Offline stores turning crisis into opportunity

Will offline stores disappear?

When consumers began online shopping in 1994, most of them could hardly imagine that offline stores might disappear. Online shopping was a mere subsidiary to offline stores, selling only a few items then.

However, the volume of e-commerce has grown explosively over the past 20 years, blurring boundaries between online and offline.

A sense of crisis in the retail business is different from the past. Mobile platforms dominate more than 40 percent of e-commerce sales, being the key to online-to-offline (O2O) commerce.

Amazon, the world’s top e-commerce firm, has twice as many customers than offline No. 1 Walmart which has over 6,000 stores worldwide.

In Korea, the sales of online markets between January and August this year hit 42 trillion won ($37 billion), rising 21 percent year-on-year, according to Statistic Korea (KOSTAT).

If the current growth rate continues, its sales this year will reach 65 trillion won, about 5 percent of Korea’s gross domestic product (GDP) for the year. This figure surpasses Korea On-Line Shopping Association’s (KOLSA) early estimate of 60 trillion won. In 2001, the same figure was 3.3 trillion won.

On the other hand, the growth of offline retail, conducted at department stores and discount chains, has been slow since 2013.

Although saturating offline stores and governmental regulations on retail giants are some of the causes for the slump, a more important reason is the rapid growth of the online market.

A virtual reality Nike shop located in Hyundai Department Store, Pangyo. /Courtesy of Hyundai Department Store

Retail giants stepping into online

To survive this trend, retail giants, the main concern of which are offline stores, began to expand their online platforms, as their offline channels have been left behind by fast growing e-commerce firms, such as Gmarket and Coupang.

Korea’s largest retailers ― Shinsegae, Hyundai and Lotte ― have been focusing on the O2O business platforms which combine online markets with their existing retail networks. They have adopted the latest technology with their O2O businesses.

Shinsegae Department Store released a mobile application “SHOP@” in February, promoting it as a “department store to be enjoyed by the eyes.”

This application offers a panorama of the department store and shows dressed images of models, as well as photos of products which have been commonly offered by online shopping malls, including its own “SSG.com.”

Unlike other e-commerce applications, SHOP@ customers can feel like they are in the store, because photos of products are taken as they are displayed at the offline store.

More than 400 brands at Shinsegae Department Store are displayed by the application, as Shinsegae employees have taken pictures of the products and directly uploaded them to the application.

Hyundai Department Store opened a virtual reality (VR) men’s wear store at the Jungdong store, Gyeonggi Province, Oct. 9.

Customers can look around the department store and see mannequins dressed in whole outfits by accessing Hyundai’s online shopping mall “thehyundai.com” and following the arrows on the screen.

If customers want to visit a certain brand shop, they just need to click the door icon and check details of the products at the VR store.

Hyundai opened VR stores of Nike and Adidas at its Pangyo store, Gyeonggi Province, on a trial basis in July.

The stores offered a full 360-degree view of the offline stores providing simple information of products. Hyundai Department Store plans to offer a 360-degree view of each product and to open a full VR department store by 2019.

A Hyundai Department Store official said, “Our department store will provide different experiences, shifting offline stores to online.”

Lotte Department Store introduced a 3D foot scanner in July. The Swedish-made scanner measures a customer’s foot size and analyzes conditions of the customer’s foot. Shoemakers can recommend and make the most suitable shoes for the customer. More than 1,800 customers had their feet scanned and over 800 ordered shoes as of September.

Once their feet are scanned, customers can use the data at both online and offline stores.

“Our department store has a 3D virtual fitting room and foot scanner, as examples of our new omni-channel service which connects online and offline,” a Lotte Department Store official said. “We will develop mobile applications for our customers to buy clothes and shoes with their smart phones.”

Fighting fire with fire

Although retail giants are expanding their online platforms, they are also finding ways to attract customers to their offline stores. Those giants are developing offline stores through experience which is hardly achieved in online markets.

Heads of retail giants have recently stressed the importance of experience, targeting customers who seek to spend their leisure time shopping.

“Shopping malls with experience are the future of offline stores,” said Hyundai Department Store CEO Kim Young-tae during the press conference at the opening ceremony of Hyundai City Outlet Dongdaemun in March. “Online shopping malls only display the products, but offline stores enable customers to touch and enjoy the products during their shopping.”

Shinsegae Group Vice Chairman Chung Yong-jin said, “Customers want to gain both products and value, staying longer at a place where they have a reason to visit,” at the opening ceremony of Starfield Hanam in September.

Lotte Mart CEO Kim Jong-in emphasized last year that discount chains should provide customers with new lifestyle experience. He said Lotte Mart will find an answer from “a space” which online malls lack.

The latest technologies enable customers to experience offline stores without actually being there.

Shinsegae Starfield Hanam attracts customers with “VR Fitness” at Sports Monster. Customers can enjoy scientific digitally-based exercises, such as VR fitness and bike-racing, at the recreational space.

“Sports Monster and Aqua Field are advanced concept entertainment spaces that Starfield Hanam has been preparing for a long time,” a Shinsegae official said. “We expect those spaces to become new attractions, providing our customers with differentiated value through various exercises and experiences which they have never seen.”

Lotte Department Store introduced the “Smart Shopper” service at its grocery stores at the Bundang store on Oct. 4.

Customers can go shopping with barcode scanners and they do not have to push their shopping carts. If they scan items with their “Shopper” scanners, products are automatically added to their virtual cart.

Customers can check added products on “Order Viewer” screens installed at several places in the store and can remove unnecessary items at automatic counters. Purchased items can be delivered to their home.

Smart Shopper enables customers to check the actual products at offline stores, while resolving inconveniences of carrying them home.

Duty free shops aim to provide experiences for customers with technology as well.

HDC Shilla Duty Free plans to make an IT converged duty free shop, if its bid to open a new duty free shop will be successful.

A state-of-the-art duty free shop with merged reality (MR), artificial intelligence (AI) and machine learning technologies is the company’s goal. The duty free shop plans to show hologram images, installing media walls and digital signage in the lobby.

Examples in other countries

Meanwhile, retail giants abroad have already gone through similar changes amid the crisis of offline stores.

In 2014, British retailer Tesco unveiled its VR store which enables customers to look around the virtual store and purchase goods from there.

The U.S. retailers Neiman Marcus and Nordstrom introduced smart mirrors for virtual dressing last year.

The North Face stores in the U.S. have provided extreme VR experiences to attract customers to offline stores. If customers select clothes and wear VR devices, they can virtually wear selected clothes and experience extreme sports, such as jumping off a 128-meter cliff in the Grand Canyon.