The New Role of Technology in the Retail Industry

A few weeks ago I wrote about Black Friday in the U.S., which has evolved into one of the busiest shopping days of the year globally. The figures are now in, and according to ShopperTrak, a global provider of consumer behavior analytics, Black Friday 2015 was weak by recent standards. On Black Friday this year, shoppers in the U.S. spent an estimated $10.2 billion in stores, a 12% decrease from 2014.

However, I read with interest that Cyber Monday, the first Monday after U.S. Thanksgiving, was a huge success. ComScore, another global media measurement and analytics company, reported that online Cyber Monday sales exceeded $3 billion for the first time in history, a 21% increase over 2014 sales. While still small compared to in-store sales, online sales are growing rapidly as consumers and retailers alike adjust to this new paradigm. 

Even Cyber Monday, well known for being the most popular online shopping day of the year, has competition. Josh Silverman, former CEO of Shopping.com, coined the term Green Monday after his staff noticed a consistent trend of increased online sales on the first Monday in December. Even more obscure is Brown Monday, the second Monday in December. This is the day on which retailers begin to heavily promote free shipping offers (usually delivered in brown packaging) leading up to Christmas. All of this seems to stem from consumers shopping from their workplaces on Monday, choosing to avoid the weekend crowds at malls and shopping centers. 

In China, November 11 of each year has become known as ‘Singles Day’, based on the four 1s in the date. What began in 1993 as a celebration for single students at Nanjing University has quickly morphed into the world’s most popular 24-hour online shopping period. According to Bloomberg, this year’s event saw sales of $14.3 billion, dwarfing the record-breaking Cyber Monday event in the U.S. It is amazing to think that Singles Day sales were just $800 million in 2011 and have grown by more than 1700% in four years.

It is clear that technology has transformed the way we do almost everything, and shopping is no different. This presents a serious challenge to retailers, as the landscape is changing so quickly that it can be hard to keep up. Some might argue that diamonds and diamond jewelry are more traditional products that could be sheltered from the rapid change in technology that we are witnessing. But that misses the point. This shopping transformation is not just about where customers shop, but rather how they shop, and how they think about making purchases.

There are countless examples of companies that have all but disappeared because they failed to recognize and react to changing technologies. Blockbuster Video, the former star retailer in the home movie and video game rental business, which was once valued at over $5 billion, went bankrupt in 2013 as a result of changing consumer preferences and competition from online-only companies like Netflix and Hulu. Eastman Kodak, which in 1997 was valued at over $30 billion, filed for bankruptcy protection in 2012 after failing in its attempt to transition into digital photography. Despite inventing the first 0.01 Megapixel digital camera in 1975, Kodak chose to ignore the technology in favor of its traditional film-based business.

The Move to Mobile

One of the most important trends in retail today is the increasing pervasiveness of mobile devices in the shopping equation. Since the release of the IBM Simon Personal Communicator in 1992, smartphone technology has developed rapidly. Estimates from mobile producer Ericsson suggest that 70% of the world’s population will be using smartphones in five years. Another study by mobilestatistics.com suggests that on average, we spend 90 minutes a day, or 23 days a year, on our smartphones. 

At first, many retailers feared the smartphone, feeling that it meant consumers would vacate malls en masse in favor of online shopping sites. While this years’ Cyber Monday and Singles Day showed that this transition is slowly underway, in-store sales are still by far the dominant mode of shopping around the world. However, retailers have come to understand that mobile technology presents enormous opportunities. From an advertising perspective, television, radio, and print media have all been on the decline for years, and advertisers are struggling to reach consumers who increasingly don’t want to be reached. Through the myriad apps available today, advertisers can now reach consumers in a much more targeted way than ever before.

The sophistication of mobile computing has also led to a change in what many retailers refer to as the “path to purchase.” Increasingly, mobile devices are the first step in a multi-channel buying process. Consumers first browse for a product on a mobile device, and then frequently move to a tablet or desktop computer for additional research and product comparisons prior to making a purchase, which could be online, or more often, in-store. 

This has led to a more purposeful shopping experience, to the point where certain impulse purchase products are on the decline. Consumers are often more targeted in their shopping and less inclined to “window shop”. This present challenges to the jewelry industry, which has traditionally realized a sizable portion of its sales from impulse purchases, notably from women who purchase diamond jewelry for themselves. 

It would seem to be a basic requirement for companies these days to have a fully mobile-enabled website and e-commerce platform, but it seems that this is not the case yet. I have even seen examples of large multi-national chain store retailers who have not yet developed mobile-friendly websites that allow shoppers to quickly browse product lines and make purchases. While their websites might be optimized to display properly on a mobile device, their version of the shopping experience on a 3-inch screen is lacking.

Social Media

Social media has undergone a similarly rapid rise to prominence in the last few years. According to Statista.com, as of the third quarter of 2015, Facebook had more than 1.5 billion active users, defined as those who had logged on within the last 30 days. Facebook first cracked the one billion user mark just three years ago. In a 2015 PwC 2015 Global Retail Consumer survey of over 19,000 people across six different continents, 52% of people reported that they regularly use Facebook as part of their shopping experience. Those numbers increase to 69% in South Africa and 80% in the Middle East. The same study noted that 62% of respondents stated that their interactions with their favorite brands on social media had prompted them to make purchases with those companies.

For years, retailers have struggled to measure the impact of their social media campaigns on direct sales. There are few if any metrics to identify how a customer finds her way into a retail store and whether a positive social media impression is responsible. However, advances in sales tracking analytics are beginning to quantify this effect for companies. According to Statista, social selling will amount to $30 billion worldwide in 2015, a 50% increase over the $20 billion figure from 2014.

According to Adrienne Ronai, research lead at L2 Think Tank New York, “Watchmakers and jewelers continue to lag behind all other industries on most digital dimensions, but the category is coming into a digital adolescence.” Tiffany & Co. might be one of the few exceptions in our industry. In 2013, Tiffany achieved the highest engagement score on Facebook from among the top 50 U.S. retail brands according to Econsultancy.com. On average, each Facebook post from the company yielded more than 28,000 impressions from the public. This significant achievement was even more impressive considering that their score exceeded second place Victoria’s Secret by 65%.

In truth, social media is just one component of a broader digital strategy that includes multiple channels such as mobile, e-mail, web, and e-commerce. Success in any one area is good, but only a symbiotic relationship between all of these different platforms will achieve massive gains for a company. I would argue that the diamond industry has a long way to go in this respect and has perhaps been too slow to adapt to the changing times.

The Changing In-Store Experience

The retail store, in one form or another, has been around for centuries. Despite the rapid development of technology, the in-store experience is still firmly engrained in the consumer psyche, and this is certain to continue for at least a few more years. However, technology is leading to rapid change in the role of the store. Research from Cushman and Wakefield shows that foot traffic at U.S. retailers has been on the decline for years, and fell by more than 50% between 2009 and 2013 alone. 

In PwC’s global retail consumer study, when respondents were asked why they would chose to purchase goods online instead of in-store, 40% cited the convenience of not having to travel to the store. When those same people were asked why they might purchase in-store rather than online, 62% said that the ability to touch, feel, and/or try on the article was a driving factor. 

This creates a difficult paradox for retailers. Consumers are often too busy to travel to crowded malls to shop, but they still need to see and feel a product before purchasing it. Some firms, such as Russian fashion retailer Lamoda, are bridging this gap. Lamoda delivers directly to people’s homes and the driver gives them up to 15 minutes to try on items before deciding on which ones they want to keep, with the rest promptly taken back to the store or warehouse.

In recent years, many retailers have had to drastically alter their return policies and create the infrastructure to allow online purchases to be returned to the store for a refund if the product is not suitable. While this has helped to spur online sales, it has also created challenges for retailers with the increase in returns, and has contributed to the growing problem of return fraud, estimated by the National Retail Federation to be $10.9 billion each year in the U.S. alone. 

Conforming to this new reality presents unique challenges to the jewelry industry. Jewelry, perhaps more than any other product, must be seen and felt on a person’s body in order to produce the emotional response so important in the purchase decision. With the relative high value of diamond jewelry, it is unlikely that we will start to see $25,000 engagement rings shipped through couriers with liberal exchange policies like a hat or a scarf. 

Technology has altered our world in a fundamental way. It is impossible to predict what will come next. However, I would argue that the diamond industry, especially at the retail level, has perhaps been too slow to react to these changes. Many retail jewelry stores have not significantly changed the way they conduct business for decades. The world around us is changing, and we must change with it. Our future depends on it.

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.