O2O Commerce: Conquering Online-to-Offline Retail’s Trillion Dollar Opportunity

O2O Commerce: Conquering Online-to-Offline Retail’s Trillion Dollar Opportunity

By the end of 2018, worldwide ecommerce sales are expected to surpass $2.8 trillion. And yet, online sales only represent 11.9% of the global retail market. 

This article examines proven approaches for connecting O2O (online-to-offline) commerce, including how Shopify Plus helped:

Last year when Amazon acquired Whole Foods for a staggering $13.7 billion, the topic of O2O commerce exploded.

Why? Because even though consumers are used to buying things like books, fashion, and electronics online … 82.5% of all retail sales will still happen inside physical stores as late as 2021.

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

Data compiled by Statista and eMarketer (2018)
The vast majority of those sales, however, will be influenced by digital touchpoints.

This gap has come to be known as the “Trillion Dollar Opportunity” in media outlets like The Wallstreet Journal, Inc., Forbes, and more. What does it take to succeed?

The Case for Online-to-Offline (O2O) Commerce

Definition: online-to-offline (O2O) commerce is a business strategy designed to bring online customers to brick and mortar locations as well as create a seamless digital experience before, during, and after.

The approach is a retail-specific application of two broader strategies: (1) omni-channel commerce and (2) multi-channel marketing:

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

Image via The Enterprise Guide to Multi-Channel Ecommerce

Considering that an estimated 81% of shoppers conduct online research before making big purchases, channeling even a small percentage of their online research to your offline store would represent a massive potential for sales.

O2O commerce lets companies treat online and offline channels as complementary rather than competitive:

  • In-store pickup of products purchased online
  • Online purchase of products while at a physical store
  • Allowing online purchases to be returned to physical locations

In-store pick up is a critical part of O2O commerce

Zapiet’s Store Pickup + Delivery app, as well as a host of other choices, make in-store pickup seamless across Shopify Plus sites

Merchant Spotlight: Magnolia Market

With 1.6 million physical visitors last year, retail footprints don’t come more iconic than Fixer Upper Chip and Joanna Gaines’ Magnolia Market at the Silos:

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

Magnolia Market at the Silos includes three retail stores spread across the 20,000 sq. ft. historic grain barn and office building, a food truck park, bakery, garden, and open lawn for families and events

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

When you handle that kind of offline business, bringing the experience online is no small feat. “Were we gangbusters out of the gate?” asks Stone Crandall, Magnolia’s digital experience director. “I would say no.”

What began as a modest operation — a nominal “ecommerce” team that also answered phones, handled customer service, shipped boxes, and loaded products online — is now an incredibly powerful arm of Magnolia's business. 

There are a dozen ways the company has been able to replicate its retail experience online. Its blog, for one, is a powerhouse of resources for channeling readers into shoppers.

The standout, however, is Magnolia’s use of augmented reality. Produced through Shopify ARKit, the exhaustively-curated app can place 3D models of its hallmark products right in the very homes of curious consumers. 

As Crandall explains:

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

“Thanks to AR, online shoppers will now have the answers to: How will this piece look in my home? How big is the item in real life? What does the inside look like, or the back?

“At the end of the day, nothing tops the in-store experience, but AR provides the capabilities for guests to make equally informed buying decisions from afar, at all hours of the day.

You kind of start as this out-of-the-box Shopify client. But as you grow, and as needs arise, what’s cool about working with Shopify Plus is that we’re able to take what we’re doing and evolve to meet the needs of this growing business.

Major Ecommerce Companies Are Adopting the O2O Commerce Model

According to Brendan Witcher, a principal analyst at Forrester:

“Many customers want to have an experience that allows them to hold and touch and in some cases, try on, the products. Many shoppers still relish the experience of walking into a store and walking out with merchandise.”

Even young people prefer the physical shopping experience. A global survey by CBRE Group Inc. has shown that 70% of millennials prefer shopping in stores, which is surprising considering that their demographic spends an average of 7.5 hours a day online.

A few years ago, smart ecommerce retailers started to notice this gap in the online shopping experience.

Starting in 2011 with men’s fashion retailer Bonobos, a number of highly successful online startups such as Warby Parker, Harry’s, and Modcloth opened retail storefronts that cater to this market. They allow customers to view and try on products in person, while distributing inventory directly from their warehouses.

Despite having success in the online-only market, Bonobos founder Andy Dunn identified the “online vs. offline conundrum” as an impediment to company growth.

After repeated requests from customers and a successful trial in their New York office, Bonobos opened the Guide Shop, where customers could try on their wares, place an order online, and have their purchased goods delivered the very next day.

The first shop was so successful that Bonobos currently operates over 20 storefronts, with plans to expand to over 100 by 2020.

Bonobos Guide Shop is one example of O2O commerce

Warby Parker initially found success by offering cheap and fashionable eyewear in a direct-to-consumer commerce model. They opened their first physical storefront in 2013, and within a year had eight stores that were amongst the most profitable in the country. Warby Parker currently operates nearly 40 stores, and co-founder Neil Blumenthal expects to expand to hundreds or even thousands. 

Merchant Spotlight: Allbirds

Founded by native New Zealanders Tim Brown and Joey Zwillinger, Shopify Plus merchant Allbirds have catapulted from inception to selling over one million pairs of shoes in just two short years.

As FN reporter Katie Abel explained last month: “The entrepreneurs — who had no prior footwear experience — managed to pull off that $100 million feat during a tumultuous time in fashion. While many companies have floundered or disappeared altogether, Allbirds has succeeded by doing things differently.”

In addition to using superfine New Zealand merino wool, being called “the world’s most comfortable shoes” by Time Magazine, and eschewing both discounts and traditional designers … a large part of their differentiation also surrounds online-to-offline commerce.

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

Allbirds currently operates two retail locations in San Francisco and New York and has plans to launch “additional boutiques in yet-to-be-disclosed U.S. cities as well as expand to the U.K. and Asia.”

On top of that, Allbirds has also partnered with Nordstrom for an ongoing series of pop-up shops curated by Olivia Kim. Together they created five exclusive colors and “brought to life an entirely new Allbirds experience in nine Nordstrom locations” across North America.

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

Amidst their retail growth, Allbirds has chosen to forego the traditional wholesale route and be carried on the shelf at mainstream outlets. Why?

“If we went and did omnichannel, we would sell more shoes,” says Zwillinger, “but we would get into discounting. We don’t want to do that. It would commoditize a product we think is really special. One of the things that has been a key part of this journey has been saying no to a lot of things.”

Ecommerce players outside the US have also made great strides to transition into O2O commerce.

Alibaba has taken advantage of the world’s biggest ecommerce market by investing as much as $8 billion in retail stores throughout China. The company believes that a foothold in traditional retail is key to future growth and has developed an O2O plan for “new retail,” which involves using technology to upgrade China’s retail sector.

Using customer data such as brand membership information, purchasing history, and store visiting habits, Alibaba hopes to be able to adjust and personalize product offerings, create tailored marketing campaigns, and streamline supply chains.

How Personalization Makes For a Better Shopping Experience

As shoppers become more tech savvy, they expect retailers to provide better shopping experiences that integrate available technology. One of the most desired services is a personalized shopping experience, which includes customized offers and tailored suggestions based on each consumers’ specific desires and their location.

Many retailers have acknowledged this demand and are starting to use customer data gathered online to improve their offline shopping experience.

Nordstrom, one of America’s largest fashion retailers, has introduced data-driven, personalized experiences at their retail stores. The company tracks, follows, and analyzes every move their online customers make to decide what products to promote, when to promote them, and what channel. Their marketing team tracks Pinterest pins to help identify trending products, then promotes them in their brick and mortar stores.

One of their unique personalization techniques is an opt-in app that pushes the online profile of people who enter their stores to the salespeople in those stores. Salespeople can see the customer’s profiles and purchase history to help create a better shopping experience for the customer.

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

Personalized shopping can also address one of the biggest problems with O2O commerce — how to track offline conversions influenced by online marketing.

Without knowing how your online advertising is affecting offline sales, it’s almost impossible to make decisions about optimizing and scaling campaigns.

Click-and-collect, online coupons, and customer surveys are all easy ways to track O2O customer movement as they provide a direct path from the online space to the physical store. 

Going Beyond Click-And-Collect Shopping

The convenience of click-and-collect shopping has made it one of the retail industry’s biggest trends in last few years.

In early 2016, it was reported that over half of retailers were offering a click-and-collect service, and 72% of consumers were making use of it.

Being able to order online and pick up an item in-store is not only convenient, it helps fulfill our need for instant gratification. In a world where the latest movies are available on demand, and personal taxis can be called to our location within minutes, the ability to get things when we want them is now considered the norm.

For retailers, click-and-collect is a chance to bring online customers to offline stores. Once you have the customers instore, you have the opportunity to entice them to purchase other products.

It’s important for retailers to realize that simply offering click-and-collect is no longer enough to satisfy consumer expectations.

While click-and-collect is undoubtedly convenient for some, it’s not always the most popular method of getting products quickly. For consumers located in densely populated areas, driving to the store, navigating traffic, finding a parking spot, and loading up cumbersome products into the car can be an unattractive proposition … despite the benefits of instant gratification.

Conversely, consumers located in sparsely populated areas might find the time and fuel costs associated with traveling to a retail location outweigh the benefits of click-and-collect shopping.

How do you walk that line?

McKinsey’s research found that 23 percent of consumers are willing to pay more for same day delivery. In fact, the perceived reliability and timeliness of delivery is a major decision-making factor for customers and therefore directly affects a company’s success in O2O commerce.

O2O Commerce: Conquering Online-To-Offline Retails Trillion Dollar Opportunity

While Amazon’s drone delivery service offers the promise of rapid 30 minute delivery times, the service is still in a developmental phase. Fortunately, Shopify Plus customers have a number of same-day delivery options that easily integrate with their online store.

Postmates is a same-day delivery service that is available in over 200 cities across the United States and helps get your products to your customers faster than ever, often in under an hour.

UberRUSH is a similar same-day delivery service that is currently available in New York, Chicago, and San Francisco. UberRush uses the Uber driver network to provide on-demand product delivery for businesses of all sizes.

The biggest advantage of these two services is that they offer extra options to the customer at no extra charge to the retailer. The extra costs are all displayed at the time of purchase and are the responsibility of the customer. If they want to pay a little extra for same-day delivery, that’s their choice. If they’d prefer to satisfy their need for instant gratification by using click-and-collect, they can choose that option instead.

Final Thoughts on O2O Commerce

There are numerous opportunities for retailers to combine online and offline commerce into a complimentary shopping experience that keeps customers satisfied and increases profits.

And if companies like Amazon and Alibaba consider O2O commerce to be the next step in their ecommerce development, you can be sure that it will be good for the development of your business as well.

About the author

Aaron Orendorff

Previously the Editor in Chief of Shopify Plus, Aaron Orendorff is the VP of Marketing at Common Thread Collective. Named by Forbes as one of the top 10 B2B content marketers, his work has appeared on Mashable, Entrepreneur, Business Insider, Fast Company, Inc., Success Magazine, The Next Web, Content Marketing Institute, and more.

Check out Aaron Orendorff’s work