They were contemporaries of the dinosaurs and are still around today. Mosquitoes, unlike the dinosaurs, survived the impact of the meteorite. Digital Darwinism occurs when consumer needs, amplified by the acceleration of technology, evolve faster than the ability of businesses to meet them.

Digital Darwinism: the survival of the most agile

Dinosaurs coexisted with mosquitoes but, unlike them, they did not survive the meteorite impact. Digital Darwinism refers to the situation where consumer needs, amplified by technological acceleration, evolve faster than businesses can naturally adjust. Like dinosaurs, retail companies face extinction as a result of both the acceleration in technology development (digital transformation) and the evolution of customer expectations (the experience has become more important than the product). The balance no longer holds, so, to survive, retail companies must evolve; that is, adapt. Because, as Darwin asserted, it is not the biggest or the strongest that survives, but, in this case, the most agile. It is the new version of the « survival of the fittest, » a phrase coined by the economist Herbert Spencer in the 19th century.

All key business indicators in the physical retail industry have been declining for the past ten years. Footfall in American shopping malls fell by 57% between 2010 and 2018, and stores do not foresee an improvement in their conversion rates. The frequency of purchases at specialist retailers decreases as new consumption patterns emerge. In France, most traditional retailers do not derive any real EBIT growth from their online activities. Even if their revenue increases, their business activity remains less profitable than it used to be when they only had physical stores. Digitally-derived income rarely exceeds 10% of total revenue, which is not enough to revitalise a declining industry.

However, despite this challenging context, some market players boast strong sales and sustained growth. How can this be achieved? They completely changed tack. The companies that have enjoyed success over the last few years did not seek to adapt their business model: they completely reimagined it.

Reinventing the business model to fight decline

Successful retail businesses have radically changed their mindset:

They create value through experience

Value creation no longer comes from the product itself but from the buying act and the experience that surrounds it. The product remains central, but its role has changed: it is an asset, a commodity, a minimum expectation. Of course, it must be perfect, high-quality, adapted to the target audience, and sold at the right price, but it also has to be part of a more holistic experience.

The new generation of consumers has taken a stand and agreed to spend money not merely on products, but experiences. This marks a significant change of focus for retail chains, which have always been product-oriented. People who visit Big Mamma restaurants do it as much to enjoy the experience and share it on social networking sites as to have a meal. Their products are indeed top quality, but they are not the only reason behind their success.

Customer experience is king in these restaurants, both attractive and unpretentious, affordable and high-end. Customers are much more willing to queue for a table here than at any other restaurant. Locations are carefully chosen, and brand attributes are consistent: products and employees are 100% Italian, and the identity of the experience is easily recognisable. Customers relish the opportunity of being immersed in a fun and lively atmosphere, even in restaurants located in typically cold places such as boutique hotels. Nothing is incidental, especially not the restaurant. The founders say it themselves: « Our job is to create spaces for living. »

They build close relationships with their customers

Establishing a close relationship with the target audience is essential, and some retail players endeavour to create a sense of community in order to foster brand loyalty. Lush, for instance, apart from its 100% vegan and cruelty-free products, boasts a strong charitable, ethical and pro-LGBT commitment. Brands aim to create a meaningful universe and convey a consistent image through their stores, employees, and online channels. It is this consistency that guarantees the brand’s credibility and authenticity.

They promote a culture of customer service

This might be the reason why not many French retailers are currently applying this new business model. Anglo-Saxon and Asian countries, especially Japan, where the culture of quality and customer service is more deeply rooted than in France, are more likely to focus on creating high-quality experiences.

The fashion brand Sézane offers its customers tea in winter and cucumber water in summer as part of its in-store experience.

They create a lifestyle

Their value proposition goes beyond the brand and its products to create a whole lifestyle that is present at every touchpoint between the customer and the brand, and which includes information, services, and products. Going back to Sézane, the company has managed to transcend mere clothing and create a universe that resonates with its thirty-something customers by also proposing stationery, refreshments, and books. Its showroom, called The Apartment, is the brand’s home, and all its customers are invited to pay a visit and feel at home, too The setting creates a unique in-store experience that can be extended online via social media sites. As a result, the Sézane product you acquire is special and evokes a specific memory associated with the buying act.

They rely on social media and influencers

Customers see influencers as inspirational creators. Peers have a role to play in a brand’s appeal to the public, which is why user-generated content and understanding influencer marketing have become vital assets in the retail industry. The fight for customers has given way to a « mix and match model » that encourages brands to share customers, open their ecosystems, and collaborate with other brands to become stronger. Now it is customers who control brand equity, not companies. It is the era of co-constructed products, valuable influencers, and user-generated content.

They opted for an omnichannel approach

The omnichannel model opens up a myriad of possibilities. It enables companies to deliver a simple and integrated digital experience, but it requires substantial investments in a solid data foundation and customer knowledge. It also needs to be managed as part of an overall profit & loss statement. Besides, customer journeys must be channel-agnostic, that is, designed to offer a consistent and seamless experience across online and offline channels.

By broadening the notion of commercial exchange, digital technology transforms habits and facilitates the buying experience. There are currently several omnichannel models that may coexist.

The Web-to-Store model uses the web as a showcase, a way to connect. Digital technology helps bring more customers to the store. There are a few possibilities to facilitate two-stage purchases, such as:

  • E-reservation (you book the product online and then pay in the store)
  • Click and collect, (you buy it online, then collect it in the store; the item may be taken from either the store’s stock or the central stock).

A Store-to-Web approach allows a customer that goes to a store and does not find the product they are looking for to order it directly at that same store. These products may come from the central or online stock, or from the stock of another store if a single stock pool exists. The objective here is to avoid losing a sale when a product is out of stock at one particular store.

Customer experience may be enhanced through salespeople available to spend more time with customers, or through mobile or self-checkout systems to dispense with traditional checkouts, often perceived as a poor experience.

Captured information yields enriched customer data, which is used to identify each customer and propose personalised services in order to earn their loyalty. The objective of this technique, called Clienteling, is to enable the seller to offer relevant content to its customers.

In a Ship-from-store approach, a store prepares orders for its customers and customers of other stores. In this case, retailers rely on digital solutions to implement a single stock pool and be able to process more orders.

In addition, the Express Delivery model allows customers in large urban areas to order their items online and have them delivered within 2 hours.

The keys to surviving digital transformation (or a meteorite)

High speed of adaptation

Evolution requires adaptation. Being agile means moving quickly, being prepared to deal with unexpected situations and run away in the event of danger (fight or flight), and also being flexible enough to organise yourself. Retailers that have been successful over the last few years have proved their agility by radically changing their business models.

Low requirements

All surviving species shared something: they were frugal. In the current economic context, frugality is an asset. The human scale of retail market newcomers partly explains their success. Big companies, though, overcome by lethargy due to their long digestion times, may end up losing sight of the need for survival. The concept « too big to fail” no longer holds.

Although being smaller

helps, it does not mean that large companies are doomed. To survive, they must be organised. As a living organism, a large company can adapt to the digital era by creating small internal bodies with teams of up to fifteen people that are given autonomy to make their own decisions.

Last but not least: a diversified diet

In the Palaeolithic Age, carnivores and herbivores became extinct due to a lack of necessary food resources. Hunting became impossible and the clouds of smoke that covered the Earth hampered photosynthesis. The surviving species were mostly omnivores, which could live off different types of food.

And it would seem that omnivore is not so different from omnichannel after all. The businesses that have succeeded in their digital transformation are those that, in addition to maintaining their traditional vital functions, such as sales and finance, have multiplied their resources: e-commerce, stores, marketing, logistics, information systems. The winning approach is cross-functional and requires committed people as well as methods, tools, processes, and a management system. When a company increases its digital value, its overall value increases as well. Retail is still very much alive.

Auteur : Patrick Oualid

Partner, Industry, Distribution, Energy, Strat op