Darwin would have plenty to say about retail today
As branding and retail experts, we continue to be fascinated about the on-going revolution taking place at both brick and mortar and online retail. A landscape that changes, it seems, almost weekly. Given the heightened competition among a shrinking base of brick and mortar retailers, the rapidly gaining share of dollars by online retailers intensified by changing demographics, as well as consumers who are shopping differently, this plays out to be a perfect storm of structural change in the world of competitive retail survival. There is a new face of retail that is shifting the balance of power among the traditional and non-traditional players. The question is: how can brands survive in and take advantage of this evolving world?
Looking back over the past 30 years, the face of retail has witnessed seismic change. The 1980s were characterized by the “big box” — the proliferation of Walmart, Kmart and Target, the rise of other “category killers” including The Home Depot, Lowe’s, Linens ‘N Things, Bed Bath & Beyond, Barnes & Noble, Borders, Blockbuster and Best Buy — all in a battle to build massive purchasing power, compete against the mid-tier and department store players and, ultimately, squash the smaller mom and pop stores across the country. Indeed, some of these players were victims of their own mismanagement (e.g., Blockbuster, Linen ‘N Things).
However, this trend continued into the 1990s as retail consolidation triggered Darwin’s survival of the fittest. Some of our fondly remembered stores, both national and regional — either disappeared from the landscape or were snatched up by stronger players (e.g., Burdines, K.B. Toys, Circuit City, Marshall Field). The tug of war continued into the millennium with a new threat called Amazon and the world of online retail. Look out Walmart, Target and Macy’s — brick and mortar physical stores became seriously compromised by a virtual new world of e-commerce. The competitive landscape was changing. Multi-channel became the new buzzword with consumers now behind the wheel, shopping differently, leaving traditional brick and mortar stores to figure out how and where to engage with them and compete effectively.
And if that wasn’t challenging enough, over the past five years, once Americans started spending again, the word “value” took on new meaning with the influx of off-price retailers going after mid-tier and upstairs shoppers for their share of wallet. Today, multi-channel has morphed into omni-channel and this has become our new and unified retail ecosystem seeking to attract, engage and retain consumers.
So how do we make sense of this cultural transformation?
First, understand that retail is undergoing a badly needed face-lift. It isn’t consolidating, it’s growing and rejuvenating.
There are now more opportunities for both retailers and manufacturers across a broader universe of shopping destinations, virtual and real. And this is good news for consumers. In fact, U.S. retail sales have been steadily on the rise for the past three years with continued growth predicted for the next three years. Total retail sales in the U.S. topped $4.6 trillion in 2014, with e-commerce sales accounting for almost $3 billion of those sales, according to the U.S. Census Bureau. Total retail sales are expected to rise to $5.55 trillion in 2018, with steady 4% growth.
But it’s not all bad news for brick and mortar — this new landscape is forcing stores to stop being complacent and sticking to business as usual. Traditional retailers, such as Macy’s and Kohl’s are now widening their net by getting into the off-price game. This year both retailers announced off-price strategies with the launch of Macy’s Backstage and Off-Aisle by Kohl’s. Nordstrom has plans to double its Rack stores to 300 by 2020, all in an effort to compete with the rapid growth of their value incumbents — TJX, Ross and Burlington. And in a new twist, Filene’s Basement, the mother of off-price retailers that went bankrupt four years ago, is making a comeback online this month. And other big box stores that traditionally relied upon price to drive sales (i.e, no customer service, no special in-store aesthetic), are opening smaller footprints to more effectively engage with consumers (e.g., The Home Depot, Walmart, among others).
Second, while brick and mortar still represent the lion’s share of the retail market, the rapid expansion of e-commerce and m-commerce signal a new frontier for online retail.
This is a world where David and Goliath can actually co-exist. The mighty and the mouse. Online retailers, large and small, are driving innovation and attracting shoppers opening up a whole new world for both general and specialty retailers. Of course, there’s Amazon and Walmart.com. But there are new contenders that are coming on the scene and speaking to shoppers in an entirely new and engaging way.
While many of the mom and pop specialty stores have disappeared from the brick and mortar landscape over the past 20 years, they are now thriving and growing in cyber retail (which may, eventually, even lead to the re-birth of brick and mortar specialty stores). This is a space where mobile savvy boomers as well as millennials can compare prices, get quick service, and discover new retail experiences that offer unique and special products. Birchbox, Etsy, The Honest Company, Casper, Zulily, the list goes on.
But the common thread is an e-tail experience that offers unique brands and products that traditional brick and mortar stores can’t deliver because they don’t have enough shelf space to enable them to effectively compete. Finding these online specialists is akin to walking down a cobblestone street in Soho or Seattle, and happening upon a tucked away store that you think you’re the first to discover.
So in this hyper-connected world, does all of this choice create a dilemma for brands? Is the much talked about topic of brand dilution threatening the very existence of brands? Yes, consumers are smarter today powered by information they get on the Internet. Years ago, we had to rely only on advertising to get that information. We bought Bounty paper towels because we were told through advertising how great they were. The brand inspired trust and quality. The more heavy the advertising, the more we trusted the brand.
Well, just as consumers have gotten savvier, so have brands. Smart brands are redefining value and maintaining loyalty with fickle consumers by combining content and information and communicating with consumers at multiple touch points. Brand affinity still comes down to great marketing that will build relationships and trust with consumers. Without an omni-platform strategy, you can kiss a brand good-bye. The digital world opens up so many possibilities for smart brands to make meaningful and authentic connections with consumers that, in my opinion, make brand intimacy easier than the face-to-face interactions we had before the world of Internet retail existed.
The digital world has made us smarter shoppers and better merchants. The power of information and the power of choice have morphed plain old retailing into an exciting new world of merchandising and marketing that has radically re-shaped our thinking and behavior. It’s about time.
As President, Beanstalk, Allison Ames oversees the day-to-day leadership and operational responsibilities for Beanstalk globally, including developing and executing the agency’s strategic direction and oversight of Beanstalk’s consolidated P&L. Reporting directly to Michael Stone, CEO, she works alongside Michael as well as Beanstalk’s CFO/COO and Managing Director of Europe & Asia Pacific on key short and long-term strategic growth initiatives.