Retail Industry: differences between brick and online stores

From department stores to coffee machines, from the town square to the digital storefront, from the most hopeful transformations to the apocalypse, retail is a big industry. In this article, we'll look at the retail industry and its distinct qualities.

The retail sector is frequently referred to as one of the most crucial for a country's economy since it serves as a kind of litmus test for the economy's health. In a strong economy, productivity is high, and wealth is mirrored in consumption, which is mostly focused on retail. As a result, in times of crisis, one of the first sectors to contract is retail, which suffers immediately: consumption falls, and as a result, operators who rely on the sale of food or consumer products see their earnings collapse, resulting in job losses.

Given the importance of retail in industrialized economies, one question should not be overlooked: what exactly is retail? This segment is far more complex than it appears at first glance, especially in light of the massive changes that have occurred in recent years as a result of digital transformation.

What is Retail Industry?

So, let's begin by defining the term "retail."

By "retail," we mean the market that encompasses all operations including a company's direct sale of goods or services to consumers, which are often acquired for personal or family use.

Retailers are divided into two types: retail and institutional. One thing they have in common is that they both involve a large number of minor transactions. Instead, the wholesale market is a marketplace for businesses (rather than individual consumers); some enterprises engage in both activities at the same time.

When searching the web for retailers in Italy, the most frequently stated examples are huge corporations such as Coop, Esselunga, and Coin, which are all large-scale retail outlets but not necessarily reflective of the range of merchants that exist. A range of commodities is sold by stores of various sizes. This leads us to the second point: retail is a very diverse industry.

Five types of activities, one sector, three segments

The activities that make up the retail market are typically divided into three macro-areas:

All activities that supply food and associated products to consumers are classified as food products.

Consumer goods refer to all activities that involve the sale of products, many of which can be reused over time.

Durable consumer goods refer to activities that supply consumers with things that last longer, such as household appliances, furniture, and kitchenware.

This is not the only differentiation that can be made within the industry.

While retail is a B2C industry, there are a variety of approaches to do this. In light of this, further differentiation within the retail sector is possible. When we consider the various types of stores, we can come up with at least five different categories of activities.

The first type is referred to as "fixed location" retail. This is a traditional store where things can be purchased. This form of retail is typically located along street streets or in shopping malls.

Supermarkets are the second type of retail. The range of products available in this situation is substantially broader, spanning from household items to technology and food.

Discount stores make up the third group. While discount stores and supermarkets are similar, discount stores are more food-oriented and frequently sell "off-brand" goods that are sold at retail and lower costs than supermarkets.

Temporary stores are the fourth kind. These types of businesses are usually only open for a short amount of time and are located in high-traffic regions. This is because temporary shops are frequently used as part of a marketing strategy, serving as a physical touchpoint for the debut of a new product or the consolidation of an existing brand.

Vending machines are the fifth category. The store is virtually non-existent in this situation, and the service is fully automated. The intriguing thing is that, in comparison to the past, the variety of things available from vending machines has grown; they now include anything from food to pharmaceuticals to tiny objects.

We cannot overlook the fact that new, increasingly important merchants have entered the market, even though they are the main and conventional shops in operation.

Enter the Digital Square

Retail has adapted to take advantage of the huge potential afforded by digital transformation since the emergence and adoption of the internet. Two new categories have been added as a result of this.

The sixth area is internet retail, which comprises primarily of e-commerce platforms, i.e. platforms where you can explore and buy things and have them shipped to you. On closer inspection, and in some cases, these platforms are nothing more than digital extensions of physical stores, and it's no surprise that many retailers envision combining traditional and digital sales channels in their business to increase the number of consumers who can theoretically buy while simultaneously reducing inventories.

In actuality, the seventh category can be considered a subset of the sixth. We're talking about mobile retail, which refers to firms that operate completely through a smartphone app that allows customers to buy things right away without having to visit a website. With this scenario, as in e-commerce, it is uncommon for a retailer to rely solely on mobile for sales.

In general, the trend is to combine as many different retail categories as feasible, giving customers the option to buy in a physical store as well as online.

Digital transformation appears to be beneficial to retailers, as the internet allows them to offer more things to a much larger, even worldwide, audience. This is not always the case, though.

According to recent surveys, more than 50 million Italians (nine out of ten) use the Internet, a figure that continues to rise year after year. 93 percent have visited at least one online retailer from any device, and 77 percent have purchased a commodity or service online using a personal computer or smartphone in the previous year. In light of these figures, it's no surprise that the value of consumer items purchased on an e-commerce platform climbed this year over the previous, hitting $15.83 billion, although average per capita spending stayed relatively stable at roughly $400. Similarly, the number of people who bought things online in 2019 is constantly increasing, with over 39 million shoppers.

As a result, everything suggests that retail, unlike banking, finance, and, above all, telecommunications, is one of the few, if not the only, sectors to have profited from digital transformation. However, this isn't always the case.

The usual challenges

The rate at which digitalization is advancing in Italy and around the world has undeniably increased the growth of this particular retail industry, which continues to expand.

Even in Italy, e-commerce has increased by 30%, and the trend does not appear to be slowing down (source: e-commerce monitor. it). The income generated by the entire e-commerce business in Italy increased by 140 percent this year compared to 2015, and it is projected that growth would continue in all areas by 2023, particularly in electronics, apparel, food, personal care goods, and household appliances.

This does not, however, imply that traditional retail is in the same state.

Smaller merchants have been hurting for a long time as a result of supermarkets and large-scale retailers, in general, cannibalizing the market. Furthermore, the digital revolution has paved the way for new competitors who are posing a threat to both tiny neighborhood stores and major retail behemoths.

We've been talking about the "retail apocalypse" for a while now, which refers to people "flighting" from physical businesses in favor of e-commerce. This issue is most noticeable in the United States, where an entire website is devoted to cataloging all of the country's "dead" retail malls. Although some economists have downplayed the problem, it is evident that the sector has suffered. In the United States, for example, shopping mall visitation fell by half between 2010 and 2013. Even Italy is considering an "Italian-style retail apocalypse," highlighting how shopping center revenues have fallen from a high of 6.4 percent in 2017 to just 5% in 2019.

Is e-commerce to blame?

It is apparent that the emergence of e-commerce cannot be blamed alone for the current predicament.

External factors, such as the recent slowing of the economic recovery, as well as consumer preferences and habits, which increasingly appear to prefer personalized experiences, whether online or offline, have influenced this, and this may have led them to "rediscover" smaller and less "serial" retail.

In any event, it is undeniable that, when correctly implemented, digital transformation may provide a tremendous opportunity for all shops, particularly smaller ones, to reach a far larger audience and more effectively market their products. In addition, the customer appears to be amenable to this type of change.

The difficulty for market participants is to comprehend how to modify to benefit from digitization. It's not an easy task, but there are some principles and trends to follow to try and ride the market. We'll go over this in more detail in a later post. Keep up with our latest content by following us on social media.