Retailers can no longer be all things … they must stand out to survive
Today, we as consumers have unprecedented choice in where we shop, how we shop and when we shop. If you are mostly concerned about finding a good deal, you have tremendous flexibility of being able to comparison shop across regular and virtual stores. In fact, you don't have to shop in a store at all. An "app" can search out the best deal and where to procure it. The days of "lazy merchandising" of merely putting products on shelves are gone. To survive in retail today, a retailer must stand both out, and stand for at least two key differentiators.
So what's changed in retail?
As little as a decade ago, when teaching courses for IMS Retail University, we always covered a section on "channels" or "classes of trade". A retail channel is typically defined as:
A group of similar, competing retailers, carrying similar assortments of products attempting to serve similar consumer segments or groups.
The US "consumer electronics" (CE) channel was historically composed of retailers like Circuit City and Best Buy. If you go even further back in history, Sears was one of the dominant retailers in the consumer electronics channel. Before Walmart, Sears sold a very high share of US home electrical products like: TVs, stereos, small and large appliances.
So what changed? No one "stays in their historical channel" any more. DIY home improvement centers now sell a wide assortment of major appliances for the home and captured a significant share. The largest mass merchant in the world, Walmart, now sells many of the same electronics as Best Buy. And, the internet darling Amazon has crossed into everyone's channel, and now competes on everything from books, to shoes, to consumer electronics. These days it's very tough to be just an assortment specialist.
If Amazon dominates price and selection, what do you differentiate on?
I'm not exactly sure where I found the chart of Top 10 Differentiators. It was related to research showing that retailers must be able to stand out on at least 2 of the 10 differentiators in order to thrive. The key to "standing out" meant earning consumer loyalty and preference.
In the 90s, mass merchants and large format retailers absolutely dominated on a combination of two key differentiators: breadth of assortment, and price. Toys 'R Us became the category killer and shopping preference for mom's looking for a place that had everything related to children's items. Best Buy became the destination for consumer electronics based on assortment, location. But, Walmart created the ultimate "big box" differentiation by combining amazing breadth of assortment coupled with low prices in thousands of convenient locations.
What worked well even 10 years ago may not work as differentiators today!
The "long tail" assortment of Amazon offers consumers literally millions of products. Ecommerce collectively offers lowest prices anywhere. And, no store location can beat the convenience of home shopping and home delivery. While Walmart can still dominate bricks and mortar retailing on assortment and pricing at over 4,000 US locations, ecommerce essentially now dominates the differentiators of assortment, convenience and low price.
The "secret sauce" in retailing today is differentiation beyond products
If retailing is only about finding products at a best price … then its game over. There are only two clear winners the assortment/price/location differentiators. Walmart's store base and infrastructure enable them to compete very effectively on product and price in an omni-channel world. Amazon, or the ecommerce equivalent, has the proven ability to take market share based on assortment breadth, price, convenience and service. Traditional bricks and mortar retailers simply cannot win the "race to bottom" in competing on price or selection.
Apple has literally rewritten the book on retailing by focusing on the differentiators that holistically create value around consumer experience:
- They build iconic open space store formats where consumers mingle
- They simplified (and even patented) a simple, clean merchandising design
- They hire staff with a different profile and then invest extensively in training them on how to interact and engage consumers (not training them in "how to sell")
- They load their products in store with a wide variety of content and connect them to the internet so that consumers can experience them the way they would use them
Apple's success is twofold: 1) they have focused on differentiators that create experience consumers value and 2) they have focused on the intangibles that are hard to copy. The "bad news" for retailers looking to quickly fix their balance sheet is the hard to copy stuff, like talent and training, are also the ones requiring a lot of work, time and investments. However, while it's quick and easy to reset store shelves and change prices, today's consumers are responding the differentiators on the right side of the wheel.
Small retailers can thrive if they differentiate value for today's consumer
Big retailers with big stores were better to compete on assortment and price before the consumer shift to online shopping. The race to the bottom to compete on price erodes margins. This is a dangerous recipe for big box stores which very expensive to operate. We have written previously about the current trend to build smaller format stores. This is a clear sign that survival beyond Amazon will require a shift in differentiation strategies.
There is little doubt that ecommerce will continue to thrive based on differentiation through assortment, price and convenience. What is more exciting to watch are the retailers who are now beginning to thrive based on differentiating through staff, new services and creating levels of consumer experience. The smaller, more agile retailers may in fact be in the best position to use new technology and media to create new levels of differentiation such as:
- Check-in technology enables retailers to literally find consumers in their area
- Instead of blasting low prices in circulars, retailers can offer targeted mobility offers
- Good retailers always have and will continue to differentiate through engaging consumers in experience and offering new levels of personalization
- CRM enables stores to follow up, personalize service, but create repeat traffic
- And, traditional retailers like Best Buy and Staples have found that consumers will shop at stores with services that their gadgets work (and by the way those services are in many cases more profitable than the margins on the products)
In retail, it's always the results that count. In the glory days of big box retailing, it was moving volume sales at low prices to attract consumers. Ecommerce will definitely be able to do that profitably. Amazon and others will own those differentiators. If bricks and mortar stores don't differentiate beyond products at a price they will most surely die one click at time.
The future of brick and mortar success will come from sweat invested in those differentiators that create relationships that drive repeat traffic. The results that count today will not be a sale at all costs … but rather profitable market baskets and lifetime value.
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Sources:
- Lock Photo: StockFreeImages.com
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