With the storms of 2010 (both financial and meteorological) receding, it’s time to fully turn our attention to 2011.
In many ways, we expect the trends in 2011 to be continuation of changes that are already sweeping through retail. We don’t expect any out-of-the-blue bombshells, but the easiest way to lose in retail is to not keep up.
1. “Gateway” Coupons
The coupon and promotion driven retail environment is reaching some sort of end-game, or at least a nadir. After all, triple coupons, bounce back coupons, stackable promotions (clearance price + 25% additional discount + 10% coupon + 5% for using the store credit card) and similarly aggressive promotions are so pervasive that they are now the subject of reality TV shows.
In this race to the bottom, the only tactic left is free, as in “Get $10 off a $10 purchase.” This type of “Gateway” coupon is a straight-up challenge to the consumer (“I dare you to come and cherry-pick $10 worth of merchandise!”). Surprisingly, there is evidence that this type of offer can actually work very well when used judiciously and infrequently.
2. Online Convergence
Online and offline shopping convergence has been predicted since the early 2000s and is finally becoming a reality. The following scenario is now possible:
- See or hear ad on TV/radio, reminding you that you need something from a particular store
- Search through email in-box or online forums for the latest deal or coupon
- Visit store to check-out the merchandise
- Buy item at home because the store didn’t have the color, size, or specific item you needed
- Have item shipped to store to save on shipping
- Visit store, pick-up another item while you’re there
Retailers need to carefully think through the entire shopping experience or risk confusing (with different prices or poorly integrated services) and alienating customers (through poor service somewhere in this chain of events). The idea that different channels need to be managed independently is defunct.
3. “In-store” Technology
We’re not talking about an upgraded POS system or an improved IMS. A big shift in 2011 and beyond is the saturation of smart phones and the resultant change in shopping behavior. We expect a surge in offerings that allow retailers to target consumers with location based ads and offers. There is already growing use of 2D barcodes (e.g. QR Code) that link in-store merchandise to online information. However, adoption of this (or similar technologies that require the customer to take additional action) has been slow.
Instead of asking the consumer to respond to the store, what if the store responded to the customer instead? For example, suppose that you notice a customer walking towards the exit after having lingered in the electronics aisle for 30 min? Would it be useful to target the customer with an offer on his way out? Would a 10% off coupon or an extra year of warranty help “seal the deal”?
As always, this technology cuts both ways. Consumers will become increasingly competitive and disloyal as their smart phones allow them to inspect in-store and then buy from the cheapest place online. Brick-and-mortar retailers will never be able to match Amazon’s basket of prices. So, how will traditional retailers fight back? We haven’t yet seen a cogent answer to this question.
With the recent success of Groupon and LivingSocial, we should expect increased adoption … for at least for a little while longer. As we’ll discuss in an upcoming entry, participating in Group Buying programs is only sensible for very small scale retailers. The economics for any national retailer are horrific. That said, there might be sufficient publicity value in being the first “retailer of type X” to participate in Groupon. The window of opportunity for such a promotion is quickly closing.
In fact, since the vast majority of deals on Groupon and LivingSocial meet the minimum number of sign-ups (and hence, go through), there’s not even much of a “group” involved in this “group buying.” What this phenomena really speaks to is the availability of new channels for distributing marketing and promotions. Retail marketers have long used TV, radio, circulars, FSIs, and direct mail. In recent years, they’ve added email and search ads to that repertoire. Now, in 2011, it’s time to master “group” coupons and social channels.
5. Price / Portion
Previously, we mentioned that “dollar” chains have shattered the idea that value can only be achieved by forcing consumers to purchase in bulk. While value (price per unit) will always be important, consumers are wising up to the fact that they may not need an extra pound of coffee or an extra dozen pairs of socks. More importantly, price is still what many consumers see first. Retailers and CPGs outside the dollar space may very well find that there are opportunities to reduce the portion by 50% and the price by 25%, both protecting margins and satisfying customers’ wants.
Portion is just one mechanism towards finding product variations that satisfy consumer demand and protect profits. One of the oldest plays in this play-book is the creation of a “fighter brand” that “fights” on price-point and protects the main brand from price erosion. Purportedly, the new brand is cheaper due to cheaper processes, materials, or amenities, but it’s a difficult balance to achieve. Ideally, this brand helps in a down-turn before quietly disappearing once the main brand regains pricing power, which is exactly what P&G achieved with Tide Basic.
If retailers are facing wear-out with price-based promotions, then the next logical step is to invent new sales events. At this point, “Saturday-morning deals” and “Tuesday only” discounts are old hat. Going forward, retailers should use the experience of shopping in-store as inspiration for new events. Is it possible to create an after work, social, shopping event?
In many ways, store-based retailers can learn from online retailers. Gilt, Rue La La, HauteLook, and the grand dame of them all, Vente Privée have created huge online businesses by tapping into deep-rooted desires for deals and designer goods. On the opposite end of the spectrum, the deal-of-the-day site, Woot, has created a legion of fans who snap up gadgets, t-shirt, wine, and occasionally, a paper bag filled with miscellaneous junk. Clearly, “flash” retailing is in its infancy.
7. Merchandising Cadence
Production cycles continue to decline. This has been led by the fast fashion apparel trifecta (Zara, Forever 21, and H&M) but is now spreading into more traditional retailers. In some ways, this is the manufacturing parallel to the “Price / Portion” trend highlighted above. In the same way that consumers are demanding the ability to be more agile about their purchases, retailers are demanding flexibility with their manufacturing partners.
Obviously, the change in cadence has ramifications for the entire supply chain and planning cycle. Faster cadence enables smaller orders; smaller orders enables intra-season assortment changes, etc. This type of change doesn’t get nearly as much press as flashy sales events but can quietly transform the way a company operates.
8. Exclusive Lines
Ever since Target signed up Issac Mizrahi and Kmart first snagged Martha Stewart’s line, most big chains and department stores have locked up their own exclusive lines. The efficacy of these efforts, however, differs wildly. When the designer of the exclusive line brings true cachet or a difference in perspective, the line can invigorate a concept and attract new traffic. But, when it’s merely a licensing agreement, it can often be a waste of time, effort, and attention.
An interesting variation of this trend has recently been adopted by video game makers. Depending on where you purchase certain games (GameStop, Best Buy, Amazon), the game itself will have different special features, weapons, and characters. This strategy is hard, but not impossible, to adopt with physical goods. Is it valuable (to both the retailer and manufacturer) if KitchenAid sold red mixers exclusively through Target? For more information about balancing assortment decisions, read our white paper.
9. Brand Reinvention
At some point, retailers with years of negative or flat comps need a way to reinvent themselves in the eyes of consumers. Strategies for doing so include splashy shifts in marketing, executive “de-thronings,” or, as seen recently, changes to the corporate logo.
The most impressive transformation of late is Walmart. Once derided as wasteful, Walmart has launched an audacious plan that includes more efficient stores, working with suppliers to reduce waste, adding a wide assortment of environmentally friendly products, etc, which brings me to …
The environmentally conscious push in retail continues to gain traction and is clearly here to stay. While we don’t expect wholesale switches to environmentally friendly practices or materials, we expect retailers to adopt any change that is cost neutral and many that have slightly incremental costs. This is a virtuous cycle. As more retailers clamor for eco-friendly solutions, costs of these solutions fall, enabling more retailers to clamor for eco-friendly solutions, and so on.
11. The Consumer
The obvious meta-trend is the rise of the consumer. In many ways, the “tricks” of traditional retailing (asymmetric pricing information, exclusive products and supply, etc) have been eroded. Today’s consumer has instant access to information about product assortment, pricing and quality. In this environment, retail managers need to both speed up and slow down: speed-up in terms of how quickly information, trends and behavioral data is disseminated and used to drive pricing, marketing and merchandizing decisions; slow-down in terms of really figuring out what your concept stands for, and what, ultimately, a consumer is getting when they buy from you.
There you have it. In the perpetual hurry-up offense of retail, there’s no time to lose. What’s really interesting is that, with few exceptions, all the ideas listed here can be tested prior to roll-out. Promotions, new marketing channels, price-points, products, etc. can all be launched in a few markets or with a relatively small group of customers. Once the idea has proven that it can profitably contribute to long-term growth, you can then safely roll-out the program, minimizing risk and optimizing the roll-out (where and what order) to maximize its value. More along these ideas can be read on our website here.
Happy hunting in 2011.
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