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How Can Traditional Retail Compete With E-Commerce?

22 January 2018

Traditional retail is facing increasing competition from the digital disruption of e-commerce. Digitization has transformed consumers’ shopping preferences and experiences with the added convenience of one-click solutions, drone deliveries and predictive shopping suggestions. This has led to nine US retail bankruptcies in 2017. Some of the biggest traditional retail brands such as J.C. Penney, RadioShack, Kmart, Macy’s, and Sears have closed more than 5,000 stores in 2017 and are looking to close up to 1,000 more stores in 2018. The latter is largely due to Amazon and other global e-commerce retailers replacing traditional delivery channels. E-commerce giant Amazon has captured 53% of online sales growth in the U.S alone with its sales in North America quintupled from $16 billion to $80 billion from 2010 – 2016. In comparison, Sears’ revenue in 2017 was about $22 billion.Retail stores closed in 2017

 

Amazon's online sales growth in US

 

Amazon's revenue vs traditional retail brand's revenue

 

Retail in UAE

The e-commerce trend isn’t just limited to the US, but has spread across the world including Europe, Asia and the Middle East. The Middle East is regarded as a prime economy for e-commerce due to its dynamic young population, high internet penetration levels, high smartphone penetration levels and increasing use of online shopping sites. The UAE in particular, ranks fifth on the 2017 A.T. Kearney Global Retail Development Index and is attractive to retailers with retail sales exceeding $73 billion in 2016. UAE’s retail landscape is expected to grow at a rate of 3 per cent in 2018, making it reach a value of Dh196 billion.

UAE Retail sales

 

UAE's Retail market growth

 

Expected retail market value of UAE in 2018

 

Over the next two years, 900,000 square metres of retail space is expected to be added in the UAE. In addition, Frost and Sullivan estimates that the UAE e-commerce market could be worth up to $10 billion by 2018, rising from the current valuation of US$ 2.5 billion. The eCommerce market has been fueled by Amazon’s acquisition of Souq.com, the emergence of Noon.com and expansion of existing players such as Namshi.com and mumzworld.com.

 

UAE's e-commerce market value in 2018

 

Will e-commerce really take over?

Estimates suggest that e-commerce equated to just 1.5 per cent of the overall retail industry spend in the UAE during 2016, a figure which could rise to 4.1 per cent by 2021. As a response, traditional retailers are revisiting their strategies and adopting e-commerce as part of their business operations. For instance, Lulu Hypermarket launched Lulu webstore, allowing customers to order grocery online in Abu Dhabi. Other offline retailers including Sharaf DG, Virgin Megastore and Ace Hardware have also been improving e-commerce offerings. However, what will give traditional retailers a chance to outsell e-commerce?

E-commerce contribution to UAE's retail industry revenue

 

1)  Simpler payments 

There has been significant innovation in payment systems in recent times. Apple Pay allows easy payment on a mobile device. Amazon Go – Amazon’s new grocery store is one step ahead. It has no staff, no queues and no checkout. This could drastically change the way people shop – they could walk into stores, pick up the item of their choice and walk out. The removal of the usual payment system saves time and effort for customers.

 

2) Tactical innovation

To compete with disruptors, conventional retailers must innovate. This may mean integrating technology into the shopping experience to improve in-store customer experience. For instance, Florida-based Ashley Furniture is planning to bring virtual reality shopping to stores and creating an augmented reality app for phones to show how furniture looks in existing locations. Apparel retailers Neiman Marcus and Kohl’s are investing in “smart fitting rooms.” allowing customers to look into a screen and change the colour of an outfit or see if other sizes are available online.

 

3) Experiential journey

E-commerce can successfully provide convenience for consumers. However, it cannot provide the same retail experience as that of a physical store. Making shopping a more enjoyable experience in stores gives brick and mortar retailers a competitive edge. One way for stores do this is through pop-up shops. In Dubai, Sephora recently set up a pop-up beauty playground in City Walk which featured beauty-themed carnival games, photo booths and fun activities that create a more immersive shopping experience.

 

4) Integrate product with service

A key characteristic of traditional retail which is challenging for e-commerce to match is a service element. Retailers can make physical stores more attractive to consumers by offering in-store services. US-based makeup store Ultra brings customers to its physical stores by offering in-store grooming and makeover services. Similarly, grocery stores can offer free coffee in-store for loyalty-card holders, fashion retailers can focus on personal styling and beauty stores can offer in-store beauty services.

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