| Dave Kaufman – host: | One of the societal changes that we have all experienced since the start of the pandemic has been a massive shift in the way that we shop. Many who had only flirted with online purchasing prior to COVID, soon became expert online shoppers. As stores went from full of people, stocking up on last minute items for quarantine, to empty. Retailers learned very quickly that adaptation was essential to survival. As we’ll learn in today’s episode, many of the tools that ensured the survival of retail were ready to be implemented and were just waiting for society to be ready. Who knew that a global health emergency would be what would allow that transition to occur? |
| Dave Kaufman – host: | Welcome to the second season of the New Normal, the podcast exploring management research, brought to you by Delve, the official thought leadership publication of McGill University’s Desautels Faculty of Management. I’m your host, Dave Kaufman. On this episode of the New Normal, we’ll discuss large scale shifts in how people shop and consume and how the pandemic has helped to speed up this shift. We’ll also look at the future of brick-and-mortar establishments and the increasing role of omni-channel shopping in consumers everyday shopping experiences. |
| Dave Kaufman – host: | Joining me for this episode is Professor Mehmet Gumus. Dr. Gumus is a Professor of Operations Management at the Desautels Faculty of Management at McGill. He joined McGill in 2007 from the University of California at Berkeley, where he completed his PhD in Industrial Engineering and his MA in Economics. In his research, Dr. Gumus explores the impact of customer behaviour and information asymmetry on supply chain management, dynamic pricing and risk management. Let us begin with online shopping. Of course, online shopping has been with us for many years now. And just about more than anyone, we have Jeff Bezos to thank for that. |
| Dave Kaufman – host: | His company, Amazon, went from an online book seller to the online seller of just about everything in the world that you could possibly imagine. And if society hadn’t realized the full benefit of online shopping prior to the pandemic, by March of 2020, we had it all figured out. In many ways, digital shopping kept our world afloat as the pandemic raged. It made the lives of consumers much more convenient, especially when not allowed to leave our homes. And it increased efficiency for retailers. |
| Dave Kaufman – host: | There were fewer situations where items were out of stock, and suddenly retailers realized that a centralized customer data bank would lead to better understanding and predicting of what the customer needs. The use of consistent and reliable data to predict both customer and retailer habits has led to the rise in omnichannel shopping, the term that describes a retailer’s ability to provide a coordinated customer experience across all possible customer channels. For the customer, it can create a seamless experience. For example, a customer can buy something online, decide they don’t want it, then return the online purchase to a brick and mortar store. Or, conversely, they can see a product in store, test it out, touch it, and then go home, read customer reviews on the company website and then buy it online. Dr. Gumus describes omnichannel shopping as follows. |
| Mehmet Gumus: | If I want to summarize, it’s basically a synergy between online and offline setting that increases or enriches the shopping experience from the customer’s point of view. |
| Dave Kaufman – host: | However, he tells us that making that move to omnichannel shopping may pose a risk to certain retailers. |
| Mehmet Gumus: | At the same time, it comes with some risk. One of the key risks is that, if you bring customers, if you ask them to actually switch their behaviour from online channel to bring to the store, you are exposing them also full fledged products that is already included in your store. Those are good things. If they want, they can switch from their original product to another substitute product. Or suppose you want to buy a smartphone, you go to the store and pick it up. At the same time you would like to perhaps buy a case for your product or a headphone. So from the retailer point of view, it’s actually a great thing because they can create this cross-selling opportunity for those customers that are coming from the online channel. |
| Mehmet Gumus: | Those are all good things, but there is one important risk, which is if those customers are not super happy with the product, or if they see that there are suitable products out there, maybe in the competitor stores nearby your store, they may completely abandon and leave your store and buy from your competitor store. This is actually something that we didn’t expect, but we find out through our research, finding out that these customers really, when they come and visit your store, there is some portion that abandons completely and then switches to a competitor’s product. So in that sense there’s a big, big risk. So you would like to fulfill this customer as close as possible when they are fully determined in terms of buying. |
| Dave Kaufman – host: | This is one of the biggest issues that I wonder about. The retailer has the opportunity to close the sale. And instead, they’re giving the potential customer the opportunity to back out at the last second and see that there’s a sale on an alternative model. Suddenly, this major opportunity to close a deal has been missed. |
| Mehmet Gumus: | Yes, that’s exactly what we identified in those cases. The fact that you are basically bringing customers to the offline store, and usually we know that these competitors are usually located nearby. There is high chance that you can lose that customer when they come and visit those competitor’s product. So we identified some solutions or some policies in terms of implementing this omnichannel strategies. One strategy is to basically fulfill this experience or close that sale as close as possible. That’s definitely strategy number one. |
| Mehmet Gumus: | Strategy number two, there are different ways of fulfilling this service. For example, there’s a new omnichannel strategy which is called, curbside pickup. So, as soon as customers arrive, you actually fulfill the sale at your customer’s convenience, even bring the product to their car without actually allowing them to leave their cars, that’s one extreme case. But if none of these things actually are visible, then you perhaps can customize this omnichannel strategy based on different product categories. So if, for example, if the product that you are selling is, I would say, a long tail product, what do I mean by long tail? Very niche, very rare product, and probably you may not be able to find substitutable products out there even if you look for those competitors stores, for those type of products, retailers should not be too much worried about losing their customers to their competitors. |
| Dave Kaufman – host: | What about for the more mainstream products? |
| Mehmet Gumus: | Then you have to be extremely careful because when you bring customer for those mainstream products that are basically highly commoditized or can be easily found in competitor store, as soon as you bring them to the space, you may lose them quickly. So, we identified that you need to customize this omnichannel experience based on the product category, and also customize the omnichannel experience based on the customer category as well. |
| Dave Kaufman – host: | Which is why in many places you can often see a mattress store located right across the street from another mattress store. |
| Mehmet Gumus: | Exactly. Exactly. That’s usually what we see. The stores are clustered based on their product categories, and we see high product switching between those stores. |
| Dave Kaufman – host: | Shopping has changed. I was curious, Professor Gumus and his colleagues had a prediction of what the future held for brick and mortar establishments. He believes that there’s ample room for them to survive in an omnichannel universe. But cautions that they may no longer be the main event in the shopping experience. |
| Mehmet Gumus: | We are seeing that customers are looking for more services, not only in online but also offline domain as well. Providing the channel integration between these two spaces is becoming more a must rather than an option. So when we look at the retailers, almost all of them are now providing this omnichannel service such as you can return even if you purchase products from online, you can return to offline store. Or if you, for example, find a deal in an online domain and if it is not there in offline, you can actually match the prices or the deal in the offline domain. Or, when you look at your smartphone or your browser, you should be able to see all the inventory units that are currently on shelf by basically browsing your geographical locations. So all these things are becoming more and more must, and we are moving to more 360 degrees shopping experience. |
| Dave Kaufman: | I wanted to finish today’s conversation by talking specifically about COVID and its effect on the supply chain. The pandemic has drastically changed the manner of how retailers rely on the supply chain and has exposed how vulnerable they can sometimes be to it as well. |
| Dave Kaufman – host: | Let’s take a deeper look at Walmart and see if they’re as passionate about rolling back greenhouse gas emissions as they are about rolling back prices. I asked Professor Gopalakrishnan what tangible actions Walmart is taking to attempt to rationalize emissions in their supply chain. |
| Mehmet Gumus: | Of course, of course. Indeed, we are actually seeing it now. Before the pandemic, the tendency in general in supply chain is towards more and more cost reduction and efficiency. So therefore, we have seen all this outsourcing, offshoring and globalization and so on and so forth. So, the main issue was how they can reduce their cost, purchasing cost and so on and so forth. With COVID, now supply chain companies realize that there is, as important as cost efficiency there’s another important factor, which is resilience. So you would like to not only reduce your cost, but also create a resilient supply chain. |
| Mehmet Gumus: | We should operate even under quite actual risk associations that’s inflated by COVID. So, companies are now realizing that cost is important, but as important as cost, risk or hedging their supply chain against those risky events is as important as well. So they are actually bringing some risk hedging features back to their supply chains. So, what are these features? Instead of only buying it from suppliers that are located in offshore, they’re also diversifying their supplier base so that they can bring products from local suppliers as well, which basically create more risk hedging supply base. They’re also integrating their supply chains so that there’s always a plan B for them in case of shortages and so on and so forth. And omnichannel is actually allowing them to reduce their risk as well by bringing customers between online and offline space. |
| Dave Kaufman – host: | The research that they conducted began before the pandemic, but was greatly affected by the pandemic. In fact, Dr. Gumus argues that COVID may have actually improved their ability to access information in a more timely manner. |
| Mehmet Gumus: | So, it has as usual, pluses and minuses. Plus side, first of all, we have these industrial collaborators, they become more and more receptive to collaborate with us in the online space. So, previously we had this time zone issues whenever you work with companies from, let’s say, Europe, from other continents, it’s a bit more difficult and they usually want you to physically be there. But with the COVID now, we are in the new normal, they are more receptive and we can actually start with new projects completely in online domain. So it expanded our collaboration opportunities for sure. |
| Mehmet Gumus: | But always there is negative side, which is we sometimes when we do the research, especially the ideation part or building the prototype, we need still in-person experience. Because you cannot really figure out everything simply through Zoom or online interaction, you would like to put these people in same physical space and brainstorm. So that kind of interaction is still priceless, which we lost during this COVID period. And I guess going forward, I am seeing that a hybrid approach would be perhaps a better approach, where at the initiation part, perhaps in person experience would be more and more prevalent. And as we move further, I would say we can enjoy this online experience because it provides more flexibility and more opportunities. |
| Dave Kaufman – host: | But would he say that COVID has accelerated society’s demand for multiple methods of shopping? |
| Mehmet Gumus: | So we are seeing this and we are going to probably see this more and more. But as COVID or its impact as we get closer to more normal life, perhaps this temporary shift is going to reallocate itself and we will see a different kind of system. So, the question is, is it going to create a permanent shift in customer’s preferences in terms of changing their shopping experience? Would they visit store? Or if they’re visiting, for example, once every week, are they going to visit in the same frequency? It is still a question that we are going to see. But I guess in the short term or long term we’ll be perhaps going through this re-adaptation and re-normalization process. And we will basically see whether this shift is going to be permanent or not. |
| Dave Kaufman: | There are certain aspects of the pandemic that actually helped out retail. Some retailers found a successful business model, such as harnessing a captive audience from the birth of the curbside pickup, which was completely born out of necessity of the customer not being allowed in the store and the retailer not wanting to breathe their air. The customer makes a purchase online, drives to the store, waits in designated area while a store employee brings the goods to their car and puts it in their trunk, no contact, no mask. And it works just as well with a Domino’s pizza as with a leaf blower from Canadian tire. |
| Mehmet Gumus: | That will probably stay. And also we are seeing that this experience become now more fragmented, meaning that you can still enjoy the experience. You can go and test the product in store, but you don’t need to carry the product with you. You can actually ask a retailer to ship product back to your house or back to your car again. The experience become more and more, I will say, hybrid and more and more fragmented now. And going forward, I’m still seeing that this offline touch and feel experience will still stay there. Because companies, they would like to be able to interact with their customers more and more, not just for shopping experience but also to get inspired by what type of products they want or to understand their preferences and so on and so forth. So, in that sense, a hybrid approach, I would say, more viable going forward. |
| Dave Kaufman – host: | And part of that hybrid approach would be to look at downtowns and see how those stores are adapting to this new omnichannel reality, where multiple shopping options exist and give the customer even more choices over their purchases. |
| Mehmet Gumus: | Yes, exactly. And this is actually a model that’s, I don’t know whether you experience this Best Buy, for example, is using this model now. What they’re doing is they’re creating a store inside their store, and they’re dedicating certain parts of their real estate to companies like Samsung or Apple or Microsoft. And indeed, they’re bringing even the salesperson that’s expert in Samsung, and they’re renting out those small spaces for those companies. This is just an artifact of this hybrid approach. |
| Mehmet Gumus: | It’s actually win-win for Microsoft, it’s win-win for companies like Samsung, because they want their products to be experienced by customers, tier one manufacturing companies. They are still considering that this offline experience is an important aspect and they want to keep this offline retailers alive. Because without that important step, if they put everything to online space, they won’t have a nice way of interacting with their customers, or they’re going to spend more money to interact with their customers. Not every supplier or manufacturer is finding opportunity to open their own retail stores. |
| Dave Kaufman – host: | And finally, it’s this Best Buy model that Dr. Gumus argues will allow for the in-person shopping experience to not just survive, but to be an unbridled success that satisfies both the retailer and customer alike. |
| Mehmet Gumus: | So, now as we actually move further and further with the help of this digitization and also the shark coming from COVID, those retailers are becoming like a show room for all these suppliers so that they can interact with the customers in that context. Companies like Best Buy, they are charging the suppliers rather than their customers, and the suppliers are better off because they’re interacting with the customers. So this is actually interesting model that we are actually seeing going forward, and probably we’re going to see more and more hybrid approach. |
| Dave Kaufman – host: | Did the global coronavirus pandemic change the way we shop, or did it just bring us to an already foreseen destination, perhaps just a little quicker than we all thought it would take? Will this new digitized model withstand the pushback and become the accepted way we consume and shop forever, or at least until the next great societal shift? Join us as we navigate this new normal together. The New Normal is brought to you by Delve, the official thought leadership publication of McGill University’s Desautels Faculty of Management. I’m your host, Dave Kaufman. Producers of today’s episode, Dave Kaufman, Robyn Fadden and David Rawalia. The technical producer of the New Normal is David Rawalia. |
