This post is a collaboration between Jeff Lanzi and Tala Khalaf (past intern at RiechesBaird). Tala is majoring in Mass Communication with a minor in International Relations at Boston University. Prior to interning at RiechesBaird, Tala interned at The Goodrich Law Corporation and The International Bank of Qatar. Tala hopes to pursue a career that combines her love for writing, editing, public speaking, and event planning.
The retail industry is in the middle of an identity crisis as the shopping mall and superstore are quickly being made irrelevant by the biggest and most accessible store shelf of all time: The Internet. Customers don’t need to leave their homes to buy most products. Some blame poor retail performance on customer behavior, like laziness or show-rooming, when the reality is the retail business model that once brought great success no longer meets customer needs in this new digital market. As a bricks-and-mortar retail store, you’re asking customers to invest time and effort to purchase from you that Amazon doesn’t require. If you don’t reward their extra effort with a valuable experience, then you’re asking them to pay more (not always in dollars, but in opportunity cost) for the same results. Would your business accept those terms from its suppliers?
It’s nothing personal; just basic behavioral economics and common sense. Most retail brands remain an impersonal collection of shelves and boxes that can never compete with the inventory size or ease of use of Amazon. Without a compelling value proposition delivered through a unique brand experience, retail brands will continue to lose customers to competitors who provide more value for an equal or lesser total cost of interaction.
Take Borders, who made the mistake of investing in more square footage while the rise of online shopping began to dominate the market. While this could have been a great strategy 15 years ago, the Borders brand today wasn’t nearly desirable enough for customers to make it their preferred retailer for books when all the same products were readily and conveniently available online. They relied too heavily on their brand’s history and could not make up for the lost time they needed to catch up with this digitally aggressive age.
Although the prevalence of online sales is increasing and the economy is not at its best, average retail sales continue to go up each year. However, there is a widening gap between successful retail brands, and those that are struggling to survive. Take the top five retail performers:
1. Apple ($6,050/sq. ft.)
2. Tiffany & Co. ($3,017/sq. ft.)
3. Coach ($1,871/sq. ft)
4. Lululemon Athletica ($1,936/sq. ft.)
5. Michael Kors ($1,431/sq. ft)
How are retail stores like Apple, Tiffany & Co., Coach, Lululemon Athletica, and Michael Kors so successful when their products and the like are just as easily available to purchase online?
These stores, all luxury brands, are supported by truly superior customer service and experience as the backbone to retail success. Apple’s retail stores bring in $6,050 per square foot, while tech companies like Best Buy bring in $857 per square foot. Unlike Apple stores, whose locations are usually conveniently placed in malls or next to frequent social destinations, Best Buy stores are a destination location. While it’s fun to play around in Best Buy’s massive show room, it is inconvenient to make a trip when online reviews can usually give you all the information you need to know. Showrooms have turned into a tool customers use to figure out what they want before they find the best price online. The most successful stores have become less about shelves and shopping carts, and more about a place to experience the brand in a tangible way that the internet cannot offer. Whether it adds a social context like Starbucks, incredible service like Nordstrom, or a unique environment like the Apple stores with their ‘interactive showroom/classroom’, a successful business model must find new ways to add value and create a unique purchasing experience.
How will physical retail continue to survive against fierce online competition?
Start thinking like a service company and organize the business around that promise of added value in order to attract and retain customers. What’s your value proposition? Are you a luxury brand? Are you a convenience or destination location? What can you deliver that makes you more valuable than your competitors or the internet? Internal alignment with your business model and knowing your customers is the key to delivering your promise consistently and achieving optimal results for you brand. A brand that delivers a specific promise that resonates emotionally with customers attracts employees who are excited about the brand. When employees believe in your company they deliver a better experience and connect to the customers who are excited and believe in your brand, too.
Two once leading department stores and brands, J.C. Penney and Sears, both now face shutting down as a result of poor brand strategy and customer experience. J.C. Penney, in an attempt to boost sales, changed their business model completely, getting rid of their trademark coupons and making the store into a collection of specialty boutiques. This confused and frustrated customers who in turn shifted loyalties to more reliable stores, like Macy’s. Sears customers also complain from a lack of any sort of renovation on their stores. In addition, employee morale for J.C. Penney and Sears are both extremely low, with J.C. Penney holding the number one spot and Sears at number nine for the ten most hated companies in America, according to Yahoo Finance. If employees hate being there, why would a customer want to shop there? If there is no special need or exclusive nature to your products, then there has to be some sort of differentiating factor or brand experience for a customer to want to visit and buy from your store.
Take a look at Barnes & Noble, whose digitally aggressive business strategy and focus on in-store experience saved them from sharing the same fate as Borders. Although their attempts have produced mixed results so far, unlike Borders, they realized that simply selling some books and magazines isn’t going to carry them on into the future. They created a digital product of their own, the Nook, integrated Starbucks coffee shops, built partnerships with universities and publishers, and designed kid-friendly sections with toys and interactive programs (Books read out loud), all of which have kept the brand alive. Although it was a financial failure, Barnes & Noble learned a valuable lesson with the Nook: they cannot compete with already established products and ecosystems like the Amazon Kindle, Apple iPad or even Google Nexus on their own terms. They announced recently that CEO William Lynch has stepped down and a number of stores will be closing in the next decade. While it may not be ideal, Barnes & Noble is slimming down to give them the flexibility to adjust their brand position and purpose to find a new place in the digital economy, rather than trying to compete with the online model directly. If they can re-imagine their identity and create a unique value proposition for their brand, they will continue to survive.
Prepare and embrace for the situation that is the ongoing (and expanding) digital takeover and make sure your business strategy successfully combines both in-store and online user experiences. Use your online experience to enhance your in-store experience and vice versa. Make sure your website delivers your brand promise and helps to add to the customer experience in-store while also giving customers a reason to visit the store. In turn, they will be loyal to you. Here are some tips to begin creating customer loyalty:
- Create a relevant value proposition
- Become an experience, not a warehouse
- Pay attention to details and deliver your brand promise consistently at every touch point