Corporate Venture Driving the Convergence of Physical & Digital Retail

Bryan Wargo
Bryan Wargo
Head of Worldwide Sales

In the past 15 years, investments have poured into digital retailing, but now opportunities lie in bringing the physical channel up to par and seamlessly connecting the two, and those opportunities are being enabled by venture funding

[This post was originally published on The Corporate Venture Connection, powered by the National Venture Capital Association.]

The retail industry is huge, like H-U-G-E huge. In 2015, the retail market was expected to be $24 trillion worldwide, with almost $5 trillion of that total coming from the United States alone.

But, as big as retail is, it’s not without its problems. In fact, because it’s so big, its problems are equally big, as are its opportunities, and how brands respond, particularly to digitally native retail concepts, will largely be influenced by the venture capital community.

A New Shopper Journey

It’s clear today’s retail is becoming a blend of digital and physical channels, and it’s not because the industry is making it so, what with clever names like cross-channel, multichannel and/or omnichannel. The future of retail is none of that, for that’s not the way shoppers think and talk.

To shoppers, it’s simply “shopping,” and make no mistake about it, shoppers are in control and dictating changes in retail.

Today’s shopper has access to more brand, product and service information than ever before, and she has an almost unlimited number of global alternatives throughout her purchase cycle, empowering her to control most aspects of her shopping experience. The brands that don’t “get her” literally don’t get her … as a customer.

Three friends mobile shopping

Her new shopping journey is completely immersed in the digital channels, even when in-mall or in-store. In fact, in many ways, mobile is the new front door of the store, with shoppers beginning their shopping missions online, on their phone. That concept was the basic tenement for the founding and funding of companies like Nearbuy Systems (acquired by RetailNext in November 2013), and it’s the reality driving the reinvention of retail.

Digital Engagement is the New Ante to the Game

If a retailer can’t engage online, it can’t compete. The thing is, if the retailer can only engage online, it usually can’t operate profitably.

Keep in mind, prices online are typically low, low, low – the channel itself allows for easy and quick price comparisons from multiple sites. Then, there are costs – not just huge investment costs to build out the channel, but high operational costs too. Consider this quote from Nordstrom (NYSE: JWN) CFO & EVP Michael G. Koppel, as reported in Retail Information Systems:

“This business model has a high variable cost structure driven by fulfillment and marketing costs in addition to ongoing technology investments. With our increased investments to gain market share along with the changing business model, expenses in recent years have grown faster than sales.”

It’s not just Nordstrom, either. Check out what Michael Kors (NYSE: KORS) CEO John Idol said earlier this year, as reported in Business Insider:

“Unfortunately today, e-commerce generates a lower operating profit for us than four-wall brick-and-mortar. We think over time that will reverse itself, but, as you know, when the consumer requires free delivery, free return, wonderful packaging, plus there’s a new trend that people are buying multiple sizes of things to try them out at home and then return them, that all is a negative headwind for us.”

Even the “king” of all online merchants, and the one that started it all, Amazon (NASDAQ:  AMZN), struggles with profitability, and that includes enormous profit contributions from its web services arm, AWS. It’s not really a surprise to see Amazon entering the brick-and-mortar realm, now is it?

Seamless Cross-Channel

The “glue” holding retail’s digital and physical channels together lies literally in the hands of today’s shoppers – their mobile devices. It’s the one constant companion in the shopping journey, both online and in-store, and, it’s the next great opportunity for retailers.

Mobile engagement with shoppers is absolutely essential for extending customized, personalized shopping experiences, and mobile messaging has been around for years. But, what’s missing from promotions and offers is relevance – after all, the shopping needs of a 35-year old mother of two are usually quite different than the 25-year old single man. So, if shoppers have different needs, why send them all to the same hard-coded URL with the same products and services?

Retail analytics platforms are adding extensions like RetailNext’s Mobile Engage application to Mobile engage pop up v1deliver timely, relevant messaging across any and all social channels, just like thousands of other applications. These new applications have the capabilities to combine data on shoppers’ online, mobile shopping behaviors with data from shoppers’ in-store shopping behaviors, giving retail marketers a 360-degree view of shoppers and their needs, desires, values and wants. No longer do mobile marketers have to be blindfolded to what’s happening in-store, and as a result, they can deliver truly personalized and relevant experiences.

Other extensions to analytics platforms include companies like Brickwork, providing tools to engage shoppers in the digital realm and then guide them into the physical store, allowing retailers to use digital data in the in-store environment, and empowering faster, more personalized service. Retail IoT technologies like CloudTags bring digital collateral into the physical store environment, elevating concepts of “showrooming” and “webrooming” so shoppers have all the necessary product and service information at their fingertips. And, of course, companies like Sweet IQ maximize local search, driving ready-to-buy shoppers into stores in the first place.

What do all the companies above have in common, other than being part of the RetailNext Partner Ecosystem Program? Well, they’re all innovative technology companies focused on solving retail’s biggest opportunities, they’re all integrating together to change retail in the IoT era and they’re all enabled by the venture funding community.

RetailNext is a company that is committed to leading the optimization of the shopper experience, and as a result, it consistently invests in capabilities to best serve its customers and their shoppers. From not being able to get a meeting with a venture capitalist when formed during the global economic crisis of 2008, RetailNext has grown to close consistently over-subscribed funding rounds, securing over $200 million in strategic investments from the likes of Activant, Qualcomm, AMEX, Nokia Growth Partners and EDBI, the corporate investment arm of the Singapore Economic Development Board.

However, it’s not just those equity investments that have empowered RetailNext to invest over $100 million in R & D alone, as the venture community delivers a variety of resources and assets to young companies. Quinn Li, head of Qualcomm Ventures, states it well when he refers to the pleasure he personally takes in helping his portfolio firms grow through leveraging Qualcomm’s resources.

Retail is changing because shoppers have changed the way they shop and are demanding brands keep up with them. In the past 15 years, investments have poured into digital retailing, but now the opportunities lie in bringing the physical channel up to par and seamlessly connecting the two, and it’s those opportunities that are being unlocked and enabled by venture funding.

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