Tech companies betting on brick-and-mortar retail
Online sales have been rising for years and some brick-and-mortar retailers are struggling.
It’s easy to look at these trends and assume that brick-and-mortar stores will eventually be supplanted by online retailers.
But a number of Montreal tech companies are betting on brick and mortar.
They’re building businesses based on selling technology products to help physical retailers compete with online sellers.
“We firmly, firmly believe in the future of brick-and-mortar retail,” said Steve Gendron, the co-founder and co-CEO of NewKnow, a Montreal-based company that sells a training application for retail employees.
The far majority of retail sales still occur in physical stores, Gendron said, and even the most bullish forecasts for the growth of ecommerce predict that about 75 per cent of retail sales will continue to take place off-line. But competition is increasing. Online sales are taking a piece of the pie and the prevalence of smartphones means consumers can research products and shop for the best price even when they’re in a store.
“Not only are the customers more educated than ever, they also have more options than ever, they can shop wherever, so when they come into the store, they really want a good experience,” Gendron said.
A big part of that is customer service — and good customer service means knowledgeable staff.
But building a knowledgeable sales force in a high-turnover business where new products regularly arrive can be a challenge, especially since retailers haven’t changed the way they train employees, said Jaffray Hill, NewKnow ’s other cofounder and co-CEO.
NewKnow builds a platform that retailers can use to create learning “modules” that employees can access on any web-enabled device.
“It’s a do-it-yourself platform,” Hill said. “You know your story better than we do, so we need to just give you a tool that makes it really easy to package that information.”
Managers can see which modules have been completed by a specific employee and retailers can choose to send specific modules to individual stores or to employees with specific job titles.
Brands can also create modules to be used by any retailer that sells their products.
By keeping workers updated on topical information, Hill said, it “makes it a lot easier to deliver a good customer experience and have that knowledgeable sales associate who can look someone in the eye and not look in the back, read the back of the box or say, ‘Why don’t you read our website?’”
It’s unclear just how much Canadians — and Quebecers — spend online.
According to Statistics Canada, e-commerce accounted for about 3.5 per cent of retail sales across the country in December. However, those numbers only account for purchases made at Canadian retailers, which according to some estimates, reflect about half of online sales.
A 2016 report by eMarketeer forecast that online retail sales would grow to 7.3 per cent of all retail sales in Canada in 2017.
NewKnow isn’t the only Montreal tech company that sees sales associates as being a differentiator for physical retailers.
Salesfloor has an application that allows local stores and individual store associates to create their own “storefronts” on a retailer’s online store.
“We believe the core of the shopping experience to be that helpful associate — it’s that human being in a store,” said Ben Rodier, the company’s chief operating officer.
While it depends somewhat on the products being sold, about 30 per cent of people who walk into a store and talk to an associate buy something, Rodier said. Online, between one and two per cent of consumers who visit an e-commerce website make a purchase.
“Online shopping is largely a window-shopping thing,” he said.
Salesfloor also allows in-store sales staff and online stores to support each other — rather than cannibalizing sales — because it allows online sales to be attributed to individual stores and associates.
“The second the customer leaves the store, whether they buy online from that same retailer or they go to Amazon, the sale is actually lost from the store manager’s perspective,” he said.
One of the advantages online retailers do have over brick-andmortar stores is data. It’s easier for online retailers to know what individual customers are buying and that information can be used to target advertisements or make recommendations while a shopper is on the retailer’s website.
“You have an email, typically a phone number, an address, et cetera; 100 per cent of online transactions are associated with customer data,” said Rami Karam.
He’s the co-founder and CEO of Thirdshelf, a Montreal-based company that’s working to give physical retailers more data on their customers.
“In the brick-and-mortar space, it’s much lower. It can be as low as zero per cent and it rarely goes over 30 or 40 per cent unless you’re dealing with very, very specialized retailers.”
Instead, many brick-and-mortar stores rely on intuition, Karam said.
“We started out with a very simple idea. If we could tap into the transactional data on the point-ofsale system, we’d be able to automate marketing on behalf of those retailers,” Karam said.
The company sells a digital platform for independent retailers to create customized loyalty programs.
That allows them to track what those customers have purchased and identify customer segments for targeted advertisements.
Once a customer has signed up for the program, “you’re basically on a first-name basis with the retailer. From that moment on, every purchase that you make is recorded,” Karam said.
Thirdshelf ’s software helps the retailer build profiles of their customers and it uses machine learning to help retailers track customer buying patterns.
In the long run, Karam said, independent retailers may be better able to compete against online sellers than less personalized brands.
“It’s a very personal thing for a lot of these independents and it becomes a very personal interaction with their customers,” he said. “There are certain things you want to get as cheap as possible and then there are other things where it’s more than just a product purchase, it’s about a lifestyle or a hobby that you have and I think those kinds of retailers will be here for the long haul.”
Montreal has a long history in retail technology, Karam said.
Thirdshelf ’s lead investor is Otimo Retail, a small investment firm led by Howard Stotland. In 1973, he founded STS Systems, a Montreal-based technology company focused on retail, which was sold to a British competitor in 2000.
“One successful entrepreneur funds the next generation and it builds on itself. We’re probably the fourth generation (of retail technology companies) in Montreal,” Karam said.
While certain types of retail may be vulnerable to online sellers, no one in Montreal’s retail tech sector thinks physical retail space will disappear.
“You read a lot about the retail apocalypse and how Amazon’s going to kill brick and mortar and we just don’t believe it. We’re really bullish on brick and mortar,” said NewKnow’s Hill.