Another COVID Casualty: A Differentiated Store Experience
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At the start of 2019, the retail industry had come out of a long funk having to do with their very raison d’être. The value of their stores had been challenged by E-commerce pureplays and manufacturers’ direct-to-consumer offerings, products and prices that were increasingly ubiquitous, some retailers like Walmart and Target had successfully cracked the code on how to profitably fulfill omni-channel orders, and (especially to the investment community) innovation was being cited as the difference between over-performers and everyone else.
But by 2019, retailers had come around to thinking that their stores were what made them different and they wanted that to be a positive thing. Leading retailers were experimenting with new ideas intended to transform in-store shopping into an experience, with the idea that the store could once again become a fun and satisfying place for consumers to spend time in. There was a lot of industry discussion about how to empower store employees to become brand ambassadors. In fact, retailers viewed this as the best way to differentiate from companies like Amazon, that had successfully reduced the value proposition to two things (low price & availability). One example of the move towards experiential shopping came from an unlikely sector: grocery. Some of those retailers began experimenting with ideas like groceraunts (a sit-down meals prepared onsite in the store).
By 2019, RSR’s benchmarks showed that retailers were ready to tackle the challenges and opportunities associated with modernizing the consumer experience in the store. Overarching it all was a recognition by the entire industry that digital transformation of the business was finally a real thing in retail (following such data-heavy industries as manufacturing, financial services, media, and healthcare). Stores had been more or less excluded from all the digitally enabled capabilities that consumers enjoy in the digital domain. But in 2019 it looked like retailers were ready to address the gap.
That’s all to the good – even though it was also our strong sense that retailers believed that they would have more time than it turns out that they did.
When COVID hit in 2020, very suddenly the agenda became to serve customers in ways that respected quarantine requirements. While they focused doing whatever was necessary to fulfill online orders within the stores for customer pickup, retailers also shifted very quickly to a back-to-the-basics price & availability value proposition – with an omnichannel twist.
A side effect of that back-to-the-basics approach was that efforts to create a differentiated shopping experience were put on hold. Instead, behind-the-scenes activities in the supply chain and customer order management and fulfillment crowded out other considerations. And once again, retailers were forced to fight against an uncomplicated but extremely effective value proposition of “low price & availability” – even though they know that ultimately they can’t win against Amazon, Walmart, and other mega-retailers.
Now the industry is trying to dig itself out of the mess that the pandemic created, and for many retailers that means that it’s time to revisit tactics intended to preserve – not to build – brand value. This comes out clearly in a forthcoming benchmark that RSR is developing on the current state of merchandising (publication date TBD). For example, the top business challenges that retailers cite are increased consumer price sensitivity, unpredictable demand, and the resulting need bring new products to market faster. For six out of ten retailers, the top operating challenge standing in the way of addressing the business challenges is that an “inconsistent supply chain continues to constrain us”.
As we’ve observed several times lately, supply chain issues aren’t likely to be resolved any time soon. So retailers are trying to insulate themselves from the vagaries of the marketplace. One of those ways is to focus more on private label products. In the forthcoming research, we’ll show that a more than a third of retailers indicate that the percentage of their product mix that is private brand has increased 10 to 25%, and two-in-ten retailers have increased it even more. A key to being able to accomplish those increases is collaboration with suppliers, according to two out of every three retailers we queried.
Why is that important? It’s simply this: if a featured product is private-label, another retailer can’t sell it. While that’s a good thing, the effort to bring more private label products to market is really a buffer from the effects that the fierce competition for all the other products a retailer might sell. But retailers are also revisiting tech-enabled opportunities that existed before the pandemic such as, (1) Integrated planning, allocation, and replenishment systems, (2) In-season demand forecasting for price, promotional or assortment planning, and (3) price, promo, and markdown optimization. These aren’t new concepts – in fact we’ve been tracking retailer attitudes about them for years. But let’s be clear: winning retailers to a great extent already have addressed those opportunities. So this is all about keeping up, not getting ahead.
What seems to be gone from the conversation are all the ideas related to making the store experience a standout attribute of the overall value equation. That could be for a raft of reasons: continuing skittishness on the part of consumers, trouble finding any employees- let alone ones with a customer service orientation, questions about the future of the malls, rapid consumer adoption of omnichannel order fulfillment options that make a store visit optional, and (of course) problems keeping items in stock because of supply chain issues.
Nonetheless, the challenges and opportunities associated with making stores something more than it used to be remain. In the end, if and how retailers redefine the store experience as an important part of the brand value equation will determine which brands survive.