REMINDER: Retail is Competitive, Diverse, and Omni-Channel
Earlier this month, Project DisCo noted how retailers are continually innovating to meet the evolving demands of customers––increasingly, physical stores are adopting sophisticated digital practices, increasing choices and options for all.
Research shows brick-and-mortar stores compete directly with online stores, benefiting consumers with lower prices and more options. “Research shows that online stores and retail apps compete directly with brick-and-mortar retailers – for example, prices charged by brick-and-mortar retail channels tend to correspond closely to those charged online – so this entry will benefit consumers across the retail industry through lower prices and diverse venue options. Regionally, nationally, and internationally, new ad practices provide one more method to make offerings stand out to customers seeking competitive prices, choice, and convenience.”
For example, Walmart’s large investment in digital technologies, specifically ad innovation, is paying off. “Walmart’s move is part of a larger strategy that led to a more than eightfold increase in impressions over the course of 2022. Walmart has so far profited from this ad innovation to the tune of $600 million between 2021 and 2022 and is only further expanding its initiatives in the ad sector with approximately 170,000 digital screens across its locations as well as 30-second radio spots that can target specific regions for more accurate ad direction.”
Walmart isn’t alone. Retailers are innovating through digital technologies resulting in a convergence of advertising and retail. “This isn’t an entirely new phenomenon – the convergence of advertising and retail has been apparent for several years – but this data underscores just how rapidly that change is occurring. Target’s Roundel digital ad service announced in 2019 hit $1 billion in revenue in 2021, and is projected to exceed $2 billion in the near future. Kroger saw $150 million in operating profit from its ad divisions in 2020 and 2021, and its ad division topped $1.2 billion revenue in 2022.”
This is just the latest in the growing record of the multifaceted nature of retail.
In a research report about retail, Rosa Abrantes-Metz and Maim Maloney of the Brattle Group found “intense” competition across retail channels. “Their responses are clearly different when they are the higher price: brick-and-mortar prices will tend to stay high, while online prices will be pulled down to lower levels. This is consistent with intense price competition both within and across retail channels.”
— They concluded by stating, “our findings suggest that competition among retailers and across retail channels is intense, that they respond quickly to each other’s prices and that, as a consequence, regulation affecting online commerce is expected to affect prices in brick-and-mortar stores, and vice versa. The increasing popularity of omnichannel shopping, whereby consumers mix and match online and offline components of their shopping journey, also may encourage convergence between online and offline prices.“
Evidence shows: retailers must compete for customers daily and directly through blended offline and online sales channels.
Treating online retail as its own market when retailers compete for customers across online and offline sales channels doesn’t make sense, explains University of Pennsylvania law professor Jonathan Klick. “[R]elegating Amazon’s market to e-commerce rather than retail more generally might be a little like treating Sonic as controlling the market for hamburgers delivered to your car while you sit in a parking lot stall because McDonald’s won’t do that. That is, there is little a priori reason to carve out something known as e-commerce from retail more generally. In fact, data from a 2018 survey suggest that most consumers still prefer shopping offline.”
Customers continue to enjoy the benefits of both online and offline sales channels, finds a 2021 Verint report. In 2020, 43% of customers started the purchase digitally, and 46% started in a store.
— In fact, consumers are looking for a “seamless experience” between digital and real life, noted Insider Intelligence Analyst Carina Perkins. “If retailers can find ways to reduce friction and make the in-store shopping experience and the digital shopping experience more enjoyable, then they’re potentially going to have an edge over their rivals, even if they can’t offer lower prices.”
A Forrester report found that rather than being distinct markets, combining offline and online experiences provides opportunities for customers and retailers. “Citing its 2022 Retail Benchmark Recontact Survey, Forrester noted that nearly a third of U.S. survey respondents said they enjoy in-store shopping and spending time outside their homes.”
— Additionally, “direct-to-consumer brands have branched out into physical storefronts, which can help raise brand awareness and ease e-commerce costs.”
Arpan Podduturi, Director of Product Retail and Messaging at Shopify, believes omnichannel is fueling the next small business revolution: “The more we can connect online and offline, the better the customer experience. And that ultimately gives retailers and main-street brands a chance to survive and thrive going forward.”
As the retail sector becomes increasingly multichannel, regulators must adopt a careful antitrust approach that “can balance long and short-term incentives to innovate and compete,” reminds Andrea Asoni, Principal of Charles River Associates. “The importance of innovation, the dynamic nature of the tech sector, the blurring of the lines between online and ‘brick-and-mortar’ businesses have made antitrust analysis more complex and added additional uncertainty, requiring a careful approach by antitrust practitioners, regulators, and legislators that can balance the long-term and short-term incentives to innovate and compete.”
To learn more about the omnichannel and competitive nature of the retail market, click here.