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Retail Thinking Outside the Big Box 

Dan Blacharski | Aug 11, 2017 406 views No Comments

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Store closings, shopping malls transforming into desolate wastelands, and retail deserts where once flourishing strip malls with high-profile anchor stores have been taken over by storefront churches, neighborhood bodegas and check-cashing stores with bars on the windows: It’s the retail apocalypse.

Distressed bond issuers which focus on retail and apparel markets are close to recession levels, with Moody’s Investors Service reporting 13.5 percent of its retail and apparel portfolio as distressed. During the Great Recession that figure was 16 percent. In 2017 alone, several major retailers have filed for bankruptcy, including The Limited, Wet Seal, HHGregg, RadioShack, Gordmans Stores, Payless and many others, with more than 5,000 stores closing their doors for good this year. The Four Horsemen are on the horizon.

As retailers struggle to navigate this recession-level disaster, there are a few things to keep in mind: It is survivable, the Internet is not to blame, and smaller retailers still have a future.

It’s not the Internet’s fault!

The Internet is not to blame, and it’s not, as some armchair industry observers claim, Amazon’s fault. Ecommerce, rather than being seen as a problem for brick-and-mortar retailers, is an opportunity – and an essential part of every retailer’s go-to-market strategy going forward. Those who resist will indeed succumb to the apocalypse.

It’s clear that even during the face of this retail disaster, ecommerce is growing at a record pace, up 15 percent in the most recent quarter, but still, according to the US Census Bureau, ecommerce accounts for only 8.5 percent of all US retail sales.



So if we can’t blame Amazon, who can we blame? Retailers need to look inward, and often it’s a failure to adapt to online channels and digital tools that are improving the customer experience that’s to blame for the failures.

Ric Noreen, Managing Partner of Waypoint Strategic Solutions, focuses on both commercial and consumer clients, with specialized practices in sales effectiveness, market development, and strategic sales planning. Noreen describes three reasons for the retail apocalypse: The status quo, investment in real estate and physical assets, and a lack of understanding of the technical side of the business. “For most traditional retail firms, management has come up through the stores, has had operational roles, has been in procurement, supply chain, and dabbled in merchandising and marketing, but their comfort zone is what they know,” said Noreen. “It’s what they’ve been good at, but not necessarily what they’ll need to be good at going forward.”

“The second reason is the huge investment that retailers have made in real estate and physical assets,” he adds. “They are leveraged to the hilt, and still working to get proper ROI on the bricks and mortar. Like a factory you know is outdated, you know it’s not creating the throughput it should, but the alternative to tearing it down and building a new factory is just beyond your financial capabilities. You have to work hard at maximizing the output from those four walls as opposed to what you should be doing, which is tearing down those four walls and starting again.”

“The third reason is a lack of understanding of the technical side of the business. While every firm has built an ecommerce group, they’ve had to do it largely from people outside the company – people who don’t necessarily understand the ins and outs of retailing. They’re just looking to apply a specific set of tools, and they don’t fully appreciate the bricks and mortar context that senior management was brought up in, and the senior management doesn’t have the skills or vision or innovation that the typical ecommerce group can bring when they come from the outside. So you have this competition, this uneasy alliance between old and new, and each party only knows half of what they need to know to become successful.”

Surviving the Apocalypse

Noreen describes the current state of retail as a “North versus South” scenario with significant gaps in terms of understanding goals and objectives, with the business side and the ecommerce side lacking a mutual understanding. “Alignment is going to rely on a mutual understanding and some degree of compromise,” he said. “Recognizing the power of multichannel, being able to leverage that embedded asset base that exists to be more effective through the enablement of digital shopping and digital marketing.”

The ultimate change will come when ecommerce groups become established within retailers, and those ecommerce-savvy individuals rise through the ranks into management. Only then will ecommerce become a more integrated and natural component of retail.

That level of deep integration at the highest levels is essential going forward. According to a recent Nielsen study, 20 percent of all grocery shopping by 2025 will be through some form of ecommerce, roughly equaling $100 billion a year in ecommerce-driven grocery. Similar trends will be seen through every segment of retail.

Those retailers who survive will not necessarily be the biggest or the most entrenched, or the ones with the most stores. It will be those who are most willing to adapt. Survivor tactics include:

Hybrid approach. Pure-plays like Amazon will have a big role in the future of retail, but they will not dominate. The click-and-collect, hybrid brick and mortar and ecommerce is gaining strength. Already commonly used throughout most of Western Europe (which does not have a retail apocalypse), this model blends traditional with ecommerce options, and is beginning to catch on in some U.S. based grocery chains, and from a supply chain and warehousing point of view, is much more efficient than a traditional delivery model which may require a substantial fleet investment and duplicate inventories.

Digital tools in physical stores. Acknowledge that some consumers want the tactile experience of shopping in-store, while others see shopping as simply a procurement task. The latter will respond to things like click-and-collect options, but those who shop in-store can still benefit from digital tools to enhance the customer experience. Kroger’s smart shelf experiment is an excellent example of using digitization to enhance the in-store experience.

Flexible format expansion. Does the world need more 100,000 square foot superstores? Retailers are focused on expansion, which traditionally they see as a pressing need – driven by Wall Street – to open more brick and mortar stores every year. However, many retailers are already over-stored, so how do they meet the demands of Wall Street? They need to think outside of their 100,000 square foot box, examine smaller formats, look at neighborhoods where they would not normally be operating. “The key is flexibility and adaptability,” said Noreen. “You’ll see retailers looking at the food deserts in major urban areas, and asking what format they need to build, and what assortments they need to create to compete. By being innovative with the format and assortment they offer, that’s going to be the key to expansion.”

Hidden assets and emotional connection

One of the most valuable components of digital interaction is understanding the point of sale, having the ability to influence shoppers at multiple points along the path of purchase. “The huge hidden asset is the insights that retailers can glean from that digital interaction,” said Noreen. Those insights, which are often under-utilized, can inform decisions that buyers are making, as well as merchandisers and retail marketers. “We have this treasure trove of information that has been gleaned from retailer interactions with shoppers that is generally underutilized by the retailers themselves, and not shared with the manufacturers which are creating that which is sold in the stores.”

That information – if it’s the right information – can be transformative. According to Scott Magids, CEO of big data and analytics firm Motista, basic information about demographics and who is buying what and when isn’t enough. “So many traditional approaches build brand awareness and customer satisfaction, but they become short lived and commodified. We’ve always known that consumers are fundamentally motivated by their emotions. This is a universal truth. We believe that if we can help businesses more systematically connect with their consumers’ emotions and deepest motivations, the customer who values the purchase and remains loyal will be increased.”

Magids describes a continuum that goes beyond the traditional “not satisfied” to “very satisfied” descriptors, which speaks only to the basic transaction and product usage. When we talk about satisfaction, we’re talking about a customer that provides high scores to measure quality of service, price value, and who they trust to buy from,” said Magids. “But when we talk about the emotional connection, we’re talking about how the brand transcends those functional benefits of satisfaction, and actually connects with the deepest and most important, intrinsic motivations of a customer – helping a customer feel better about their family. Helping them stand out socially. Having more confidence in the future. What we have found is that when a brand goes beyond ‘highly satisfied,’ they set a new bar.”

The greatest contribution to more effective retailing will be in unlocking that data, turning it into insights, and having it be the basis of collaborative planning between manufacturers and retailers.

There is little doubt that retail in the US is facing serious challenges, but those challenges are based on an oncoming and fundamental shift in how retail operates. Adapting to those changes is the key to ongoing success.

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