Retailing and the Impact of Social Commerce (Part 1)

Written by Nick SanchezMarch 17, 2011

Part 1: The Future of Retailing Lies in a Cross-Channel World

As retailers continue to navigate their way out of the economic turbulence of recent years, many have found that the new landscape they’ve emerged into is characterized by new consumer behaviors—especially those borne of the new channels beyond the physical and virtual storefront.

Consumers are beginning more shopping trips online, first-time online shoppers are increasing, and customers are actively and astutely comparing prices across manufacturer, store and flash-sale sites. Surprising? In 2011, most would say hardly.

For the real challenge, throw in coupon hubs like FatWallet.com, localized deals from Groupon and LivingSocial, rewards programs, email campaigns, and measurable evidence that social media is nowadays rivaling search as a major driver of web traffic and the days when multi-channel meant having a catalogue seem as blissful as they do quaint. And all this is to say nothing of mobile shopping in browser, price comparison apps, and geospatial discount forms (e.g. Foursquare, Facebook Deals and ShopAlerts by AT&T).

Overwhelming? The answer could be yes or no, depending on a retailer’s willingness to adapt. For many, that means diversifying their channels with a prudent, measured strategy.

In a recent report released in January 2011 titled “After the Storm: Connecting with the New Online Consumer,” researchers at Retail Systems Research (RSR) undertook a benchmarking survey that led them to conclude that the time to strategize for multiple channels is now.

Between September and December of 2010, RSR queried senior management, VPs and staff at 85 companies from the apparel, fast moving consumer goods and general merchandise sectors for their opinions on new consumer behaviors and the future of emerging channels. With over 40 percent of those surveyed having had 2009 revenues past the $1 billion mark, the study is valuable for the range of insight it taps.

In the first section of the report, RSR identifies that a transformational shift in consumers’ online shopping habits is underway. In past surveys, companies predicted that the online sales channel would eventually settle somewhere between 10 and 15% of total sales. By the end of 2010 however, “That opinion has shifted—thanks in large part to the potential for mobile and social to contribute to what is counted as ‘online sales.’” Figure 2 of the report bears this out.

Figure 5 of the report, “Big Revenue Changes: Online and Mobile” reinforces this contention of shifting attitudes by asking companies to directly predict what percentage of their total revenue will come from online and mobile channels.

Today, most retail respondents report that less than 10% of their annual sales come from the online channel and less than 2% comes from the mobile channel. However, three years from now, over half of survey respondents believe that online sales will shift to account for 10% at the very minimum—with 21% of companies predicting over a quarter of total revenues will come from online. Nearly a quarter of companies surveyed believe more than 15% will come from mobile in the next three years.

With this RSR concludes, “Even assuming double counting—that mobile channel sales will ultimately roll up through the online channel—this represents an enormous shift in how a retailer’s revenue is collected.”

Essentially, if a quarter of a company’s revenue is going to come from online and mobile in just three years’ time, a store-based retailer has some serious questions to consider going forward.

For those skeptical of this major uptick in online/mobile sales, RSR also does their readers a service by mapping some of their data to display the divergent attitudes and opinions of underperforming, average performing and outperforming companies. Companies performing at 3% annual growth are labeled “average,” with those falling below that threshold branded “laggards,” and those performing above it deemed “winners.” As an added bonus, those companies with double digit growth are designated “winners plus.”

In Figure 4 of the report, these four groups were asked to identify their top three (out of eight) business challenges according to their priority to the company.

Winners, average companies and laggards all identified ‘Keeping up with evolving consumer shopping patterns: social networks, mobile, etc.’ as their number one concern, reinforcing the notion that consumer behaviors are shifting away from physical store shelves in a significant way. One step ahead of the pack, the winners plus displayed their business acumen in identifying that this behavioral shift is undoubtedly toward online.

In Parts 2 and 3 of this article, the Social Technology Review will review the opportunities, organizational inhibitors and solutions businesses will meet in strategizing for a cross-channel future.

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