The retail challenge - getting over Amazon envy and learning to love the stores again

Stuart Lauchlan Profile picture for user slauchlan August 15, 2017
Not long ago, the overwhelming desire in retail was to prove you could be as Amazon as Amazon. Now it's about bringing legacy physical assets into play alongside the digital ambitions.

As the US retail sector continues to turn in (soggy) quarterly financial numbers, there’s an interesting tonal shift away from preaching the ‘e-commerce is everything’ mantra that was so prevalent 12 months ago, when every retailer needed to become Amazon to convince itself that it had a future.

Make no mistake, digital, online and e-commerce are still priorities, but there’s an emerging trend of taking the omni- aspect of omni-channel and putting that front-and-center. What that means in terms of the language used by retail CEOs is that they’re no longer seemingly embarassed by having a legacy network of offline stores and outlets.

Instead the focus is now on pitching a story that such networks are an asset, one that should complement online channels rather than be rendered redundant by them. It’s about redefining the role of offline stores as fulfilment centers that represent the final stage of a retail transaction that may begin on a PC or a tablet or a smartphone, but which still ends up in-store.

Take Home Depot, for example, where 43% of online transactions are picked up by customers inside of a physical branch. At the DIY specialist, the pitch isn’t broken into online or in-store businesses, but a vision of One Home Depot. CEO Craig Manear says:

In many, many categories the shopping experience starts in the digital world even though it might finish in the physical world or, in some cases, actually finish in the digital world as well. It is truly a blended experience today where the customer, the front door of our store is no longer at the front door of our physical store for many, many product categories.

The customer starts digitally looking at product, doing research and then in many cases particularly in large ticket they come in and they actually want to talk to one of our associates before they make a purchase, but clearly in big-ticket categories we sell both in the physical and the digital world.

Manear doesn’t actually use the term omni-channel, preferring the Home Depot concept of Inter-Connected Retail:

Our digital team continues to invest in contents, side improvement and better mobile experiences to take the friction out of the inter-connected experience online, while our operations team remains focussed on improving the Inter-connected experience in store.

The result of these combined efforts is continued improvement in sales and customer satisfaction scores across both platforms. This is the power of interconnected retail. We look at productivity as a virtuous cycle here at the Home Depot and our efforts to connect our business end to end continue to pay dividends that enable us to reinvest in the customer experience.

That all sounds impressive, as does the most recent quarterly online sales growth rate of 23%, but it does need to be put in context. Dot com sales account for only 6.4% of total revenues. DIY buyers - both amateur and professional - still overwhelmingly prefer to take themselves into a store anyway.

Retail re-think

But it’s still early days for the DIY sector when it comes to online selling. A far more mature sector is fashion and apparel and there have been some horror stories that have emerged over the years as Amazon has rised up the food chain. But again, there’s a recognition now that the combination of an optimized physical retail presence and a savvy online strategy is a potent mix.

At Nordstrom, co-President Blake Nordstrom emphasizes that he doesn’t view the business in terms of stores and online, but rather in terms of the Nordstrom and Nordstrom Rack overall brands. He argues that the combo of physical and digital assets gives the firm a competitive advantage, but a balance needs to be struck:

You can't starve the stores. You need to maintain them. We have a fleet of 123 stores, and we think we're in good locations. All of our stores contribute and are profitable. So when we think about that investment, it's gone from a very democratic approach of all stores being the same to being more strategic and targeted.

Then we think, balanced with the digital offering, that's how the customer is shopping. So where we have success is looking at it by the customer, by the community, by the market, how they want to shop, whether it's online or in store and it's up to us to make sure we're deploying those resources, talent and capital appropriately. In terms of some of the things we're doing in the store.

Major in-store events such as the Nordsrom Anniversary Sale provide good opportunities to leverage the digital and physical assets, he adds:

Our customers look forward to our Anniversary Sale every year, and its one-of-a-kind element attracts new customers as well. This is our biggest event, consistently generating significant volume that rivals the holiday period. Our Anniversary results outperformed our recent sales trends as customers responded favorably to newness and the ability to shop the way they prefer, in stores, with a mobile device and online.

This year's Sales delivered online growth of more than 20% year-on-year while Buy Online, Pick Up in Store (BOPUS) sales were up by roughly 50%. Beyond such one-off events, the wider corporate strategy is to find new ways to bring the physical and digital shopping experience together, says Nordstrom:

We're executing on our digital strategy to meet our ambition for continued double-digit online growth. Through our ongoing efforts to elevate the digital experience, we expect our online penetration to exceed 25% by the end of the year. We've modernized our platform, enabling us to increase the speed and agility of enhancements to our product pages, navigation and content.

Additionally, we're further integrating the digital and store functionalities to improve speed and convenience for the customer. For example, we enhanced our mobile app so that customers scan an item in store and buy it online if they want a different color or size. We're expanding our Reserve Online & Try in Store service from six stores in the Seattle area to four more in the Chicago market. We plan to offer this feature in roughly 50 stores by the end of the year. We've been encouraged to find that around 80% of customers, who try this service, choose to shop this way again.

BOPUS is the other term that’s being bandied around with gay abandon by US retailers in the present climate. Getting BOPUS capabilities in place is now crucial. At Macy’s, where the retailer has had a high profile fire sales of many of its offline stores, there’s a three pronged approach to this, according to CEO Jeff Genette:

The first [prong] is making sure that you have a larger percent of your inventory in all of your doors that's congruent with demand that is online. Now, today, 25% of our entire digital demand could be satisfied in a store that is in the ZIP Code that is generating that online sale. That gives us huge fire power opportunity to convert that to a Buy Online Pick Up in Store if that's what the customer would like to do. We love that because when they're in that store, they generally upsell about 25% of additional goods. The omni-channel customer is clearly a potent one when they buy in both channels, so all good things come from that. So the first thing is having the inventory availability to do that.

The second piece of it is making sure then that you have a function on your mobile app or online that gives the opportunity for a customer to see all the inventory in an easy way in the store that is near them. It’s called Shop Your Store. That has been in beta mode for us. We're ready to launch that. That will give the customer a really quick and easy way to be able to see what their local store has in their size and their color.

And then, the third thing…is changing the physical environment of the BOPUS locations in our stores. Going from a tertiary location to a main number one entrance, really put some assets against it, make sure that it is ready to go, that it's got staffing.

For a troubled retailer like Macy’s, getting the right physical/digital blended business model could be a lifeline, if it can pull it off. Genette talks in terms of Macy’s being “a very flexible brand” with “hybrid models”. This is a good foundation, he reckons, to address the needs of a Macy’s customer (who is female apparently):

The store experience and the stores owning those relationships with those individual customers, you can touch those customers that are so potent for our overall brand in ways through technology and customization, what we can do with our digital assets, in ways that we couldn't in the past. Everything is on our radar screen. We're open to all opportunities. We want to be her one-stop shop and we believe we can do better with her over time.

My take

This is one of those strategic theories that quickly falls into the ‘easier said than done’ category. The BOPUS focus makes sense, but executing on that is what will determine which retailers shakes off their Amazon-phobic paranoia most successfully and define their own hybrid model to provide the retail experience that their customers want.

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