Source: Ross Stores/Instagram
Are off-pricers discounting their online opportunity?
Klaudia Tirico
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.
While many off-price retailers (TJX Cos., Ross Stores, Burlington, etc.) are looking to keep their main focus on physical stores, the online channel can complement the in-store experience.
“While [e-commerce] is a small part of our business, we see it as highly complementary to our physical stores,” said Ernie Herrman, TJX’s CEO in May as reported by Bloomberg News. “We are being methodical in how we grow this business.”
Yet T.J. Maxx’s e-commerce sales “hover at just one percent of the business’s total sales,” according to Bloomberg.
“I still think that the idea of finding personal treasures at the store is something [off-price retailers] need to capitalize on and that can drive e-commerce as well if executed in an online-friendly way,” said Mike Kim, Director at AArete, a global management consulting firm, in an interview with Retail TouchPoints.
Some ways off-price retailers can keep the fun of the in-store hunt alive include:
- Offering exclusive promotions from the e-commerce platform to drive people to the stores;
- Having an easy to navigate store locator; and
- Developing unique content that inspires consumers, such as how to style items, tips on finding treasures in stores, etc.
Mr. Kim also asserted that an imaginative retailer could create an online version of a treasure hunt.
Of course, there are challenges to having a seamless online and offline off-price business. Aside from the inventory’s velocity, the need to align prices across channels and show the levels of inventory at brick-and-mortar stores in real time isn’t easy for any retailer.
“I would suggest a hybrid approach, where a consistent supply of certain items utilized by an e-commerce approach, while also maintaining the personalized level of treasure hunting at the brick-and-mortar store for items that are highly fluid,” Mr. Kim said. “Focus on the distribution of brands that are high margin consistently over time and adapt that inventory to the omnichannel approach. That way, it minimizes disruption, given the speed at which items move.”
Discussion Questions
DISCUSSION QUESTIONS: Do you see ways for off-price retailers to bring their in-store treasure hunt experience online? What challenges do they face in developing complementary e-commerce offerings? Should the main focus of off-price sites be driving customers to their physical locations?
Poll
BrainTrust
Anna Tolmach
CEO, Fuse Inventory
Charles Dimov
Vice President of Marketing, OrderDynamics
A key challenge to moving online is inventory. By definition, off-price retailers have a limited number of unique pieces which is what makes the consumer experience so exciting. The risk is that either the online experience would become less exciting because the truly unique pieces would remain in-store or the in-store experience would be diluted to support online. Perhaps a middle ground of some sort can emerge, but the most likely outcome is that the online experience would be more consistent with that of traditional retailers than the in-store experience of off-price retailers today.
The treasure hunt idea seems to be the only growth engine for traditional retailers today. Why? Because it brings back the fun element in shopping. Browsing increases sales and scarcity increases the shoppers view of value and importance.
I don’t see this model translating well to online retail. The reason is that it’s hard to generate the same feeling of scarcity (“There are only two of these on the shelf. If I don’t buy it now I will miss out”).
Amazon understands this conundrum and addresses it on Prime Day where availability is limited.
Good point about the speed of showing inventory to online shoppers. It is a specific challenge for off-price retailers due to smaller inventory pools on select SKUs and the higher inventory turnover. To deal with this, off-price retailers need order management systems with real-time inventory visibility. This is the first step to driving more sales online and getting customers to try it, feeling that the online part of the hunt is just as exciting.
The other challenge is to get consumers engaged. Retailers should make sure their e-commerce platform has context-sensitive search abilities. Retailers can make the online hunt more enticing if the search function serves up products, videos, posts, care tips and other useful information for shoppers. Make it interesting. Make it engaging. Make it exciting!
Then retailers should make sure to tell shoppers about their online presences and how online helps. But also make sure to deploy omnichannel practices. Retailers should get customers to buy online, but pickup in-store. Otherwise, they may start seeing margins drain — with an increase in the free shipping of parcels.
There’s the old adage, “If it ain’t broke don’t fix it.” TJX, Ross Stores and Burlington have experienced tremendous success, and their formula is working for them. Those stores feature new items all the time, and it’s fun for their customers who come in frequently to see what’s new and what bargains they can get. Not everything has to be online just as not everything has to be in-store. So can the off-price retailers create an e-commerce treasure hunt opportunity? Possibly, but until the off-price stores see signs of store sales declining, I wouldn’t focus too heavily on it.
As was stated in the article, the issue is inventory. Off-price retailers have a limited number of each item. To ensure sufficient online inventory off-price retailers might have to hold off displaying items in their stores with the hope that it sold online. Moving what didn’t sell online into their stores means store customers would be treated less favorably. The current business model works well. Should off-price retailers elect to place more emphasis on their online business I would recommend they do so very carefully.
The most significant challenge of translating the treasure hunt in-store experience to an online e-commerce offering is the consistency and availability of product. The off-price store model is built on opportunistic buys, overstock situations, over-buys from the traditional department stores and clothing manufacturers. It would be very difficult to have a consistent fashion and trendy curated online assortment when you are not certain of your availabilities going into each season.
Perhaps the areas that could be presented well online are basics, commodities, home goods, etc., where there are far more consistent product availabilities. When off-price retailers develop their own private labels, these too can be presented online.
To further add to this week’s discussion on the role of chatbots in online commerce: this is a perfect situation where machine learning and AI can help with discovery, curation and up-sells.
We already have virtual versions of the bargain bin or clearance aisle: the “on sale” assortment in an e-commerce store. But what about curated suggestions from bots who can scan your cart and consider past shopping behavior to make intelligent suggestions?
In overstock situations, online retailers could create merchandising rules to serve up offers for these items to customers. Bots can also help drive online traffic to stores in cases in which an item is out-of-stock online but available in a store near them.
There are many ways that discount retailers could get creative with their online experience. And it would likely be cheaper and reach more customers than opening another storefront.
The main challenges are around inventory allocation and management, margins and dealing with returns. All are far less effective online than they are in stores; this is true for most retailers, but is particularly so for off-price merchants. There is also an interesting dynamic which points to online off-price shoppers buying less because browsing lots of things online is actually harder online than in stores.
That said, resale players like ThredUP have made online work for them. Their whole model was initially built around online, so they are geared up to quickly get limited inventory on the site. However, they also make great use personalization and filters so that shoppers have a curated view of product that’s relevant. That makes the shopping process much easier!
With consumers’ love of the thrill of the treasure hunt, it makes sense to find ways to bring it to the online experience. Off-price retailers are beginning to experiment with this and we are likely to see more creative approaches. Some strategies may include flash sales, exclusive online only deals, curated deals based on individual preferences and browsing history, etc.
Driving customers from online to stores is a smart strategy, but I don’t think that should be the main focus of off-price retailers’ e-commerce site. Many consumers that shop online may prefer to make their purchase online and if the product isn’t available on the retailer’s site, they will likely end up finding and buying what they want on a competitor’s web site. The challenge for bricks and mortar off-price retailers is to mark their merchandise at the color/size/vendor/style level. Today they mark at a higher department/class level and have little visibility to the detail which works when all you need is visual representation, but for online eCommerce sales you need the detail.
Has any off-price retailer yet attempted to invent an online treasure-map mechanism that can keep shoppers returning to discover the next cool thing? This is an experience that’s ripe for gamification. If shoppers can be persuaded to register and build a personal preference profile, the engine could push out individualized, short-term offers for limited-supply items. A little like a flash sale, but much more personalized.
A popular price chain like Burlington or TJMaxx could use this online process to drive top-of-mind excitement, more store visits, and digital sales. Imagine a Burlington shopper receiving a text message that says, “At your store today! 10 dresses by hot designer Xxxxx, 40% off. Buy now for pickup.”
Though the classic business model for of-price giants is not exactly an “online-ready” concept, I do believe strongly they are missing an interesting channel by not going online.
In order to understand this problem fully, it’s important to point out off-price retailers do not usually go online as their inventory changes too rapidly to put the products online. Or, their inventory comes in lots of items which is hard to split up.
That being said the challenges are there to get every piece up online, but it’s unlikely the off-price retailers would need to do this. If they are serious about online, they must utilize creative social (from customers in the store), mobile, via creative apps and rewards, and buzz generating products for sale online. Of course, this could extend, but I think it’s time they get the ball rolling.