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How to embrace the rise of O2O retail

black and white street post with two signs: ‘offline’ and ‘online’. each sign has an arrow pointing in a different direction.

It used to be that we’d pop into a store, browse for a bit, make a purchase, and then head home.  If we shopped online, the journey would follow a very similar pattern –  siloed to only one channel.

Today, things are very different.

Consumers in 2021 don’t want barriers between selling channels; they want to be able to shop in a way that suits them. Retailers that don’t cater to this desire will find it hard to stay relevant in a marketplace that’s growing increasingly customer-centric.

But you can meet this challenge head-on by implementing an O2O (online to offline) approach to selling and customer care. But what exactly is O2O, and how can you incorporate this strategy into your business effectively? 

What exactly is O2O retail?

O2O retail, or online-to-offline retail, is an approach designed to entice consumers into making purchases in brick and mortar locations after beginning their shopping journeys online. By blending online and offline capabilities, O2O strategies aim to maximize convenience and flexibility for consumers, resulting in increased sales and brand loyalty. 

In an O2O landscape, selling channels complement rather than compete with each other, allowing retailers to showcase the strengths of their channels while also supporting their weaknesses. 

For example, ecommerce is great for browsing large product catalogs. But the inability to try items ahead of purchasing is what results in the channel’s high return rates. Options like BOPIS (Buy Online, Pick-Up In-Store) give customers the convenience of making transactions online and then test the product in-store before taking it home. This means more satisfying customer experiences and in turn higher retention rates. 

How is O2O different from omnichannel?

You’re probably thinking by this point that O2O sounds similar to omnichannel – and you’d be right. There’s a pretty big overlap in that both strategies facilitate more seamless shopping journeys across channels. However, their end objectives are quite different. 

Where omnichannel aims to completely integrate selling channels and inventory into one ecosystem, O2O retail is geared specifically towards bringing online customers into the physical store environment. Both approaches are designed to bridge the divide between online and offline retail, but O2O prioritizes a particular shopping journey, rather than the multiple touchpoints that exist across omnichannel retail journeys.

Why should your business embrace O2O retail?

We’ve all heard the reports. Brick-and-mortar is dying because consumers are gravitating on-masse to online shopping…Or are they? 

While physical retail has been struggling since before the pandemic, this characterization is too simplistic.  

We’ve seen a record number of store bankruptcies in the past year, including Neiman Marcus and J.C Penney. Yet other traditional retailers, such as Nordstrom, are bucking gloomy forecasts. So, what gives? 

The difference is that Nordstrom, while also an anchor within local shopping malls, has adapted to an increasingly hybrid retail landscape. In 2019, its flagship store generated just 38% of revenue, according to Fortune. The rest came from its rapidly scaling ecommerce operation and discount division, Nordstrom Rack. While several store closures were announced, 2019 also saw the opening of its seven-level, 320,000 square-foot flagship store in New York City.

At first glance, this strategy might seem like a contradiction. But that’s only because we’ve grown used to viewing ecommerce and brick and mortar as separate or even competing channels. 

What Nordstrom has done is to place a foot firmly in both camps to create a mutually reinforcing retail strategy.

Because while ecommerce has shaken up the retail sector, it hasn’t made in-store shopping obsolete. According to The State of Consumer Behavior 2021, nearly half of consumers say that they prefer shopping in physical stores to online.

Yes, you heard that right.

The reasons are as follows:

  • The ability to interact with products (33%)
  • The overall in-store experience (26%)
  • The immediacy of purchasing, as opposed to waiting for delivery (13%)

Not surprisingly, these are all areas that ecommerce can’t easily deliver. The inability to try products is one of the main reasons behind high return rates in ecommerce, while online storefronts often lack the immersive brand experiences that consumers crave. 

That’s not to say that ecommerce doesn’t have some major advantages; it’s far easier to browse and compare product options online than it is to hunt around a store with time and spatial limits. For the retailer, an online presence also means that their pool of potential customers is much wider than foot traffic.

In sum, O2O retail strategies enable retailers to find the best of both worlds. It appreciates the convenience that ecommerce offers consumers when it comes to product and brand discovery while making it easier for them to bring these insights into the store for a more streamlined, satisfying shopping experience.

What does O2O retail look like?

BOPIS (Buy Online, Pick-up In-Store)

BOPIS is not a new retail invention, but it’s seen a massive uptake in the wake of the pandemic. With many consumers not feeling safe spending extended periods of time in public indoor spaces, BOPIS presents a perfect solution for both retailers and customers.

BOPIS utilizes the superior browsing capabilities of ecommerce, while also giving consumers the instant gratification of brick and mortar shopping. No matter how commonplace next-day or even same-day delivery becomes, it’s hard to complete with BOPIS’s ability to have an order ready for pick-up in as little as an hour. 

This convenience also gives retailers a distinct advantage. They’ve already locked a customer into one sale, so bringing them into an additional shopping channel offers opportunities for further conversion. Almost half of all BOPIS customers have made an additional purchase while coming to a store to pick up their items – a big source of revenue that you’re missing out on without this O2O strategy!

In-store returns

Let’s say that you’ve purchased a product online. But when it arrives, you realize that it’s not right for your needs. It just so happens that there’s a store location close by, so you decide to return the purchase there.

What’s your response likely to be when the sales assistant tells you that “Sorry, we don’t accept online returns?” Probably frustration. Because now you have to package your order up, send it back to the warehouse, and await lengthy processing before you get your refund. 

It’s experiences like these that add unnecessary friction to the customer experience – and may cause consumers to question whether they want to shop with that retailer again.

In-store returns are seeing increasing popularity with consumers who don’t want to deal with the hassle of mail-in returns. Narvar’s 2020 study found that the number of consumers returning items by mail had dropped by 5% between 2019 and 2020, while nearly 40% consider in-store returns to be the easiest returns method. 

In-store returns help to simplify the returns process for both you and your customer. Because returns processing and refund occur simultaneously, this means better service and the ability to put items back into stock straightaway. Furthermore, if retailers normally pay for return shipping, they can save money by sending orders back to the warehouse in bulk rather than individually.

Pop-up stores

For all the benefits of D2C distribution strategies, it’s hard to beat the allure of a curated in-store experience. 

This is exactly what many D2C brands are finding as they face rising acquisition costs and more competition in the marketplace. There might be a lot of eyeballs online, but getting in front of the right ones isn’t an exact science. 

A physical retail presence gives digitally-native brands the ability to build brand awareness amongst new demographics who might not visit their ecommerce store. It’s also a brilliant way to build a buzz through tactile, immersive retail experiences that cannot be found online.

Opening a permanent store location is a major step for D2C brands. It means adjusting their entire distribution system and making new hires, not to mention taking on new overheads. But the rise of temporary pop-up locations, either rented space or at existing retailers, allow digitally-native brands to test the waters with much less financial risk.

A great example is leading beauty subscription Birchbox, who stepped into brick and mortar in 2015 with their ‘Birchbox tour’ around the United States that featured exclusive products, manicures, and astrology readings to create quality time with the brand.    

These online-to-offline strategies add valuable touchpoints with customers and give D2Cs a major competitive edge over brands that are restricted to the ecommerce space.

O2O marks a big shift in how we conceptualize retail; a satisfying customer experience is no longer just about customers finding the perfect product, but being able to navigate the shopping journey with as little friction as possible. Whether that’s being able to return items in-store or find their favorite brand in their favorite apartment store, consumers are voting for flexibility in ever greater numbers. Make sure that your business to be on the right side of this shift!

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