The combined forces of the 2008 recession and Amazon’s ability to establish itself as the last word in convenient, cost-effective shopping experiences still has traditional brick-and-mortar retailers scrambling to recover what they lost. Some big name retailers have been forced to close their doors for good (Charlotte Russe, Borders Bookstores, Payless Shoesource), while others have contracted considerably (Sears, J.C. Penney, J.Crew).
It would be overly simplistic to place all of the blame for these retailers’ struggles on Amazon. Amazon changed the playing field; it didn’t destroy it completely.
- Internet Retailer found that in 2017, U.S. retail sales totaled $3.49 trillion. Out of that, only 13 percent (~$435 billion) were attributable to e-commerce. E-commerce is growing faster, but it is still only a small portion of retail sales.
- Research from the retail analytics company First Insight revealed that 71 percent of consumers spent $50 or more when shopping in store, compared to just 54 percent who shopped online.
- Everlane CEO Michael Preysman recently told CNBC that previously exclusive online retailers are opening physical locations because e-commerce alone isn’t profitable.
In short, stores and traditional retailers are not dead - they are being forced to reinvent themselves, while learning from what Amazon gets right. What Amazon did was drastically raise the bar on consumer expectations in terms of convenience and price, but there’s more to retail success today than those two elements.
What can physical stores do to differentiate themselves from Amazon?
While no one has discovered the magic formula to fully Amazon-proof traditional brick-and-mortar businesses there are several ways in which retailers can transform their customer experience to avoid competing solely on price and convenience, two places where Amazon will almost always win. It’s about creating a competitive advantage by succeeding where Amazon hasn’t yet dominated - the physical store. Here’s how:
Create a compelling customer experience
Brick-and-mortar stores that try to compete on price and convenience alone will lose to Amazon and other retailers who understand this. It makes a lot more sense to go where Amazon isn’t as dominant. For that, retailers need to win on customer experience, or what customers can expect to get from you beyond the purely transactional.
In an interview with RetailNext, Oliver Chen, managing director and senior equity research analyst at Cowen and Company, outlined a framework for customer experience that he calls the “Three C’s” - Convenience, Culture, and Curation. The basic model is as follows:
- Convenience: Consumers have gotten used to a high-level of convenience when shopping, and at this point, it’s a meets-minimum requirement for a successful retail location. This is a complex thing to wrangle, because what is convenient for a young mother with 3 kids is not necessarily convenient to a single man just out of college. For stores like Target and Walmart, convenience means 100 percent self-service, while stores like Sephora or Nordstrom benefit from a mixed-service model where customers have the option to buy what they want or work with a personal shopper. There is no single definition of convenience. Retailers need to find out what convenience means to their various customer profiles and tailor their stores to be flexible enough to serve those needs and preferences.
- Culture: Chen defines culture as “the minimization of the task of shopping and the maximization of the experience.” There are so many things competing with shoppers’ attention today that have nothing to do with shopping but nonetheless compete with retailers for consumer dollars. Experiential retailing is a way for retailers to provide something compelling enough to capture and keep attention and justify someone spending not just money, but time.
- Curation: Big-box retailers made everything available at a low price, but that forced them to compete on price, rather than value. Chen argues that modern retailers shouldn’t focus on having the biggest selection, but the most differentiated products that help a retailer stand out in a crowded marketplace. It’s about understanding who your customers are and building a narrative around the curated selection of products and services available. Lifestyle brands live and die based on their ability to convincingly tell a story and drive brand loyalty.
The “Three C’s” framework is deceptively simple in that it’s easy enough to understand, but difficult to put into practice. Using this model, creating a compelling customer experience in retail comes down to understanding how your customers want to shop, what experiences will delight them, and what they’re really looking for in the products and services they buy.
It’s hard to single out just one retailer who is making great strides in the way of creating a compelling customer experience in-store.
- There’s Nordstrom, which offers limited-time pop-up collaborations with other retailers, 24-hour buy-online pick up in-store during the holiday season, and local service-only locations that allow customers to meet with stylists, try different outfits on, and get alterations on the spot.
- Then, there’s IKEA, which is using augmented reality to help customers visualize furniture options in their own spaces. Beyond that, IKEA’s strategic acquisition of TaskRabbit adds another service option - customers can hire someone to assemble the furniture for them.
- We can’t forget Trader Joe’s. Despite having no owned e-commerce presence to speak of, the stores attract loyal customers in droves thanks to their simple layout, curated selection of exclusive private-label products, and friendly and helpful staff. Even after Whole Foods was acquired by Amazon and gained the technological backing of the giant, Trader Joe’s is succeeding with a proven model and a compelling, if simple, experience.
Personalize customer service
With the sheer quantity of customer data at retailers’ fingertips, there is no reason not to use that data to personalize the customer experience in-store. For example, online or mobile shopping behavior can be used to target specific offers to the customers’ mobile device when they enter the store. Purchases made in store during an appointment with a personal shopper or stylist can influence the offers made to a customer through email.
Stores cannot just be indiscriminate masses of items for sale with a checkout line at the front. Personalizing the customer experience involves a degree of curation of high-quality products, knowledgeable sales staff who will take the time to listen to a customer and help them get exactly what they need, and offers/promotions that speak to the individual customer based on their wants and needs.
One way this can be done is by integrating all touchpoints into a CRM solution that allows you to track interactions at the customer level between digital and physical channels. The more you understand your customer, the better chance you have of improving customer loyalty through personalized experiences.
Sephora is widely considered the leading light in retail when it comes to integrating customer touchpoints and using it to drive personalization. The National Retail Federation explained that Sephora’s success with personalization stems from how the Store Companion application acts as a fulcrum on which the mobile/online and in-store experiences balance. The interactions users have in the app directly influences what that person sees when they walk into the store.
It works the other way too - stylists can send the products the customers try in the store to their profiles in the Digital Skincare and Makeover Guides, along with helpful how-tos. No matter where the customer interacts with the brand, their overall profile and experiences with the store are shaped based on their preferences and history.
Treat the in-store experience as another touchpoint
It’s outdated to think of the in-store experience as being separate from an online store or other digital property. Anywhere your customers can interact with you should be considered as part of an ecosystem. In fact, there is some research that shows that physical stores can actually enhance the performance of digital channels.
According to the International Council of Shopping Centers, opening a physical location can improve the performance of digital channels. A recent study from the ICSC found that physical stores create something of a “halo effect” for retailers. The study showed that:
- When emerging retailers open a new store, they see a 45% increase in traffic. For established retailers, that number is 36%. When a store is opened, web traffic in that particular market increases by about 27%.
- Closing stores had the opposite effect on retailer’s web traffic. For apparel retailers, a store closure leads to an average of a 9.5% decrease in web traffic. For home goods, that number is 16%.
- Brand perception and awareness is also higher for retailers in markets where they have a physical location compared to retailers that don’t have a presence in the same market.
Physical locations are a crucial touchpoint in the retail ecosystem, and finding ways to integrate it into the overall customer experience is crucial. One example of this principle in action is Ace Hardware. A recent article by Modern Retail outlines how Ace Hardware is completely overhauling its operations to better integrate its store into the lives of its customers.
Andy Enright, Ace’s VP of retail development, told Modern Retail that Ace’s goal is to meet customer demand by using a customer data feedback loop that allows stores to better cater the products and services in the stores to local needs. This also means that the in-store operations have to play off of what is happening through digital customer touchpoints.
To that end, employees’ time is being optimized to not only help customers who come into the store, but also through fulfillment of online orders through the buy-online-pickup-in-store model and same-day deliveries. A seamless interplay between digital channels and physical stores is what its competitors, Home Depot and Lowe’s, are also implementing. These are quickly becoming table stakes in this retail vertical.
Additionally, employees are being retrained to be more consultative to in-store customers. With each store carrying tens-of-thousands of products, knowledgeable salespeople must help customers make educated purchases. The result? Ace is finding that customers in stores spend an average of 50 percent more when they’re helped by a salesperson than those who are not.
Three ways retailers can go beyond transactional in-store experiences
In the last section, we discussed at a high level what retailers need to do to improve the customer experience. In this section, we’ll look at tactical ways retailers are improving their in-store experiences and doing what Amazon can’t: bringing a human touch to shopping.
Allowing customers to make appointments with a personal shopper, stylist, or consultant is a great way to bring personalization into your stores. Making it easy for a customer to book an appointment with a specialist through a mobile app or your website is a simple but powerful way to connect digital touchpoints with physical stores - a seamless customer experience.
Here are some retailers that are using appointments to improve their customer experience:
Nordstrom has been a mainstay at the top of the high-end retail industry due in large part to its personal shopping service. These are services that help customers not only find what they think they want, but things they didn’t realize they wanted. Personal shoppers provide a personal touch and consultative approach to sales that doesn’t leave the customer feeling pressured to buy something, but rather guided by a knowledgeable person who knows their tastes.
It’s worth understanding how you can increase your personal shopping appointments. In addition to being a powerful customer retention tool, they are also a great way to acquire new customers who may not be as comfortable and familiar with your offerings.
Debenhams, a department store based in the U.K., has used appointment scheduling to great effect. Debenhams had always offered a personal touch with its service, but it didn’t have a systematic, scalable way to bring in repeatable appointments or attract new customers.
By implementing appointment scheduling software that tied its digital and physical channels together, Debenhams was able to increase appointments by 25 percent over the first year, finding that its customers valued the VIP experience and extra services, like bra fittings and beauty sessions.
Events and Community
Our Modern Consumer Research Report has shown that consumers in both the US and the UK are interested in in-store events, such as product launches, signings, educational events, and workshops - this is the “Community” in Cowen’s Three C’s in action.
The following retailers have developed a high degree of brand loyalty with key customers by providing events and community-oriented attractions that facilitate the lifestyle aspect of their brands.
Barnes and Noble
The Wharton School of Business reported that Barnes and Noble CEO James Daunt’s plan is to reinvigorate the stores, while also allowing for a high degree of local autonomy. Managers will be able to plan events, workshops, and author appearances based on what customers in that market want to see.
The idea is to take some of the creativity and experiential elements that have allowed independent bookstores and libraries to thrive even as Amazon batters larger retailers - author signings, ESL classes, book clubs, and cozy spaces to pass the time are all possibilities for Barnes and Noble. It’s also worth noting that this is one place that Amazon can’t compete yet - a positive step for one of the retailers most affected by Amazon.
Sur La Table
Sur La Table, a kitchenware retailer, bills itself as the largest non-professional cooking school in the country, according to an interview CEO Billy May did with the National Retail Federation. Sur La Table’s 80 stores’ cooking classes attract over 600,000 students each year. This is a community of passionate amateur chefs who come together to learn how to make the creations that inspire them on Instagram and Pinterest.
The cooking school experience is inseparable from the products Sur La Table sells. The validity of this approach speaks for itself through the business results: These classes are the retailer’s number one customer acquisition channel. They keep people coming back to the stores, trying the products, and ultimately taking them home to apply what they learned.
Ancillary services that help customers get the most out of their products are a great way to bring people back into stores and provide a trusted resource for them. The following retailers are doing just that.
Ace Hardware recently acquired Handyman Matters to fold into its operations as Ace Handyman Services, Chain Store Age reported. This was a strategic acquisition that allowed Ace Hardware to expand into the “do it for me” sector. Shoppers now have the option of going into the stores to buy what they need for a project, or ultimately hire a contractor to do it for them.
By providing a convenient connection to these types of services, Ace Hardware is able to better serve the customer profile who cares more about saving time than money.
Best Buy’s Geek Squad is probably one of the best known services offered by a retailer. While the repair services they offer are still a staple service, the Geek Squad is growing alongside Best Buy’s product offering to add even more value for customers.
The Motley Fool reported that Geek Squad and In-Home Advisors will now help customers pick out smart home devices in the store and go to their homes to set them up. This is a major value add for the less tech savvy shoppers at Best Buy, and is a key part of the vision that the company has as it expands into new product areas.
Amazon is an ever-looming threat to retailers, but it shouldn’t be looked at as the horseman of the retail apocalypse. Retailers have ample opportunities that Amazon doesn’t to attract and retain customers and grow into the future.
March 16, 2021
5 minute read