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Masterclass Retail: An overview of phygitalization

Masterclass Retail: An overview of phygitalization

On February 17, 2022, at EFAP, the masterclass on the phygitalization of retail took place. 

It appeared to be very promising subject that takes place in the context of the exit of the sanitary crisis. It raises a main question: What were the impacts of Covid on retail? and in particular in cosmetics? 

 In this article that brings a critical synthesis of this masterclass, you will be able to learn everything about phygitalization of retail.

What happened in retail in the last 5 years?  

For the past 5 years, the world went through a lot of disturbance: social crises, Brexit, health crises, that prevented people from going to physical stores.  

Because of that and other reasons such as pressure from globalization and growing pure players threatening physical stores, the latter started to change.

This change, involving the appearance of more “digital” physical stores, can be called Pygitalization. It’s the fusion between digital and physical. Phygital uses digital within physical stores to make an in-store experience digital and to digitalize an online experience.

But in order to see how retail has changed recently, we need to take a quick look at its history.

A brief history of Retail

How did retail evolve throughout the years?

Retail as a notion can be traced back to the 19th century when the first shopping malls and department stores appeared.

In 1852, Lebonmarché opened its doors as one of the first modern department stores in the world.  

During the 20th century, and particularly in 1916 in Memphis, Piggly Wiggly became the first self-service grocery store in the world, a very interesting approach to flow management 

In the 1920’s, first cheaper supermarkets started to rise. By the 1930’s the concept of franchises was launched, and at the same time, Monoprix began to experiment with sensory marketing with music in its stores.

The following decades saw the advent of discount with the Albrecht brothers, pioneers in the domain with the creation of Aldi.

Stores surfaces start to grow bigger: in 1963, Carrefour opens the first hypermarket in France, with a surface of 2500m².

In 1969, Séphora and Yves Rocher open their surfaces the same year, initiating the trend of modern cosmetic retailing.

Following these innovations, the end of the 20th century sees the emergence of the customer loyalty priority: customer retention becomes a priority. 

But at the very end of the 20th century, when physical retail sees its evolution slowing down, the advent of the internet will change everything. In 1994, the first purchase on the web takes place.

And this is only the beginning, during the years 2000 to 2010: e-commerce and digital started to unfold globally. In the past decade, physical retail takes its own action with pop-up stores, connected shop windows and the use of social networks in-store. Click and collect also starts to develop. 

From 2011 to 2016, we observe a disappearance of a “typical” point of sale format for the benefit of connected stores. Google even creates its first point of sale in 2016.  

this brings us back to our present days, where click and collect has now become a standard for customers to avoid delivery charges. 

In the future, what can we expect? The answer is simple: smaller, much smaller stores. And local ones. This stores will much likely be using AI and Big Data. They will also drop one-off prices and optimize product customization.  We can also expect in-store visual and voice recognition, and custom 3D printing and visualization.


Why is Covid-19 crisis so important in phygitalization of the retail of cosmetics?

In the cosmetic industry more particularly, Covid-19 has had a severe impact on sales. In 2021, stores in France noticed a drop in sales of 25% compared to 2019. 

In 2020, the drop was -17% for beauty products, whereas hygiene products jumped by 30%.

Among total sales, lipstick and cosmetics covering the lower part (and thus hidden by face masks) of the face faced the worst decrease: -73% for lipstick and -50% for foundation.

This resulted in about twenty stores closing. But this decline was also digital, with a severe decrease in internet stales, though less intense than for physical stores.

To deal with this crisis, stores started to focus on organic and covido-compatible ranges.


Among this storm, only one boat seems seems not to have sunk: the selective beauty market, is in a growth tendency. 

Only the selective beauty market is growing, strongly pulled by perfumes. 

Despite declines in the beauty sector, e-commerce remains the big covid winner, with +34% volume sales in 2021.

In this disrupted market, the big three beauty retail players (most popular outlets) are still in the lead:

-Séphora (800 exclusive brands, caters to all genders, loyalty system).  

-Yves Rocher (made in France, favorite brand of the French, affordable price, green)  

-L’Occitane (a trip to Provence at the entrance of each store),  

In addition to the covid, these brands remain threatened by intermediation: new digital actors linking supply and demand such as showroomprivé or veepee.


6 key points to understand the impact of phygitalization

An efficient way to look at digital transformation of a sector is inevitably Porter’s value chain. If you are not already familiar with this concept, take a look at what’s coming right below !


1- Human Ressources

Stores need to give their teams in training the same experience they will give to their customers” – Cristophe Flous, ceo of Texageres

Despite digitalisation of retail, the store is still an essential part of the consumption process. But the role of salespeople has evolved.

Phygitalization has a role to play in sales force training: there is a clear need for blended learning, and the creation of operational and clear, 100% online modules.


2- Logistics

The customer wants to know when he will be delivered, and what he can find in the store or not. Logistics exist from the moment the customer places his order until the moment he receives it.

From that moment, new challenges appear: e-tailer leaders have introduced faster and faster delivery times, which requires warehouse adaptability / flexibility.

We can notice 5 Pillars of the digital transformation of the supply chain: Cloud and SaaS (software as a service), data and analytics, IOT, Robotization, and Augmented reality.

We can even talk about a cultural change: “Everything on demand, everything now”. This is the Industry 4.0: based on the digitalization of all processes with the Internet of Things. In addition, digital transformation brings up omnichannel strategies rather than multichannel (which was the norm before).

Key points of Logistics is sharing information and data to increase efficiency, which also means reducing the time between ordering and receiving.

The perfect example for that is obviously Amazon with “Reverse logistics” : instead of having employees go to shelves to look for products, the shelves move to the employees at the ends (and it also saves space).


3- Supply

Supply is another part of Porter’s Value Chain that is changing drastically.

In Marionnaud stores for instance, Big Data and the sse of connected in-store-objects that offer recommendations on product supply lets the stores know in real time what is sold or not.

This represents a huge gain in management, stock collaboration and profit.


4- Product & service testing

A recurring problem during the pandemic was about in-store testing. 

How to test products when there is no more in-store treatments, tests with professionals, and samples ?

During the two years of pandemic, stores adapted to the situation with innovant ideas, including:


Contactless testing

A solution named “Paperscent” dispenses personalized perfume cards with the name of the perfume engraved. Allows to know in real time the quantity of perfume and paper in the machine.

It collects user data to better understand their behavior and purchases via smartphone.

Coty also, or GK Concept with Dropper (not only perfume: device with motion detection for all types of products).


Augmented reality at the point of sale

Beauty hub, for instance, is an AR tool “Virtual Artist” at Sephora: it allows virtual testing of beauty looks via a connected mirror.

MAC also launched a makeup mirror experience directly on WeChat.

But in-store apps have also developped: you scan a product barcode to see the results directly on your face.


But there are several others innovations like skin tone analysis tool to find the best foundation with an algorithm, Lancôme youth finder used in the Champs Elysées store to analyzes the customer’s skin to propose an appropriate routine, Frangrance walls with questionnaire on tablet then illumination of the perfumes that best matches the profile.


Outside of direct in store innovative testing solutions, new features and services have developped aroung the ROPO (Research Online, Purchase Offline) strategy.


Conversational Marketing

Chatbots, for instance, accompany customers who need information. It saves time for the customer and money for the brand (the chatbot collects leads).

The bot allows participants to obtain promotional codes that will bring them to the point of sale.

 Live shopping, a new trend coming from China mainly, also allows several conversational possibilities, such as:

– Answering to all the question in live

– Quick and easy access to the products mentioned in the live

– Presentation of the products by an expert

– Distribution of exclusive promotional codes to viewers

– Use of influencers


Some brands also tend to utilize a variant of livestreaming: the “Visio Mode” involves a beauty advisor who will help the customer from distance.


5- Payments

Payment methods are an integral part of the innovation strategy of the points of sale. Mobile payment particularly is a must for the younger generation, advisors in stores are equipped with phones to access the application.

With Covid crisis, many new payment methods have emerged:

-Payment in installments (new standard, increases the quality of the shopping experience, encourages purchase and increases the average basket)

-Payment on social networks (Instagram)

-Smart checkout (deposit of items in a bin where they are scanned, displayed, accounted for directly with an RFID tag)

-Flagship stores: connected stores with connected wristbands (which record purchases) and equipped with connected mirrors and vending machines

6- Communication

Cosmetics stores nowadays rely more than ever on beauty influencers, which is an effective digital lever for the brands. This is based on building a relationship of trust between the influencer and his community.

Influencer marketing is expected to reach $15 billion by 2022.

Collaboration between the brand and influencers to create exclusive products is now a must: it increases audience interaction, gains visibility, and helps creating a close relationship.

The use of newsletter has also boomed: after a purchase the customer receives a newsletter about the product purchased.

Among that, data collection is key: targeting optimization, touchpoint optimization, online / offline, personalization of the relationship are a must to be more relevant in the content and in the offers.

We have also seen the rise Social networks: 100% connected stores, the virtual becomes real, concrete with hashtags everywhere on the displays, codes to scan, mirrors connected to social networks (NYX in particular), with user generated content, tutorials, incentive to share content on social networks, users can tag photos with the store’s hashtags: increases customer engagement and reactivity, boosts the buzz.


    Let’s take a look at the benefits of digital transformation on points of sale.

    Firstly, it is important to understand that consumers have in front of them DNVB’s, who do better, cheaper and faster than the traditional players. These

    These digital native vertical brands install a new reference system for consumers.

    Thus, digitalizing the point of sale and having a phygital approach (integrating the contribution of data to the performance, digital, on the physical) is an obligatory passage to preserve the competitive performance of the signboard (which depends on each of its contact points).

    The principle challenges are to:

    -Better integrate the point of sale into the purchasing process (so that it is relevant in a digital environment instead of being an anomaly in a sales process that is increasingly 100% digital)

    -Propose a coherence at each point of contact in offline (which is very difficult to do while we master it in online)



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