Online-to-offline, or O2O, retailing has increasingly become a major strategy for web retailers.
Amazon, the US-based web retailing giant, has a plan to open 200 stores in the United States, and its recent acquisition of Whole Foods should accelerate its offline strategy.
Web retailing accounts for about 12% of the total retail spending in the United States, but other countries in Asia are also catching up.
Hong Kong, for example, spends about 6.0% of its total retail spending online, and there are now several dedicated web-retailers in the city. They too are pursuing an O2O strategy.
For example, HKTV mall, a web-retailing platform for general merchandise and supermarket products, has launched two physical shops in the last twelve months.
According to its interim results report, published in mid-August 2017, the company plans to expand its offline presence to 20 to 30 stores by the end of this year.
The main goals of O2O shops
The O2O strategy can accomplish several goals. In dense cities such as Hong Kong, a physical shop network can aid the retailer’s logistics operation, as customers can choose to pick up their online orders at the shop.
Similarly, Taiwanese online retailers often allow orders to be picked up at convenience stores. These strategies simplify the delivery process for the retailers, allowing the retailers to deliver orders in batches to the collection point.
The strategies also save the customers from needing to wait for the individual delivery at home, making the overall shopping process more convenient and flexible.
Second, an O2O strategy provides additional marketing channels to the retailer. In early stages of a city’s adoption of online retailing, physical shops build credibility, as the general public can see the shops operating with their own eyes.
That allows some customers to mentally connect the true size of the online retailer with its website. That is especially important for subsectors such as fresh produce, where the online platform must earn the trust of the public before any customer is willing to entrust his own food safety with the retailer.
Helping the older customers adapt
In some cases, the physical shops also help to train the general public on how to use these sites. The ability to search for a product, putting it in the online shopping cart, and then confirming the order may seem natural to the younger generation.
But according to our conversations to shop assistants at an O2O shop, the team spends anywhere from 30% to 75% of their time teaching older customers to place online orders. That helps build brand loyalty to the online platforms.
Better marketing efforts
Physical shops can also host focused marketing campaigns. For example, we have seen one O2O shop, located in a mall that mainly serves nearby residential estates, hosting events that are limited to residents of those estates.
During the events, all customers can enter their orders at the physical shop, but only those orders that deliver to the particular estates receive special promotions, perhaps a discount on the entire order or specific free gifts.
These activities help increase brand awareness within the local area, especially when the often branded delivery trucks begin to make regular visits.
During various festive seasons, O2O shops can also help to market-related products.
For example, for the upcoming Mid-Autumn Festival, an O2O shop can bring in all choices of mooncakes in the shop, and encourages customers to go through the online platform for large orders.
That way, the retailer does not need to stock a large number of each mooncake type, and thus, for the same amount of store space, the O2O shop can display a much larger product range.
It helps the O2O shop to market its wider product range, which is one of its strongest competitive advantage against physical retailers.
Good news for physical retail spaces
The development of O2O shops should be good news for malls and other retail landlords. It suggests that successful online retailers will need a physical presence if it wants to engage the customers fully.
The precise supply-demand dynamics of retail space will be different from city to city, but landlords that engage online retailers early and modify their assets to O2O needs will stand out in the years ahead.