Toys ‘R’ Us

3 big retail trends to watch for

April 17, 2014: 10:59 AM ET

However much technology has disrupted the retail industry, brick-and-mortar stores are here to stay.

By Barbara Kahn

The future of retail

The future of retail

FORTUNE -- The Internet has upended nearly every industry, but perhaps no category has undergone a more radical transformation than retail. Near-global access to the Internet and speedy adoption rates of smartphones have spawned countless changes to the way we shop and how retailers compete. In the coming years, there will be many more changes, but here are three big trends to watch for.

Long live brick-and-mortar stores

Many big-box retailers are either closing (e.g. Borders, Circuit City) or struggling (e.g., Toys 'R' Us, Best Buy), as the business model of providing consumers with a huge assortment of products at very low price is better delivered online. And as we see more chain stores close, it seems we just don't need as many physical outlets (did we ever?) since price-based and repeat buying are easier online.

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However, no one is predicting the complete demise of the physical store. Local retailers -- where you can touch, smell, and feel the product -- still offer value. What's changing is that retailers have begun to recognize the need for experiential events to lure customers. Drugstore Duane Reade in New York City has divided their stores into three areas: The "up market," where you can buy ready-to-eat meals; the "Look boutique," which offers salon and nail services, fragrance testers, and virtual makeovers; the "pharmacy," where health professionals offer health advice. All of these require the consumer to actually walk into stores that offer services best delivered in person.

Shopping on- and offline: A seamless experience

Retailers have been talking a lot about "omni channel," an industry term that means shoppers can transition seamlessly between both physical and digital stores. It's something many retailers aspire to, but for now, few are totally omni-channel, whereby their online and physical businesses are fully integrated in terms of inventories, budgets, compensation, and sales/purchases processes.

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Most traditional offline retailers understand the need to develop their e-commerce and mobile platforms. Interestingly, the same is true for pure-play online retailers in that they too are thinking about omni-channel strategies. E-commerce brands, such as Warby Parker, are opening offline showrooms, physical stores, and branded delivery trucks. Warby has found that there are positive synergies when they open up physical stores for their online sales.

The retailing industry also recognizes that the critical connector integrating all of these channels is the smartphone. The smartphone not only connects online to offline but also offers the possibility of clever social media strategies. Fashion design firm Alice and Olivia by Stacey Bendet publishes a blog and is active on social media. Eventually the words "omni-channel" will cease to be useful, and the term will simply become a way of life for retailers.

Faster online deliveries

These trends are fundamentally changing consumers' shopping behavior. When online retailers first tempted shoppers to become less risk averse and buy online, they offered free delivery and free returns. This radically changed consumers' expectations. Now, if they were unsure of which shoes to choose from, they could order several pairs and try them on at home. They could take photos of themselves and post them and get friends' reactions.

Expectations for delivery times are shortening as well. eBay's "eBay Now" has been test-marketing a program (in some urban cities) where anything that you want that is available in a local store can be delivered to you wherever you are within an hour. It seems inevitable that consumers will expect they can get whatever they want, whenever they want, 24 hours a day.

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Access to easy search online across many retailers and branded goods has also increased the sophistication of consumers. Those who are price-sensitive can find the very best price. Those who are sophisticated can easily educate themselves on product features and search for the optimal product configuration.

With all this consumer sophistication, retailers stuck in the middle will not survive. However, brands that understand the consumer, focus strategies on their needs, and offer an unparalleled branded shopping experience will thrive.

Barbara Kahn is a professor of marketing and director of the Jay H. Baker Retailing Center at the Wharton School of the University of Pennsylvania. She is also chair of the Retail and Consumer Goods Executive Summit.

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