Know Thyself, Know Thy Customer

Five ways to find success in this new era of convenience retailing.

Know Thyself, Know Thy Customer

February 2020   minute read

By: Chris Walton

Prior to the 1990s, the recipe for retail success was simple. Retailers differentiated themselves across four key dimensions: brand, assortment, price and convenience. Then everything changed in the late 1990s when the last element—convenience—took on a new meaning.

Convenience, once synonymous with “location, location, location,” became distorted by way of e-commerce and Amazon. Together these turn-of-the-century inventions showed the world that anything could be consumed with the quick press of a button, and convenience became less about the “where” of retail and more about speeding up the “why.”

Retailers who lost sight of the “why” struggled.

For example, Toys R Us used to be an incredibly efficient and convenient place to purchase toys—it was a toy superstore. Today, it’s shuttered. The same fate was destined for Borders, Blockbuster and, as we are likely to see soon, Macy’s as well. Once e-commerce took away physical convenience, it became clear that the emperor had no clothes.

Consumers simply have no compelling reasons to shop these types of concepts either physically or digitally anymore. If all a retailer offers are products that also can be found elsewhere, without anything else discernible upon which to hang their hats, over time the convenience of online shopping will kill them. As underpenetrated in e-commerce as the grocery and healthcare industries are right now, this mere fact alone looms like a Big Bird-size albatross around their necks.

New competitive moats need to be built instead. While there is no one right path, evidence does suggest that there are five key focus areas retailers can leverage to fortify their identities within this new era of convenience retailing.

1

Social Commerce

The best way to think of social commerce is as a dialog, a constant two-way conversation between a retailer and its customers, as depicted along a horizontal line (see below).

On one end of the line, you have a social network. Think Facebook or Instagram. On the other end, you have a commerce platform. Think Amazon or a retailer’s own website. Any retailer that can keep its customers engaged from one end of the line to the other, across all its touchpoints, whether digital or physical, has a tremendous advantage.

Glossier, the upstart beauty brand, is the single best example of this type of retailing. What started as a community of followers on a blog about beauty products, Into the Gloss, morphed into full-fledged retailing, first into e-commerce and then into physical stores.

Glossier listens to what its customers want online, develops products to meet these needs, sells them digitally and then uses its stores to amplify the aspects of physical retail that can’t be simulated online, like the ability to touch and feel products and the joy of shopping with friends or alongside a community of people who share common interests.

Is it working?

Glossier’s physical store in New York does more sales per square foot than Apple.

2

New Retail

Another element leading to success, especially overseas, is the idea of New Retail. New Retail is a fancy way of saying retailers should work to digitize the physical world, similar to how e-commerce retailers understand the movement of a mouse across a browser. In so doing, retailers can tailor both physical and digital experiences congruently and in real-time to their customers’ needs.

For New Retail to be effective, three foundational elements need to be in place:

  1. Cloud computing
  2. Real-time data capture
  3. Location analytics
Any retailer that can keep its customers engaged from one end of the line to the other, across all its touchpoints, whether digital or physical, has a tremendous advantage.

These elements are on display and working in Alibaba’s Freshippo supermarket in China. There, customers can interact with their local supermarket however they want by way of a remote control that is their mobile phone. If they want a traditional grocery experience, they can have it. If they want to scan barcodes on products, pay electronically and walk out, they can do that, too. Or, they also can order the very same groceries online from home. It is an experience that is all made possible because of the three elements listed above.

The U.S. market is working toward this reality. Walmart, both in Walmart’s Intelligent Retail Lab store in New York and in its mobile scan-and-go Sam’s Club Now store in Texas, is now capturing and processing data in real time to change its assortment, deploy its staff more efficiently and altogether provide a more appealing store experience.

Coincidentally, the former CEO of Sam’s Club, John Furner, also spent time overseas working on the ground and studying in China. He then came stateside to concept Sam’s Club Now and was just recently named the new president and CEO of Walmart U.S.

3

Transaction Efficiency

When retail is done right, retailers should want their customers to linger in their stores, but that doesn’t mean customers should have to wait in line to pay. This subtle difference is sometimes lost.

Amazon is great at this aspect of frictionless retailing. The digital giant has almost perfected online efficiency with its “Buy Now” button, combatting the almost 70% statistic for cart abandonment online. Small gains in efficiency like this can mean huge gains in conversion and revenue.

The same principles hold true in physical stores. When people know what they want to buy, they perceive standing in lines as a waste of time, which is why Amazon is deploying Amazon Go at such a rapid pace. One person’s cart abandonment online is another person’s reason for not venturing to a store at all.

Evidence from the QSR industry bears this point out. Companies like Starbucks, Chick-fil-A and McDonald’s have all invested in customer-facing mobile apps or in-store kiosks to help speed up the pace of everything from online ordering to in-store payments in order to reduce friction in the process. A whopping 30% of all transactions at Starbucks now reportedly happen through the Starbucks mobile app.

4

Hyper-Flexible Supply Chains

Retailers everywhere, from shopping mall operators to grocers, are starting to realize that they can reimagine their physical footprints for incredible efficiency, for everything from shipping to product returns and order pickup.

Target, for example, while riding a wave of stock price growth, recently announced that it fulfills roughly 80% of its online orders from its physical stores. This activity includes products Target ships out of its own backrooms, either on its own or through third-party services, products that are available for order pickup at its stores or products available through Target’s recently rolled out national Drive Up curbside service.

Kohl’s similarly announced plans this year to make its stores processing hubs for Amazon returns. Kohl’s has reported being “very pleased” with the increase in foot traffic since the start of the initiative, and, while the financial results are still mixed, if people are coming to Kohl’s stores to return Amazon product—but not buying Kohl’s product while there—the lack of product upselling should be more of an indictment of Kohl’s than of the idea itself.

The same idea, in contrast, seems incredibly well-suited to verticals like grocery and convenience stores, where consumers can drop off their returns and fill up their gas tanks or pick up their Cokes and smokes with more efficiency than scouring clothes racks at Kohl’s.

5

A Jobs to Be Done Mindset

The final ingredient, bringing it all full circle, is positioning stores to help people get things done. Two examples struck a chord of success in 2019.

The first was Lululemon and its new experiential stores in Chicago and Minneapolis. Rather than just open up more stores to sell more yoga pants, Lululemon’s newest stores come complete with yoga studios, burger bars and cafés. Customers can work out in clothes they may want to buy over their lunch breaks, grab a burger or a coffee on the way out the door and possibly even meet a few new friends at the same time. Early indications are that the strategy is paying off. According to Placer.ai, traffic surged in the first few weeks the Chicago store was open, with much of the increase coming during off-times when people hadn’t historically shopped Lululemon stores.

The second is Kroger’s pilot program with Walgreens, where Kroger has put small—almost mini-grocery—stores inside Walgreens stores. The idea here is that for all the talk of e-commerce, last-mile delivery and consumer confidence in receiving the right product are still complicated issues to solve. So, rather than force customers to order online or to make a trip to a traditional grocery store, a simpler answer, for grocers at least, might be to establish smaller stores on convenient routes to and from work, where things like prescriptions also may need to be picked up on a regular basis.

Industry buzz is that the pilot is working, and Kroger and Walgreens have already announced plans to expand the concept. If successful, the idea has long legs for other types of partnerships in this realm, whether with gyms and coworking spaces, or for other types of implementations, like strategically placed pickup lockers in key locales that consolidate order delivery.

Increasingly, convenience stores are competing in the fresh-food space, with produce, meat and bakery offerings, plus foodservice concepts and in-store dining. Hy-vee Fast & Fresh, for instance, is the new c-store concept from Midwestern grocery chain Hy-Vee. The Iowa store stocks chef-prepared meal kits, grab-and-go fresh food, grocery items, wine, liquor and craft beer. Shoppers also can pick up their online grocery orders in lockers outside the store.

All told, there is a lot going on in retail. While convenience is now a more complicated and more competitive construct than ever before, retailers that understand their brand, who their customers are and what their customers demand of them have shown the ability to reshape this construct in their favor. None of the retailers cited above got where they are today with a “what got us here will get us there” mentality. Each had the guts to forge their own unique paths through experimentation and entrepreneurial grit, never knowing from exactly where success would come.

After all, you don’t win if you don’t play.

Listen Up

Hear more from Chris Walton on the Convenience Matters podcast. Search for "Customer Experience" at www.conveniencematters.com.

Chris Walton

Chris Walton

Chris Walton is an omnichannel expert and the CEO and founder of Third Haus. He is a regular contributor to Forbes, Retail Dive and the Robin Report.

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