Where stores can still compete—and
win
Even as
pressures mount on brick-and-mortar stores, retailers can find growth by
focusing on the battlegrounds that are still up for grabs.
For years now, hand-wringing
executives in the retail sector, nervously eyeing Amazon, have been able to
point to their own retail stores as potential strategic weapons. For all the
well-documented challenges and economic pressures of managing brick-and-mortar
locations, shopping trends and consumer spend still favored the store. After
all, some 80 percent of purchases are expected to still happen in stores in
2020.1
With Amazon’s well-publicized purchase of Whole Foods,
the refuge of an omnichannel strategy anchored on physical stores has
evaporated. Let’s be clear, though. The real news isn’t that Amazon is buying a
physical chain of stores. Taken with the retailer’s other recent developments,
such as Prime Wardrobe, which allows people to try and return clothing for
free, the real story is Amazon’s
systematic approach to whittling away at what makes a store a store.
While omnichannel
is evaporating as a strategic advantage for stores, a careful review
of what stores offer consumers shows that there are plenty of areas where
stores can still compete and win.
The steady
deterioration of the value proposition offered by ‘stores’
There are specific reasons why customers go to a
store—seven of them, to be precise. While Amazon consistently grabs headlines
with its bold moves, a range of smaller start-ups are redefining the retail
experience by innovating delivery, sharing, and curation. That means successful
retail in the digital age isn’t just about “how to respond to Amazon” but more
about how to stay on top and ahead of the wave of innovations hitting
retailers.
The announcement of Kohl’s and Amazon’s partnership in
September is an example of how stores are responding. Kohl’s is looking for a
way to use the tailwinds of e-commerce and Amazon to continue to drive traffic
to brick and mortar.
Shining a light on each of the elements of the in-store
value proposition is necessary to understand what the battlegrounds really are.
By being methodical in evaluating the remaining battlegrounds and being clear
what the value of each is to consumers, retailers can develop a thoughtful
strategy that embraces parity in some areas while shifting activities to others
where they can still win.
What’s a retailer to
do?
To have a chance to thrive in an increasingly
pressurized environment, retailers need to build up
specific capabilities. They include upgrading their technology infrastructure
to support more innovation and embracing an agile, test-and-learn culture. In
many cases, they’ll need to partner with vendors and businesses to build new
capabilities and access new markets.
But when it comes to the value proposition of the store
itself, there are three actions retailers can take:
1. Focus on making stores work.
With the vast majority of shopping still happening in
stores for the foreseeable future, businesses need to focus on continually
optimizing their stores’ efficiency. This should include analyzing in-store
customer experience to identify what associate actions drive engagement and
conversion, and focusing on data collection from store visits (e.g., email
collection and link to digital relationship for in-store visitors). Apple and
Sephora, for example, serve relevant communications and offers based on where a
customer is in a store and when they enter. Best Buy has invested in more
training for sales staff, employee-discount programs to retain talent, and
improvements to its internal search engine so that salespeople can help
customers get the information they need more quickly. Working in conjunction
with retailers to use analytics to optimize trade and promotions is a
particularly valuable area to focus on, since only one third of T&P spend
generates a positive ROI. Executives need to also re-examine their collective
store footprint, particularly focusing on which markets are actually delivering
growth. That means having a much more granular understanding of markets, such
as focusing on cities rather than regions. For apparel, for example, 15 of the
top 20 cities with the highest growth are in emerging markets.2This
granular approach to stores should be taken for both rationalization/closures
and new openings.
2. Differentiate your offering.
When it comes to choice, Amazon has an advantage that
seems virtually unassailable (372 million products3).
Companies have had success by differentiating their products so a shopper can’t
compare them to, and then buy them from, Amazon. Costco, for example, has had
success in competing on value and breadth of product choices with its big-box
format. Other department stores have invested in stocking unique brands or
products that just aren’t available elsewhere. The most effective
differentiation strategies, however, are grounded in a deep understanding of
customer needs, the lifetime value of customers at a granular and behavioral
level, and the retailers’ own strategy. Nike, for example, has a clear focus on
its most important customer segments from product development to their
digital-asset development, e.g. apps geared towards runners or sneaker heads.
3. Double down on the open battlegrounds of the value
proposition.
For all the progress Amazon has made, there are still a
number of areas where it doesn’t have a chokehold. A number of companies have
already made significant inroads in preserving and capitalizing on these
elements.
·
Product vetting/touch & feel. While
Amazon’s purchase of Whole Foods and its recently launched Prime Wardrobe have
created significant pressure on this element of the store’s value proposition,
this space is still unclaimed. Product showrooms let shoppers try and
experience the product, while pop-up stores in shopping malls can offer
distinctive products for a short period of time. In the United Kingdom, for
example, pop-ups accounted for £2.3 billion in sales in 2015, up 12 percent
over the previous year.4Sephora
hosts in-store events where customers can try and learn how to work with new
product and beauty trends; the current Monochromatic Makeup trend, for example,
was bolstered by events where customers could try products, across stores in
New York City, San Francisco, Los Angeles, Boston, and Chicago.
·
Consultation, advice, authority. While
ratings and reviews have provided consumers with some guidance in product
selection, they still fall far short of speaking in person with an expert. For
DIY, Lowe's and Home Depot have trained associates to be reliable experts. They
also offer numerous how-to classes that provide shoppers with valuable
information. Nordstrom, a company with a heritage of customer service, is also
continuing to deepen the role of the personal shopper and stylist advice across
categories such as beauty and wedding as well as through store-to-digital
offerings like TextStyle. In the beauty category, Sephora has become an
accepted source of objective and trusted advice across a broad assortment of
best-selling and newly released beauty brands.
·
Experience and community. Strengthening
relationships with customers has, of course, always been an important element
of retail. But retailers have become more creative in how they do that through
the store. The notion of “retail as theater,” i.e., a source of entertainment
and experience, has found new relevance through Apple and Tesla, which have
created cachet around the store experience. Nordstrom Local, a recent
initiative from the upscale retailer, has launched new experiences, including
an in-store bar with wine, beer, coffee, and juices; eight fitting rooms;
alterations; convenient merchandise pickups and returns; manicures; and expert
image consultations with its knowledgeable personal stylists. The Local aspires
to become a physical manifestation of the Nordstrom brand. Lululemon has taken
another approach by offering a breadth of events such as yoga classes and run meet-ups.
They engage local yogi, fitness instructors, personal trainers, and
professional athletes as "brand ambassadors" and encourage them to
both offer free classes and participate in programs such as “Purpose and
Practice” to create deeper community connections.
There is no doubt that Amazon and other retail
innovators continue to make it difficult for the traditional retailer. To
compete and thrive, however, is possible, if companies clearly articulate a
committed strategy based on the in-store value proposition.
By
Brian Gregg, Kelsey Robinson, Jess Huang, and Sajal Kohli November
2017
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/where-stores-can-still-compete?cid=other-eml-alt-mip-mck-oth-1712
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