Traditional retailers’ legacy of store success is their biggest challenge
One only needs to look at the headlines to see that many retailers are struggling. Let’s clarify that … a large number of traditional retailers are struggling to grow profitably. In addition to bankrupt retailers like Sports Authority, many others are closing stores. Yet, the “Beast from Seattle” continues to thrive … posting double digit year over year growth, and now even quarterly profits. Why is Amazon so successful while even the best traditional retailers struggling? Many retailers need to take a hard look in a mirror to examine their historical baggage of the past and their failures to adapt to today’s rapidly changing consumers.
Why this is important: Freud’s definition of insanity is doing the same things over again and expecting different results. Doing more the same better won’t be enough! Retailers need to rethink and reorganize their business from the inside out.
Retail Insanity = the same things over again, expecting different results
As mentioned, Freud’s definition of insanity is – doing the same things over, and over again and expecting different results. That definition pretty much describes the current state of many traditional retailers. Even the sales results of historically successful retailers like Walmart and Nordstrom’s are soft. While it is tempting to blame the economy, the problems of why traditional retailers are struggling are not so simple to understand, and even more of a challenge to fix. Traditional bricks and mortar retailers are facing systemic challenges based upon their roots running stores that were successful in the past.
Fundamental issue: retailers are operating based upon product centric success
Traditional bricks and mortar retail was founded on the premise of the “store” being the destination location where people came to shop. Stores were (and are) “showcases,” where you put products on display and sold things at a price. Success was based upon merchandising the right assortments and achieving supply chain efficiency. Many big box retailers grew in size to have wider assortments (hypermarkets), or they specialized in specific categories of things like consumer electronics. And, if selling things slowed down, retailers ran mass media ads and promotions to drive customer traffic to stores.
The major challenge facing traditional retailers today is that the “store” is now where the consumer chooses to engage at this moment in time, not necessarily a physical location with products on shelves.
7 Reasons why traditional retailers are struggling to be profitable:
Customer “experience” was historically a sales transaction on a date
POS (Point of Sale) cash registers were designed for the primary purpose of keeping track of which things sold at what price today. POS was designed for sales transactions, not relationships. Today’s omnichannel consumer experience involves many touch points inside and outside of the store. Retailers relying on traditional POS have few ways of tying customer experience together across channels and time.
Consumers are the new POS, not the stores!
Consumers today quite literally have become the POS! Consumers have moved way beyond the notion of omnichannel as shopping. They now decide, when and where to purchase, how to pay, and when/where/how to take delivery. The shopper’s smartphone has literally become their point of sale. Traditional retailer systems were designed to transact in store and separately online, but not across multiple channels at different points in time when the consumer choses to buy.
Traditional retailers sell “things”, with few ways to manage relationships
The most important “sale” today is not the product in the basket, but the relationship with the consumer. Amazon can provide an entire history of “wish lists”, purchases and shipment history. Few traditional retailers have the capacity to “follow you home from the store”. The lack of consumer centric CRM (Customer Relationship Management) is one of the single biggest omnichannel gaps and perhaps one of the biggest challenges for traditional retailers today.
Digital consumption of everything has resulted in declining store traffic
If you look across the spectrum of media, that has been a massive migration to digital. Movies, music, news, and even software has been become available both as digital downloads and streaming. This has disintermediated some media retailers like Blockbuster entirely. Digital consumption, coupled with online digital shopping, has significantly reduced store visits. “Footfalls” in store have literally dropped by as much as half. Stores simply have less “at bats” to sell customers something. And, even if retailers dramatically improve store conversion rates, it will not be enough to make up for the considerable decline in store traffic.
Retailers are trying to make up store volume by selling customer online
To make up for declining store revenue, traditional bricks and mortar retailers have been encouraging their customers to go online in order to grow their own ecommerce sites. But, traditional retailer ecommerce sites have to compete with e-tailing specialists, especially Amazon. Selling online means being extremely price competitive, so retailer online margins are typically less than what is sold in store. Furthermore, consumers are now “addicted” to the highly personalized Amazon customer experience. They now expect the same Amazonian end to end experience from retailer websites, including the amenities of free shipping, tracking and returns. Most traditional retailers are struggling to develop infrastructure, systems and technology to compete online, and more importantly, on an omnichannel basis.
Stores and Ecommerce still operate in separate “silos” in many retailers
Traditional retailers were built from the ground up to run stores. Nothing wrong with that … stores can be a great place to shop. But, stores require different operating systems and infrastructure than online. Many traditional retailers are really struggling because store merchandising and marketing operate independently from online. Not only is that inefficient, it is highly unlikely that it will create the seamless shopping experience that consumers are expecting across channels.
Associates are treated as an expense … not as a strategic differentiator
The number one thing that you cannot get online is a knowledgeable person to talk to, and offer personalized assistance. Even with all of the widgets and rich content on websites, consumers still report that they go to their favorite stores because the people make the difference. Yet, to cope with declining store traffic and revenue, store staff are often seen as a “labor expense” that can be cut to remain profitable. Training is also viewed as an “expense” to be cut. Clerks stocking shelves and cashiers at registers do not create a compelling reason to visit stores to buy the same thing that can be shipped free to your door, probably at a lower price.
Bottom Line: Traditional store based retailers are not organized, or investing to compete successfully for today’s omnichannel consumers.
A retailer stating that they are going to be omnichannel does not make them so in the eyes of consumers. Doing more of the same store based marketing of the past will not change results, it fact, it may jeopardize success without the right talent on the retail floor.
The struggle for traditional retailers to survive and remain profitable is real and profound. It will literally require changing retail DNA from product centricity, to consumer centricity focused managing relationships instead of selling “things”.