Starbucks

How Location Intelligence Can Power Starbucks’ Move to Solely Brick-and-Mortar

by Jenna Sindle

Earlier this year, Starbucks announced that it will be closing the virtual doors to its online store in an effort to focus solely on in-person experience and their mobile offering. This might surprise many retailers and consumers alike, with so many big industry players like Walmart moving towards a more digitally-driven service.

A month following the shuttering of Starbucks.com’s store and with some of the dust settled, Retail Technology Insider chatted with Chris Michels, Senior Manager for Applied Analytics and Marketing Services at Pitney Bowes, to discuss the implications of this decision and what it indicates about the fickle, ever-changing world of retail. Here’s what he had to say on the matter:

Retail Technology Insider (RTI): So Starbucks has announced they are shuttering their ecommerce/online operation. What do you think this indicates about the evolving nature of brick-and-mortar vs. online retailing?

Pitney BowesChris Michels (CM): It certainly is yet another sign that ecommerce is not the physical retail death knell once feared. Look at Amazon’s acquisition of Whole Foods. Because ecommerce is a relatively new retail mechanism, and it continues to evolve, it makes sense that not all retail concepts fit perfecting into the mold of “etailing.” This is especially true for those that are primarily service driven and/or deliver an experience to the consumer.

Additionally, by shifting too much focus to online sales, certain brands and products seem arguably less special and ubiquitous. That in-store exclusivity drives intrigue and demand and will likely boost store foot traffic and revenue.

It’s also important to remember that retailers like Starbucks want to have control over their branded experience, and the only way to accomplish that is in-store. This concept dovetails nicely with an emergence of incentives to shop in-store (check-in specials and deals, etc.) and those are really starting to override the convenience of online purchases.

RTI: How do you think location intelligence will play into their solely brick-and-mortar focus moving forward?

CM: Location intelligence will play a significant role in keeping Starbucks relevant and successful as they ramp down their online store. Insights that location intelligence can provide include (but are not limited to):

  • Information about strategic areas to open new stores based on core customer bases
  • Store locations and business patterns based on commuting traffic flow and top ordering times
  • Drive-thru expectations, especially what to consider during peak traffic times
  • How a drive-thru customer’s expectations compare to that of an in-store customer
  • Analysis around the online customer profile and what standards need to be met to convert their shopping behavior in-store

Starbucks’ mobile app also presents a lot of opportunity for their marketing strategy through geofencing and proximity technology. Based on a customer’s location, push notifications with relevant offers or deals can be put to use in Starbucks (or competitor) territories.

And of course, it’s no surprise there’s a role for AI in location intelligence. AI can reveal patters in travel or orders and make it easier for customers to place orders, find a desired store and, ultimately, spend more.

RTI: What do you think is the reasoning behind Starbucks’ decision to return to a brick-and-mortar model, as opposed to a “clicks and bricks” model?

CM: Starbucks CEO Howard Schultz told investors in April, “Every retailer that is going to win in this new environment must become an experiential destination.” By making experience the priority, it’ll be easier for Starbucks to drive traffic to stores and increase spend per guest ratios.

This is also likely a reflection of online product sales performance combined with a perceived impact on physical in-store location sales. As I mentioned before, in-store experience allows the company to have better control over the brand image and consumer experience and really create that demand through limiting product availability to brick-and-mortar locations.

Besides, with so many other online channels to sell their products, there is little compelling need to have their own channel doing the same thing.

RTI: Do you think this decision will influence competitors or other retailers?

CM: Businesses will continue to make moves like this to ensure the continued stability and success of their physical network, control the experience, and, when the brand is big enough, limit online supply to create instore demand.

That being said, the company’s concept must be unique enough to pull this off successfully. Consumers must enjoy the in-store experience; the products must be distinctive. Overall, the concept must be viewed as a worthy destination where they will get the desired experience to which they’ve grown accustomed.

To learn more about retail technology best practices and trends, subscribe to Retail Technology Insider’s newsletter here. If you’d like to share your professional insights about the industry, please reach out to us here.