There have been debates and predictions that digital technology will be the end of and destroy physical retail, however, Darrell Rigby, head of Bain & Company’s Global Innovation and Global Retail does not believe so. Digital and physical retail are moving towards each other instead of only one being pursued or both independently.

Many retailers still run their physical and digital operations separately, creating disconnects that frustrate customers. In the recent HBR webinar “Retail that Connects: Creating the Complete Customer Experience”, Darrell Rigby discusses how companies need to fuse the digital and physical experience and allow customers to move between the two. He explores the future of retail and shares five best practices about digital-physical mashups discovered from global leaders.

Here’s a summary of the five rules that will help retailers reconceive their business, create a sustainable competitive advantage, and drive growth.

1. Build your strategy around digital-physical fusion; it can be your new competitive edge.

Retailers need to work hard to figure out how to combine digital and physical technologies. They must continue investing in physical retail assets to provide customers with a sensory experience and at the same time build up their digital assets such as e-commerce and mobile capabilities.

Rigby mentions that Macy’s has been successful in fusing the digital with the physical by using their stores as fulfillment centers and accomplishing the following benefits:

  • Lower shipping costs;
  • More accurate delivery windows: customers want to know when their items are coming;
  • Reduced markdowns;
  • Easier to manage seasonal perks;
  • In-store pickup improves store traffic and sales. Often, customers that go in store will pick up additional merchandise;
  • Increased cultural collaboration between the digital and physical players in the organization to make this process work.

2. Add links and strengthen linkages in the customer experience.

The retailers who are winners add links and strengthen linkages throughout the entire customer experience chain. Digital can play a vital role in all of the links (new offer, discover, evaluate, customize, purchase, receive, use and service, return and upgrade, review), even if it’s not in the first one. Retailers need to use technology in new ways as long as it provides a seamless experience for the customer.

Rigby discusses how Nike has been successful in integrating technology throughout the customer experience. For example, NIKEid is a customization program that allows customers to customize their shoes online and NIKE+ and Fuel Band measure and track performance and movement and allows customers to share their results in a social environment.

3. Transform the way you approach innovation.

Retailers need to innovate in different ways. As technology gets more and more sophisticated, total innovation will accelerate and be driven increasingly by digital technologies.

Moore’s law states that computing power doubles every two years. Let’s say that today, a retailer invests 90% in physical and 10% in digital. According to Moore’s law, in ten years from now, the retailer will innovate three times as much as today and while digital is only 10% of the mix today it will likely be 75% of the mix going forward. Digital innovation may not necessarily be in the product but in other steps, such as the marketing or experience chain. Innovation will refine how customers use technologies as well as how retailers will be forced to offer it to customers.

Rigby suggests that retailers should look at Disney to see where technology is going. It’s not as irrelevant as retailers may think! Disney fuses digital and physical technologies to create magical experiences. Attractions seamlessly integrate both digital and physical innovation and the effects create magical experiences that are highly consistent with the Disney brand. Some aspects will stay physical such as having live characters that guests can engage with through conversations, hugs and picture-taking. As well, Disney has the MyMagic+ system which provides visitors with an electronic wristband that acts as a ticket, room key, and credit card. This system allows Disney to obtain a wealth of customer data that can be used to personalize the customer experience even more.

4. Organizational separation is just an interim step.

Customers often interact with more than one channel during the purchase process. Whether they start online or in the store, customers don’t know the difference between digital and physical channels when they’re shopping and they don’t care about it either. Retailers have to create the seamless experience that customers expect these days. So, how can retailers evaluate where they are in this journey and how can they get to where they want to be?

The first step is to realize that when a retailer embarks on this journey, they are likely to go through three phases. Almost always, the first phase starts by setting up a separate innovation lab or digital unit. This unit creates incentives, allows the retailer to attract the right talent and to give these dedicated teams freedom and independence. This phase is about breaking the mold and thinking big.

To create an integrated customer experience, retailers need to take the next step of getting both parts of their business to talk to each other (the digital and the physical). During this intermediate phase knowledge is shared between the two groups, people are rotated within the company, they start educating the senior management team about how omni-channel works, and the company starts seeing greater profitability and growth.

After some time, the company will move into the expert phase were they are no longer benchmarking competitors, but are path-breaking for their customers. At this stage, retailers are thinking ahead a couple of years into the future, predicting what customers will want.

5. Build a digital-savvy leadership team that includes the CEO.

In order to create a digital savvy management team, Rigby suggests a “no-executive left behind” program that includes initiatives such as pairing a senior executive with a digital geek or millennial that they are required to meet once a week. During these meetings, the senior executive can ask questions that they would be afraid to ask in front of their peers or that they would never ask in front of their board of directors.

Rigby highly regards the management team at Burberry for masterfully building a digital-savvy team. Former CEO, Angela Ahrendts brought together the Chief Creative Officer and Chief Technology Officer and they created a team that would work together with both highly creative and technical skills to be able to reinvent the entire experience for their customers.

As a result, walking into a Burberry store has become a remarkable experience. Ahrendt’s actions have transformed the brand and reinvigorated the growth of the brand in ways that attracted a lot of attention. Burberry flagships stores include:

  • Live streaming videos;
  • More than 500 speakers and 100 synchronized screens;
  • RFID tagged apparel that triggers multimedia content;
  • All store associates carry iPads with a log of customers’ purchase history and preferences;
  • A digitally enabled gallery and event spaces;
  • Customers can create customized trench coats.

Retailers that turn into the most admired companies are those focused on the customer experience and building the capabilities that will be needed to win.

HBR webinar: Retail that Connects: Creating the Complete Customer Experience