Retailers have lost their way. Getting back on track requires a true integration of digital and physical channels.
The retail sector has gone through turbulent times since the financial crisis that started in 2008, buffeted repeatedly by trade wars, increased tariffs, geopolitical tensions, high levels of indebtedness, and rumors of imminent global recession. As a result, retail’s old rules of thumb are no longer enough to generate success. Having an excellent location and the right product range at an attractive price, hiring excellent people, and doing everything possible to run an efficient operation are not enough to ensure our future. Nor are concepts such as ‘omnichannel’ or ‘customer journey.’
Today, we face a colossal paradigm shift in commercial distribution that demands a retail reset. It is essential to ensure the survival and success of companies and commercial formats in the face of evolving consumer behaviors.
The omnichannel delusion
During the 2010s, a significant number of retailers were working on their omnichannel vision. As the word itself indicates, it was thought that omnichannel would entail the merging of physical and digital assets to achieve a single brand experience, and a single view of customers and inventory through all the channels. Many advisory companies sold omnichannel projects as the definitive evolution of previous phases of retail, such as multichannel or cross-channel.
However, the omnichannel ambition missed the mark in execution, as we saw with so many companies during the pandemic. Why did it fail? In many companies with a physical store legacy, the prevailing strategy, structure and culture led to the failure to integrate digital platforms into physical stores. As a result, many companies that decided to pursue an omnichannel approach in the mid-2010s were far from accomplishing this goal.
This omnichannel delusion is a good example of the discrepancy between strategy and execution. It is not enough to be omnichannel when it comes to formulating strategies if they are unrealistic, there is no budget, or the predominant culture generates rejection of their execution. That is where most companies fell short.
The impossibility of mapping the customer journey
The idea of the customer journey – the steps individuals go through to purchase a product or service – has also faced challenges and setbacks. This is because it is impossible to map the paths of myriad customers in search of experiences that extend far beyond our ability to track. There is no single customer journey, but thousands for the same customer and product.
For many years, the customer journey has been a fundamental tool in retail. The customers’ smallest gestures and actions have been monitored, the collection of reliable information has been improved to follow consumers, and allocation models have been developed. The reality is that this entire process has distanced us from what our customers do. We have converted them into
a number with a unique ID that is entered into a customer relationship management (CRM) system. Then it passes to a data management platform
and on to a customer data platform, and so on, depending on the trends and technology at the time.
Where is our customer once we have spent weeks mapping their journey to show it in a PowerPoint presentation on the office walls, knowing that it will soon be obsolete? One event like Covid-19 was enough to change everything, reinventing journeys with no-contact contact points (what a contradiction!) and leaving retailers to figure out new ways to create personalized experiences.
Customers do not care about shopping channels, whether we are multichannel, cross-channel or omnichannel. For them there is only one channel – and they think the brand must have a solid consistency in all the touchpoints. They are looking for experiences and emotions that far exceed our ability to track them on all the terminals where they connect.
Phygital is integration done right
‘Phygital’ is the new ambition that retailers should have in their agendas. It represents the true integration of channels, but done right this time. The concept entails removing the barriers between physical and digital relationships with the brand, and integrating physical and online channels into the platform so that they all become hybrid assets (physical/digital) in which the backbone is digital.
This approach involves integrating all the channels into a unified platform that enhances the experience of consumers. Phygital integrates them all through technology, data, customer experience, product mix, metrics, and even profit and loss accounts. Having unified data or a single marketing
strategy does not mean there is one single way to sell, or one single message. All products in the store must be QR-scannable; all systems – both in the front-of-store and in the back-of-store – must be integrated and merged; and customers must be able to buy in multiple ways, such as buying at the store using the company’s app. If they need help, they must be able to ask for it from a salesperson who will have all the information at hand, or to connect directly with a virtual sales assistant.
The same goes for logistics: if the purchase is made in-store, customers may simply add items to an online cart using the application instead of having to carry around their shopping bags. Then they can pay for their order and ask that all items be express-delivered to their home or wherever they wish.
A phygital vision entails doing well what was not done correctly in omnichannel: creating a platform that integrates all channels, physical and digital, with technology as the backbone. It is central to the retail reset that is so urgently needed.
Dimas Gimeno is executive president of Wow and former CEO of El Corte Ingles. Luis Lara is managing partner of Retalent. They are the authors of Retail Reset: Why Physical Stores are Still the Key to the Future (LID Publishing, 2023).