With the growth of online shopping there has been a lot of talk about the future role of brick-and-mortar shops. Will the physical retail experience gradually be marginalised or will it find a new life, attracting customers who wish to shop and interact in real spaces?
The location decision for a retail store is traditionally based at least 50% on the assumption that customer interest will be determined by the size of the shopping centre and its distance from the customer. Advanced analytics demonstrates that the decision is also affected by other factors of even greater importance
.Analysis reveals the real pulling power
Operators who are able to flexibly combine the advantages to the customer of both online and physical shopping will succeed the best. We conducted an analysis together with a successful retail chain, and the results are encouraging for the future of brick and mortar.
We began by analysing the store’s customer flows and comparing these with data obtained externally, including information on the catchment area population, the building stock and competitors.
By combining detailed sales and demographic data we were able to identify more reliably than with traditional evaluations, the types of people visiting the store. Using this information, we created a predictive model that takes into account the demographic data for the store’s catchment area, the competitive pressure and the impact of these on sales by merchandise category.
Based on this predictive model, we produced information on the optimum new retail locations for the whole of Finland. This would have been almost impossible with conventional methods. The model results also included answers to how the surrounding competition affects sales and how this should be taken into consideration in the store’s own offering. The results can also be used to tailor more effectively the size and number of store departments and their product selections on the basis of regional needs. The success of this analysis is demonstrated by the fact that the predictions have in fact materialised in connection with the opening of new stores.
Using the same tools, a store can also analyse where it is worth investing more in online sales, and where a brick-and-mortar store network would be the optimum solution.Through a good understanding of the customer and by making use of analytics, the best combination, in terms of customer service, can be found for the store’s different options.
Success from knowing right combination of online and brick and mortar
Internationally, there are various examples of retail chains that have successfully invested in developing both their brick-and-mortar and online shopping. One of the best known examples is Tesco, in the United Kingdom. Based on our experience, we would say that in Finland, too, success will be found by those who are able to make good use of the best aspects of both channels.
Digital services will not deal a fatal blow to brick-and-mortar retail stores. Appropriately implemented, digital services will increase sales in brick-and-mortar stores significantly, as package delivery and many other services can be concentrated in the best possible retail locations in terms of customer flows and customer needs.
Houston Analytics is an analytics company started by experts on data-driven leadership. By linking data to business decision-making Houston Analytics is guiding its customers to market leaderships in their industries.