe are now starting to use self-checkout. Not yet via app, but at terminals, but basically this will replace checkout staff in the future. And that's lucrative for two reasons, firstly because I save on staff costs and secondly because I no longer have any staff at all. We have a staff shortage in Germany!
Will we be able to manage without staff in every retail sector in the future?
I don't think so. We will always need staff. Basically, only people can make decisions, because decision-making is not necessarily digital. This requires skills that only humans can provide: Personality or empathy; machines can't do that either.
What are your three pieces of advice for retailers if they want to respond to the changes in the market?
Yes, so the first piece of advice is to be distinctive in terms of your product range. If I have interchangeable product ranges, I am also interchangeable as a retailer. Vertical suppliers or those who sell handmade products have an advantage here, but that would be the first recommendation. It can also be a service in addition to a product, perhaps a warranty service or a repair service.
The second is to meet customers where they are today. I don't have to have an online store for this, but perhaps a digital shop window, which can also cost something. Basically, I need to be where the customer finds me. This also includes being findable via local searches on Google. I find it almost shocking that some stores can't be found via Google, because it doesn't cost anything! Most local retailers still haven't registered with Google.
The third tip is under the heading "Channel doesn't matter". As a stationary retailer, I have huge opportunities if I make it easy for customers to get my product quickly and easily, rather than forcing them to come into the city center, look for a parking space and, in case of doubt, say that the product isn't there after all, i.e. with correct availability information in advance. To do this, I need an electronic and functioning merchandise management system with consistent availability information. Retailers still have enormous opportunities if they understand this, because it doesn't work for many online retailers either.
To conclude, I have two final questions: as an expert, how do you define 'omnichannel excellence'?
There are two perspectives here: The most important tech trends have just been published by the EHI at EuroShop. There are two central tech trends that I would respond with. Firstly, the topic of 'seamless connected retail'. This means that the channels enable the customer to make the transition without contradiction and virtually seamlessly. But that goes exactly in the same direction again: "channel doesn't matter". And secondly, fast self-checkout, most likely via an app. I also have a suitable application example for this type of sales transaction in mind: I go to a department store and don't need any advice, I just want to try on some pants. I take five pairs of pants from the circular rack, try them on, want to buy two pairs of them and then have to look where a sales assistant is to take them, and then I have to stand in line at the central checkout and wait until I can pay instead of just taking the pants, paying with a click and leaving the store.'
I agree with you, this is simply no longer in keeping with the times.
It is coercion. But it's still done because people assume that customers are thieves. But there are solutions for that. Thalia has also solved this with extra carrier bags. But Amazon has already demonstrated in its Book Store that customers can decide for themselves. Do I pay at the checkout? Okay, you can do that if you want, but if you don't want to, you can also use the self-checkout via the app if you're pressed for time and might otherwise miss the bus or plane. Customers are sometimes like this and sometimes like that. There is no such thing as a customer who always wants to queue at the checkout or who always wants advice.
One final question to conclude: What does the retail of tomorrow, i.e. 'The Future of Retail', look like?
Channel, never mind!
That makes sense. Thank you very much for your time and the interesting exchange!
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