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Art & Commerce: Rethinking Retail

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The face of retailing is changing in front of our eyes, opening up new opportunities for the marketing industry. In their 2007 report "The State of Online Retailing," Shop.org and Forrester Research predict that e-commerce sales will top $259 billion in 2007, an 18 percent increase over 2006. The report states that in 2006, for the first time, online apparel sales topped sales of computer hardware and software—previously the best-selling category online. And it predicts that 10 percent of all apparel sales in 2007 will take place online. I believe these numbers indicate that e-commerce has truly come of age and that retailers have overcome many of the barriers to online purchasing: security concerns, return policies, ability to merchandise fashion products, and so forth.

"As consumers flood the Web to purchase merchandise and research products, online retail is moving full speed ahead," said Sucharita Mulpuru, Forrester Research senior analyst and lead author of the report. "This strong growth is an indicator that online retail is years away from reaching a point of saturation." According to the report, 83 percent of responding retailers said their online business was profitable, and 78 percent said it was more profitable in 2006 than in 2005.

Across the board, e-commerce sales appear to be growing at double-digit rates. And if growth rates continue at this pace, it won't be long before 25 percent or more of goods in a category like apparel are bought online. On top of the growth in Web-based sales, retailing is rapidly evolving from e-commerce to "d-commerce," or digital commerce, to take into account the proliferation of transactions that will occur on mobile devices and emerging media like interactive television.

These changes in distribution channels will have an enormous impact on the marketing industry. Consider for a moment the amount of money that is spent on newspaper circulars (FSIs), one of the key promotional vehicles driving brick-and-mortar sales. If large percentages of consumers are bypassing brick-and-mortar shopping in favor of online shopping, then retailers need new promotional vehicles that align with the new world order. Yet we are not seeing corresponding changes in the budget or marketing mix. In fact, many of the nation's largest retailers spend woefully little online, despite the fact that their customers are shopping there in ever greater numbers. Eventually budgets will catch up with behaviors, but there is much to do to make this happen.

This is a big opportunity for agencies. Outside of creating banner ads, e-mail newsletters and e-circulars, our industry hasn't produced many notable solutions to drive online sales, the digital counterpart to the FSI. The first agencies to come up with these creative solutions will reap the rewards of a fast-growing consumer market where dollars are likely to flow. As an added benefit, the solutions (because they are online) will be measurable, so we can calculate the ROI.

Then there are the multichannel shoppers. These are consumers who bounce back and forth between e-commerce sites, brick-and-mortar stores and a myriad of other places, from blogs and manufacturers' Web pages to online review and price-comparison sites. This is a complex "soup" of shopping behaviors—and much more complicated to address. But again, opportunities for agencies abound.

In the course of a year, I probably spend the same amount of money at my local Barnes & Noble retail store as I do at BN.com, which offers same-day delivery in Manhattan. Sometimes I like to browse through books in a store, and sometimes I know what I want and opt for the convenience of shopping online. The more often consumers shop in both channels, the greater their expectations will become of each. Online shopping offers depth of information, greater selection, convenience and speed. Brick-and-mortar stores offer the ability to see, touch and try on products, as well as instant gratification (you walk out with a bag rather than wait for delivery).

When consumers leave their homes (and PCs) and enter a retail store, they won't want to leave behind all the product information the Web offers them. Similarly, online shoppers will increasingly expect the speed of delivery (same day or next day) that Barnes & Noble, Netflix and Fresh Direct offer. The latter is a logistical problem that all retailers will need to solve, but the former is an opportunity for agencies. I predict that a new form of marketing will emerge—most likely delivered on mobile devices—that bridges the information divide between the Web and the store. It will be critical to arm consumers with the information they need to make purchase decisions at point of sale, where these decisions actually take place. On the Web, this is easy: Most e-commerce sites already provide the needed depth, augmented by an even greater wealth of information found on manufacturers' sites and third-party sites. But in the store, space and technology limitations deprive retail consumers of what they can easily find online.

By becoming solution-centric (with, for example, a new promotional format to drive online sales or a new mobile approach that delivers information at point of sale) rather than format-centric (with, for example, yet another TV commercial, print ad or billboard), agencies can find significant growth and opportunity amid what appear to be change and chaos. Or they can stick to what they've done for 50 years and watch their business dwindle.

Besides, what will be more fun: selling yet another tired TV spot to a client desperately seeking innovation, or creating a mobile solution that will change the way people shop in stores? We'll be going after the latter.