Ulta, Lakewood Village
Photo: Michael Rivera, Wikipedia

How important is ‘place’ among the P’s of retail marketing?

Place – whether that be within a busy shopping center or an online site – is as critical to retail performance today as it has ever been. Consumers, we’ve been told, want to shop where and when they want. Retailers that meet those demands best are most likely to succeed. That conclusion appears to match Ulta Beauty’s position based on its first quarter earnings call last month and a recent appearance at Oppenheimer’s 16th Annual Global Consumer Conference.

Ulta Beauty announced same-store sales were up 15.2 percent for the first quarter of 2016 compared to an 11.4 percent jump in the first quarter of 2015. (Includes locations open at least 14 months and its e-commerce business.) This performance was driven by an 11 percent increase in traffic, while the average ticket rose 4.2 percent.

Ulta, which has 886 stores, opened 13 new locations in the first quarter and is looking to increase its overall net number by 100 this year.

“Our growth and development team is now in the process of performing a detailed analysis to refresh our estimates of the store potential in the U.S.,” CEO Mary Dillon told analysts on the chain’s earnings call in May. “This analysis includes an updated assessment of the potentials for smaller and urban markets as well as how our small store format will fit into the future store mix.”

Ulta Beauty CFO Scott Settersten, speaking at the Oppenheimer conference (via Investor’s Business Daily), said the chain looks for a “theoretical perfect co-tenant mix” when scouting for new store locations. Among the chains that Ulta likes as co-tenants are DSW, Marshalls, Target and T.J. Maxx.

Another place where Ulta is doing well is online. E-commerce sales were up roughly 39 percent in the first quarter, with mobile representing about 60 percent of site traffic. E-commerce represents just under six percent of Ulta’s total sales. Consumers who shop Ulta’s site and stores drive two-and-a-half times the sales of those who only go to its stores.

BrainTrust

"It is not where you locate a store, but where, anywhere, the customer interacts with you."

Gene Detroyer

Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.


"Location and favorable lease agreements are even more important today as e-commerce grows and brick-and-mortar sites must carry their weight."

J. Peter Deeb

Managing Partner, Deeb MacDonald & Associates, L.L.C.


" I believe the key mistake made by nearly every retailer has been to fall for the myth that digital sales are a serious strategic opportunity. "

Doug Garnett

President, Protonik


Discussion Questions

DISCUSSION QUESTIONS: How important is place among the P’s of retail marketing? Has the development of e-commerce made site selection any more or less important to retail success?

Poll

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Dick Seesel
Trusted Member
7 years ago

I agree with George’s premise — that choice of location for a brick-and-mortar store is more important than ever. It’s always been true that the type of location reinforces a store’s brand image and competitive posture: For example, Apple always seemed to choose the “right malls” in a given market, and Walgreen’s model is built in part on a convenience strategy.

But the question of what’s the right kind of shopping environment is more complex than ever, and it’s not just triggered by the growth of omnichannel. Most metro areas have at least one secondary or even “zombie” mall; at the same time, consumers are drawn to newer formats like off-price/outlet malls and lifestyle centers. So Ulta is a good example of a retailer deciding strategically not to lock itself into the traditional mindset of “we have to be located just in regional malls.”

Doug Garnett
Active Member
7 years ago

I don’t see anything about digital marketing that has changed the importance of place one way or another — in general.

Byron Sharp observes that the key to success is mental and physical availability of your brand. Too many ignore the physical part of that duality.

In fact, I believe the key mistake made by nearly every retailer has been to fall for the myth that digital sales are a serious strategic opportunity. It’s now clear that a digital option is more of a defensive move for retail — necessary but not strategic. And it’s sad that physical store strategy has fallen behind while retailers mounted massive digital efforts, leaving many stores wandering without clear visions for their far more critical physical presence.

That said, where digital has an outsized impact is in those categories is where variety in the channel is more critical than physical access. Books and music being the two easiest categories to point to. Yet even with books the physical value of browsing physical copies remains critical and appears to be the ceiling that leaves open tremendous opportunity for physical stores.

Shep Hyken
Active Member
7 years ago

“Place” goes beyond location and high-traffic zones. It is also the place itself. Just recently RetailWire featured Ace Hardware for their 10th J.D. Power award in a row for customer satisfaction. One of the reasons their customers love Ace is because of the “place.” The smaller store and easier to navigate parking lot makes Ace an easier “place” to shop. That said, even if you have the best location on the busiest street or the most crowded mall, if you don’t have customers in your store, you don’t have a business. (And you don’t need a place.)

J. Peter Deeb
J. Peter Deeb
7 years ago

Location and favorable lease agreements are even more important today as e-commerce grows and brick-and-mortar sites must carry their weight. The successful retailers of the future will need to be very nimble in their site selection and their lease agreements.

Bob Amster
Trusted Member
7 years ago

Place continues to be very important in retail marketing but the influence of e-commerce can mitigate the need to be physically present in less-densely populated geographic areas, where many retailers are less likely to succeed.

Gene Detroyer
Noble Member
7 years ago

Great comment by Mary Dillon, “Our growth and development team is now in the process of performing a detailed analysis to refresh our estimates of the store potential in the U.S.” The comment about co-space also focuses on the efficiency of the real estate.

The word I like is “refresh.” Too many retailers use old models when thinking about brick-and-mortar. By the way, old models may be no older than a few years, but the marketplace is changing that quickly.

But what retailers have to remember about this “P, place, of the famous four Ps,” is that it is not where you locate a store. but where, anywhere, the customer interacts with you.

Bill Hanifin
7 years ago

Store location is critical to success from two angles. Customers must be able to experience the brand promise and sample enough product line breadth to become engaged. Retailers need to balance the need to create this customer connection with real estate and operational costs.

Co-location of stores as suggested in George’s article seems to serve both objectives well. This is not to say that all stores should be co-located, but there certainly are markets where greater customer impact can be combined with lower costs to render optimal results.

A co-located store can take on the role of “showroom” and, if the experience in the store is well executed, can be the catalyst to trigger more online purchases.

Mohamed Amer
Mohamed Amer
Active Member
7 years ago

Location will always be important in retail. In the days of physical-only retailing, it meant success or failure of the banner — it never was about “build it and they will come.” In today’s digital economy, location takes a different and highly variable meaning.

In a hybrid retailing world, the physical and the digital come together based on the consumer’s own experience journey. Their actions place different values based on their desires and needs and this changes by time and place. The new location value lever is more complicated than before, but no less important.

For those that offer services that are difficult, if not impossible to replicate online such as Ulta Salons, location becomes a strong differentiator and defensive moat. The more services that retailers can add to their assortments, the more defensible will be their shoppers’ experience journey.

Ed Rosenbaum
Ed Rosenbaum
Member
7 years ago

The key here is being where the customers you want can easily find your location. Easy enough to do it online, but not quite as easy to locate that one hot retail spot. Finding that brick & mortar location requires more time and study. Where those customers live or work is a key. The expression from the movie “Field of Dreams” stands tall here. “Build it and they will come.”

Peter Charness
Trusted Member
7 years ago

Well yeah. If I can’t park, I won’t stop. If the layout is bad and I can’t quickly find what I am looking for, then I won’t stay. Stores are competing in some instances with “search” — make it just as easy.

Craig Sundstrom
Craig Sundstrom
Noble Member
7 years ago

I’m not sure it makes any sense to try to rank the metrics; I think the idea is that all three are essential. Ulta’s strategy of establishing a symbiotic relationship with certain retailers seems like it might be problematic, if one of them — specifically Target — begins to market the same brands, but it seems to be working so far, so I’ll leave it at that.

E-commerce obviously gives companies options they didn’t have before, but I think certain industries like food and high fashion will remain dependent on physical locations. And regardless, between two otherwise identical companies, the one with the superior sites will still be ahead.

Kai Clarke
Kai Clarke
Active Member
7 years ago

Place is no longer the key factor it once was in retailing. With the rapid growth of online shopping, it is more important that retailers offer the right products, at the right price (with free shipping). Place is no longer the key “P” among marketing and selling products.

Ori Marom
Ori Marom
7 years ago

For experience goods such as personal-care and beauty products, place remains very important. But important to whom?

The physical store’s place and convenience are certainly still important for service-seeking but price-sensitive customers. It is also very important for Amazon, who may very well get these customers’ (repeat) business, ultimately.

The traditional setup of the 4P framework assumed that browsing and purchasing are naturally coupled. Once the two activities have become de-coupled in the eyes of shoppers, “place” has become a less clearly defined and far more complex concept. The best “placed” physical stores are often the weakest in terms of price competitiveness.

Kenneth Leung
Active Member
7 years ago

Location is still king in brick and mortar shopping and finding the right location is tougher than ever. With increasingly mobile consumers who can transit by automotive, shared rides, mass transit, bicycles etc, the location needs to be attractive to all the transit requirements. Convenience of e-commerce also plays a part so retailers don’t have to settle for locations for coverage when online delivery can cover the gap.