How complex industries are making the transition to online retail

Online retail vs. brick-and-mortar retail: the differences

To understand the tension surrounding the link between online and brick-and-mortar retail, you should first take a closer look at the differences between the two retail strategies:

• In online retail, retailers offer their goods via online shops. Consumers can order these from anywhere via a web address. Payment is usually made by bank transfer, credit card, or online payment services.
• In brick-and-mortar retail, the retailer operates a physical store that customers visit in person. They select the items they want on site and pay for them in cash, by card, or via mobile payment.

Both options have advantages for customers (the disadvantages arise from the advantages of the other option):

E-commerce and brick-and-mortar retail: the market in statistics

According to the 2021 Online Monitor published by the German Retail Association (HDE) , online retail accounted for 12.6 percent of the total sales volume of €577 billion in the German retail sector in 2020. Adjusted for the food sector, the share is as high as 18 percent. Since statistics began to be recorded in 2000, there have been significant increases in the online share every year.²

Missed opportunities: Why some industries fear online retail

Despite strong growth, some industries still rely primarily on brick-and-mortar retail and are underrepresented in online business. According to HDE Online Monitor, the three sectors CE/electronics (24.5 percent), fashion and accessories (23.1 percent), and leisure and hobbies (15.2 percent) accounted for the largest share of the approximately 72.8 million online transactions in 2020.³

The FMCG sector, which has enormous sales potential with food and everyday items, accounts for only 10.2 percent of online volume. Even weaker are the DIY & gardening (4.5 percent), health & wellness (6.0 percent), and home & furnishings (9.2 percent) sectors.⁴

There can be many reasons for this:

• Need for intensive customer advice (e.g., when selecting skin care products for specific skin types)
• customized products (e.g., custom-made furniture)
• Difficulties during transport (e.g., dimensions of garden furniture, freshness of food)
• complex sales process (e.g., involvement of several people in the decision-making process)
• Products requiring explanation (e.g., special health products based on new active ingredients)

Innovative online solutions: Entry opportunities for traditionally stationary industries

Even if a particular industry is not predestined for online retail, a successful entry into e-commerce is not necessarily impossible. Solutions are already in use today that solve typical challenges in online retail:

• An optimized search function makes it easier for customers to find products. By displaying relevant suggestions as soon as they start typing in the search field, recognizing errors, and taking language usage into account, customers can quickly and easily find the product they want online.

Thanks to intelligent search, customers in the Fackelmann shop receive suggestions as soon as they start typing and can search for specific characteristics, for example. (Source: Screenshot from fackelmann.de)

• Personalized purchasing advice can also be provided online, for example through video chats and intelligent assistants. Online product advisors identify the customer's needs, select the appropriate product, and thus assist in the purchasing decision. We have compiled a list of other possibilities offered by online consulting software in another article.
• Free returns lower the barrier for customers when ordering high-priced or consultation-intensive items.
• Artificial intelligence can also be used to make individual product recommendations, for example based on browsing behavior or previous purchases made by the customer. For example, the online shop shows which products other customers have also purchased ("Other users also bought ..."). Personalized recommendations also allow each individual customer to be addressed individually by tailoring the items presented to their personal preferences.

Gepp's displays personalized recommendations on the homepage of its online shop as soon as a shop visitor has a history. (Source: Screenshot from gepps.de)

• With the help of category management, online retailers can offer complementary goods that logically go with an item (e.g., waterproofing spray for shoes), similar to what is common in brick-and-mortar stores. In this context, offering inexpensive bundles can be used to create targeted purchasing incentives and thus increase sales.
• With dynamic elements such as a personalized home page in your online shop or your ownshopping stream, you can also implement effective one-to-one marketing. In addition, interactive elements and gamification create an entertaining experience and encourage customers to return to your shop on their own accord.
• Personalized emails make it possible to connect with customers online after their purchase, thereby building long-term trust. Email personalization is therefore an important tool for digital customer loyalty in e-commerce.

Görtz, for example, sends emails about specific categories with matching recommendations.
(Source: Email from goertz.de)

• Data-driven commerce enables a unique shopping experience thanks to real-time personalization. Zalando, for example, evaluates personal purchase history to provide its customers with individual size advice.
• Live chats and other support options enable immediate contact, comparable to brief information provided by the salesperson in brick-and-mortar retail.

Nothing is impossible in e-commerce: Successful examples

Numerous retailers have already faced the challenge of making their online business profitable despite products that require explanation or complex sales processes. With the right strategy, a well-thought-out customer journey, and a consistent focus on customer needs, they have succeeded. Here are a few successful examples:

• In 2009, Zalandoheralded a new era in fashion with an unparalleled range of products and free shipping and returns.
• The fashion company Outfittery offers personalized styling advice online. Based on customers' personal preferences, stylists put together new favorite outfits.
• Even buying glasses online is now possible thanks to providers such as MisterSpex. If you know your exact prescription, you can order everything here—from single vision glasses to progressive lenses—and try them on virtually using a camera.
• fahrrad.de has demonstrated how bicycle retail can work through omnichannel commerce: thanks to digital bicycle advice and numerous guides, everyone can find their perfect bike. And with practical services such as store pickup or assembly service, the perfect shopping experience can also be guaranteed online.

Conclusion: Take advantage of the growing potential in online retail!

The share of e-commerce in total retail sales will continue to grow steadily. Those who ignore this prospect will not only miss out on significant sales opportunities, but may also jeopardize their long-term competitiveness. This is because many of the challenges in e-commerce can now be overcome with innovative technologies.

Source: ¹, ², ³, ⁴ German Trade Association

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