The Retailer’s Phygital Offering.

Nigel Miller: [00:00:00] Welcome to this episode of The Road to Online Retail. I’m Nigel Miller.

In our previous two podcasts, we’ve been exploring the belief of Kevin Moore, an international retail and sales marketing expert, that we are now entering “the second age of online retail” .

This second age is the accelerated migration of shoppers to digital retailing of all goods and services.

In our podcast, we’re exploring ways that both physical and digital retailers can ensure they’re ready for this second age.

And today we’ll be discussing the retailers phygital offering, phygital offering, phy-gi-tal offering, Phygital Offering. How am I doing? 

Kevin. Welcome, welcome. Welcome.

Kevin Moore: [00:00:42] Thank you.

Nigel Miller: [00:00:42] Mr. Moore, you know how much I hate made up words. Is phygital something you’ve come up with just to wind me up? And if not, what is it?

Kevin Moore: [00:00:50] No, it’s not made up by me. So again, when we were working through a number of digital companies, and certainly the phoenixing of the Toys R Us brand, it was clear that there’s so much heritage in a brand that’s traditionally been in retail, physical retailers. So many experiences of parents and children and grandparents walking around stores in their childhood that we needed to be able to connect with that.

If we were to go pure online, being pure online in certain categories, you lose the emotion. So we clearly sat down and says, “how do we get this physical experience that we can remember as children? How do we capture what happens in Hamley’s and FAO Schwartz, the physical and how we get into digital world?”

And we kept going “physical, digital, physical, digital, physical, digital phygital.”

And it came around from just batting it backwards and forwards. But it’s important because it is that whole basis of storytelling, conveying the narrative visually with real people connecting with whatever they’re buying and building strong emotional connections with the community through, through digital, through social media channels, exploring, experimenting with a combination of physical and digital. But it’s gone beyond that now because we’re seeing people clearly combining the digital element and being able to, you know, surf online, shop online, engage online with the physical elements of taking possession of the products or engaging with the products. And we ought to go through a few examples of those that people kind of know, but they don’t sort of realize that it’s a phygital interface. It’s a connection of digital/physical.

Nigel Miller: [00:02:17] So Kevin, you’ve talked about “phygital” in overall terms, so using storytelling, high quality video and imagery to let online shoppers feel the same emotions as if they were in a physical store.

But can you give me a real-world example that people can maybe relate to?

Kevin Moore: [00:02:34] Yeah. What I’ll do is I’ll do a couple of creative ones and then take it into the things that we’re actually all experiencing and don’t realize it. So there’s some very clever stuff that’s now actually coming to fruition. And you mentioned something, you told me a story about a wine region Australia some years ago.

Nigel Miller: [00:02:52] Yeah. So, a few years ago I was doing some videos for the body that was rolling out broadband over here in Australia. The NBN. And we did an interview with a guy called Chester, who is sort of the head of a lovely winery down in Adelaide, or near Adelaide, down in the McLaren Vale called D’Arenberg. And he was using the internet to basically do wine tastings internationally.

So he was sending over boxes and boxes of wines to distributors in places like Russia. And then those distributors were organizing events and they were getting people to come in and do a wine-tasting with Chester linking in and telling them all about the wines, telling them about the winery, and basically also showing them around.

So showing them into the barrel rooms and all sorts of stuff, all on the internet.  This must be six, seven years ago, so a long time ago. That’s just one example.

Kevin Moore: [00:03:48] So that triggered, when you tell me that story, there’s a piece of work, one of my agencies is doing at the moment in Japan, and I think it’s brilliant work, and it’s client-driven, so brilliant work. So this is a one company, but it’s a very, very premium wine company. So you may have heard of a company called Domain Romanee-Conti.

People talk about DRC as being the ultimate wine in the world. The bottles set you back about $18,000. Yeah. It’s not DRC that are doing this, but it’s another premium wine company. I’m not going to name them because the work’s going on, but effectively, exactly as you’ve described with the digital environment, what is happening is premium select micro bottles of very old, very expensive wine has been shipped in the mail, in courier, to about 700 very high net-worth Japanese who love  their wine and there is then the head winemaker, on a micro site, in real time talking to 700 people – facilitated conversation – so there are translators, facilitate a conversation about the wine, about the attributes of the wine, about the cellaring and  because it’s built into a micro-site, which is two way audio video. So this isn’t a Zoom call. This is full conference facility with a producer being able to bring up different questions and bring them onto a screen to interface and to react in the digital world with the wine maker whilst tasting the wine, understanding the tasting notes and built into the micro- site, because it’s a micro- site just for those 700 people is the order process for them to click and have the actual bottles and cases of the premiere wine shipped to them.  Now that is for me, one of the most beautiful physical, digital, “phygital”, that I’ve heard of an experience in a long time. It really is coming of age.

Nigel Miller: [00:05:32] That sounds amazing, but you know, we’re talking there about very expensive products. Are there things that, you know, in a more mass market way of being done that you can think of?

Kevin Moore: [00:05:44] Yes, there are, and I’ll touch on some of those, but it’s important to remember that whenever we have a shift in behavior, it always starts at the top end of a marketplace. You know, we all want to save the planet and buy electric cars and the $100,000 a pop. We can’t do it. But then 10 years later, everybody has electric cars and they’re $32,000 a pop.

So it always starts, the innovation will always start at the top because that’s where the margin is. That’s where the early adopters go. So as we see this cascading down, we’re seeing it in many ways. Some of the key phygital, we don’t even think of as being phygital: click and collect is a classic phygital.

So I go online, I buy what I want to do, I’m saving myself time. Remember, number two is convenience, online shoppers want convenience.

Nigel Miller: [00:06:25] Just before you go there, can you just quickly remind us what are the top five things that online shoppers are looking for?

Kevin Moore: [00:06:30] Yep. So the number one is range. People want the broadest range of products in stock that they can have. So we talked about don’t put things up, pretending you’ve got them in stock. They must be in stock. So the widest range possible in stock. Number two is convenience that everything I want is on your site. It’s easy to shop. I have options of where I send things to. I can click and collect if I choose to. Service, so that it is easy to shop with you and there’s follow-up, there are plenty of supports, if it’s a technical product, on your site for people to have that or there are people out in the community that can help you with the product if it’s technical.

Number four is payment terms, but payment terms, not just credit card, but PayPal and the ability to have AfterPay. So part payments is huge.

And then the fifth one is pricing and promotion. So price is right down at number five.

Nigel Miller: [00:07:18] Yup.   So just a quick aside on that one, so on the Click and Collect, I know a lot of physical retailers who have probably not put an awful lot of attention into their online selling ability have suddenly discovered that Click and Collect is an incredibly powerful thing to be offering in these difficult times.

I was reading about a very large hardware store over here that their CEO had been getting flack for their move towards online shopping, but now is laughing his head off with what’s been going on. And particularly with the “click n collect” aspect of it.

Are these sort of changes the major parts of this “phygital “change that’s going on and the second age?

Kevin Moore: [00:07:53] Yes it is. It is. And it’s being adopted mainstream. So it’s that whole convenience thing. The reason click and collect works is cause of convenience. So that’s the digital to physical, Nige, and I’m not going to do “digiphys”, but it’s digital interface. You…

Nigel Miller: [00:08:06] Thank goodness for that!

Kevin Moore: [00:08:07] You start the journey digitally and you finish it physically. On the other end, you can start physically and end it digitally. So, and again, in premium stores, in the middle of cities where people don’t want to carry things around, certainly bulky items, I can pay and choose instore and ship to home. So my interface starts in a physical environment. I get all the support I want all the engagement from, you know, very knowledgeable shop assistants and amazing stores with a range of items I can touch, taste, smell, and I say, that’s beautiful. Here’s the payment for it, and please have it delivered to my home and all my details on online.

Nespresso are doing it. Nespresso have beautifully segued out of their physical store locations into their already online offering, and they’ve been able to almost not miss a beat in being able to provide coffee to Nespresso drinkers all around the world.

They’ve done it beautifully.

Nigel Miller: [00:08:55] Well, I have to say carpet sellers in Morocco and India have been doing it for many, many decades too. So…

Kevin Moore: [00:09:02] So if your details are there, you’ve got an online account, it’s easy to do. 

Nigel Miller: [00:09:06] I guess the other thing that’s going on between the digital and physical at the moment, particularly with the COVID-19 situation in so many countries, , is that businesses and even non retail businesses, but service businesses are suddenly discovering that if they explore digital and experiment, people like karate lessons online, yoga lessons online , selling your clothes via lessons, even. So, I know manufacturers are doing lots of entertainment that gets people watching their product. There’s a lot of exploring, experimenting, going on that seems to be paying dividends for a lot of them.

Kevin Moore: [00:09:43] Yeah. Necessity is the mother of invention, it makes us focus on things. A crisis makes us do things we were gonna do and we hadn’t got round to it. So the exploring, experimenting is great. You can see people doing it and over time what they will do is they will commercialize it.

And remember, we started this, this whole process by saying, we want to help people to go online, because we’ve been around retail for many years, we’ve helped retailers run their businesses better. How do we translate those things into online world? And that’s what we’ve said we wanted to do and continue to do.

The important thing about this is that those who’ve been doing it for some time, so those are 18 even over 18 months, even six months into the journey, those who had their online offerings six months before COVID, like the CEO of that hardware store that you talked about, you know, the fact they were prepared, the fact that Nespresso could do it, the fact that Bose had their direct to shop it and this came along just accelerated that process to the second age. It just became eponymous. It became normal, but sometimes this exploring and experimenting takes us back the future.  I love the fact that in a number of communities around the world, there are dairy producers that can’t get out to the metropolitan areas anymore, and they’ve gone to going back to online delivery of dairy produce. So that’s milk and cheese and butter and they’re finding ways in hotter climates to chill it and make sure there’s a chiller-box. Now, this is back to having a milk run back to having a milkman. So that we were able to use the digital environment to reconnect with people in the postcode.

A gain, it doesn’t have to be the other side of the planet. Online shopping is as much to do with our postcode and our community as it is to exporting the world. And we, one of your mates were saying , Miranda…

Nigel Miller: [00:11:17] Yeah. I’ve got a friend, Miranda Bond. She is a digital marketing expert, and she was saying that, yes, it’s great to start off trying to reach your local postcode, but the fantastic thing is that you suddenly find that people you would never expect to find you, from all over the world, might dip-in and make contact and love what you’re curating, and your business expands in ways you never thought.

Kevin Moore: [00:11:41] You start the process, you take one step and all of a sudden people, so you create awareness. That’s the first thing you do. You create awareness, you then get engagement, and then more and more people come.

So Hobby Warehouse has a Japanese site. We didn’t expect to have a Japanese site, but Japanese shoppers like the remote control, they like the radio-control , they like the models and more and more Japanese shoppers were finding the site, which at that time was a “.com.au” site. So we now have a Japanese site in Japanese to look after them. We didn’t mean to do that. It just happened because you start to get there. So this going out to the postcode and going out to your community naturally opens up the world to you. So I love that. I love that, that creativity and that exploring, experimenting is delivering lots of things that were old that are becoming new again.

Nigel Miller: [00:12:24] So just going back to where you started this telling us about when you were doing your initial research for Toys R Us Australia and New Zealand. How concerned were you about not having physical and what surprises have you found along the way?

Kevin Moore: [00:12:39] It’s funny, we as the party launching it, were not concerned at all. We would have been more concerned about signing 20 year leases and 12 year leases with landlords with CPI increases. So cost of living increases built into those contracts that would have chewed up so much working capital, we couldn’t have possibly have got the business off the ground and grown as fast as we have done, if our monies were tied up in storefronts.

It was a challenge to be able to convince, to begin with, the global CEO of Toys R Us and his team, that this was the way to go, and they had the option of choosing companies that had physical storefronts, but they said, you know what, what you’re saying, every bit of research you’re discussing, every bit of work that’s been done by every researcher, Nielsen, GFK, everybody in the world is saying the same thing. This sector will have up to 50% of its sales online by 2023. Now we’ve had Covid, it’ll be 50% of sales by 2021. So it’s a mindset. I go back to that thing, if it’s been your paradigm, if you’ve been in physical retail all your lives, it’s very difficult to have that shift.

 I take my hat off the CEO of the hardware company because he would have had to fight tooth and nail with his shareholders to say, we’re going to put money into this thing that isn’t going to pay today, but it will do one day and that day’s come.

Nigel Miller: [00:13:55] Hmm. And then the other thing is that obviously when you dive into the digital world, you don’t really know how it’s going to go, and you’ve got so much to learn. I seem to remember that come Christmas time, you guys were a little bit surprised about the volumes you were getting, which you were pleasantly surprised. Is that correct?

Kevin Moore: [00:14:15] Oh, absolutely. Yeah. And that was again, because the brand was well known and recognized and once you re-engage with people, it came alive again.

So we’re recording these podcasts, Nige, a week apart. Since the last time we met when you played John, Bob and my single, “Dreams” by Finding Cadence. So have a guess how many people that has been served up to, they haven’t seen it, what market number of people has that been served up to.

Nigel Miller: [00:14:44] Oh, well, look, I mean, it was an amazing piece of music, so it must be in the like 30 people?

Kevin Moore: [00:14:50] 400 million.

Nigel Miller: [00:14:52] Oh, served to?

Kevin Moore: [00:14:54] Served up. It is available to 400 million people on 150 platforms, including YouTube.

Nigel Miller: [00:15:01] Yeah.

Kevin Moore: [00:15:01] So this is singer-songwriters, in a particular market, and it’s been served up potentially to 400 million people. Now you can’t get 400 million television viewers. You can’t get 400 million radio listeners. It’s not possible.

So this whole digital world is such a mind-shift for people to get their heads around. That’s why go into it, step into it. The worst that can happen is nothing. The next worst thing that can happen is the demand’s so incredible, you’ve got to get people to help you.

Nigel Miller: [00:15:32] Yeah. Okay. And that’s not necessarily the worst problem to have…

Kevin Moore: [00:15:35] Uh, no,

Nigel Miller: [00:15:37] Okay. Okay.

So Kevin, going back to the top five things that online shoppers are looking for, and number five being price and promotion. From the actual digital retailer’s point of view, where should promotion be in their top five?

Kevin Moore: [00:15:53] Uh, on five. So it sits there at number five, because you make sure you’re getting your ranging rights. You make sure that you are offering that convenience your shoppers want, great service. The payment terms are there, you’re looking after all of the people who’ve come to the site who are aware of you that you have a relationship with.

So it stays at number five, but then what you do is you bring it up at key times. So at key seasonal times, you cannot possibly be in a seasonal market whenever your season is. You cannot be in a seasonal part of the market time of the year and not be promoting actively because you’re uncompetitive.

Now, that doesn’t mean you’re the cheapest price. It means that you’re offering something. We’ve talked about freight. How important is it? It’s a great promotional item. I’ll offer free freight on any orders over $50. I’ll offer free freight for the next week. I’ll offer free freight if this particular item is chosen, the basket of things you have. I’ll promote to certain percentages because that’s the norm in the marketplace at that point in time.

So we talk about Black Friday and Cyber Monday, you have to be price competitive because people are spending the money that they have. And once it’s gone, it’s gone. Does that make sense? Key seasonal times. People come to the day, they come to the week, they come to that seasonal point of time with $1,000 and that’s all they’ve got. I don’t mean they’ve got a $1,000 cash, I mean they’ve got $1,000. So on their credit cards, in cash, borrowing for their mate, whatever it may be, that’s what they’ve got. And if you don’t get your share of that at that time, through pricing and through promotion, you lose that season for three months, six months, nine months, 12 months, depending on what type of season it is.

Nigel Miller: [00:17:22] Okay. And then sort of more creative promotions. I have to say, I was amused by one that you guys did at Toys R Us in Australia and New Zealand, with your recent “toilet roll challenge”. I can put a photo up of this on the website, but can you tell us a little bit about that?