Who will be left standing after the next retail shakeout?

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The North Face Urban Exploration Concept Shop, San Francisco - Photo: The North Face
Nov 20, 2017
Lee Peterson

Through a special arrangement, what follows is a summary of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.

We can say confidently that only those retailers embracing at least two of the three fundamental consumer driven strategies in our industry will be around much longer — Discount (D), Convenience (C) and Third Wave (TW).

Discount (D): As a strategy, discount is serving two very real needs: one, the American consumer’s psychic desire for a good deal (it’s in our DNA); and two, the needs of a growing consumer segment of the U.S. population losing economic ground as real wages stagnate, decreasing buying power. As recently noted in a study published in Harvard Business Review, how customers perceive price is as important as price itself. That’s one reason why, as a strategy, discount encompasses far more than the traditional retail “discounters” within the industry, and means much more than simple couponing. Not counting the one percent on top of the American consumer pyramid, there’s nothing that is more important to shoppers than price.

Convenience (C): Spearheaded by Amazon.com, this is the survival strategy that everyone (yep, everyone) must make a priority in 2018. The strategy includes excellent e-com, free shipping, BOPAS, home delivery, showroom (smaller) stores, lockers, pop ups, etc. In short, all the tiny (and big) fundamentals that make e-com more convenient need to be brought to life physically to make shopping your brand anywhere as convenient and frictionless as possible.

Third Wave (TW): If you live in a thriving urban neighborhood, you know plenty of one-off coffee shops and independent bookstores pulling this off; survival by quality, great environment, newness and spot on service. Urban Outfitters, Whole Foods, Apple and Starbucks get it too, as well as new players like Warby Parker. It’s the only strategy that retailers can still do better than Amazon.

To keep standing tall in 2018, figure out your primary survival strategy. Consumers are actually demanding that you at least commit to convenience. So, is it Discount & Convenience or Third Wave & Convenience? All three? Live and breathe your survival strategy within your brand positioning. And go further: Start doing things better than anyone else in your category.

DISCUSSION QUESTIONS: Do you agree that the three brand positions mentioned in the article — Discount, Convenience and Third Wave — sum up the options available to retailers to survive the ongoing retail disruption? Which combination is most practical for department stores and other chains under threat of demise?

Braintrust
"Regardless of the combination a retailer is looking to achieve, convenience must be part of the equation."
"I’d take convenience but add Brand as the next most important factor. If you own a brand that shoppers want, then you’re a draw."
"Department stores will have a tough go. Perhaps they will totally go away and come back in some other form."

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36 Comments on "Who will be left standing after the next retail shakeout?"

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Mark Ryski
BrainTrust

While I do agree with the three brand positions mentioned, I don’t agree that there are only three. Retail is such a massive and complex system it’s impossible to generalize survival into merely three positions. Furthermore, the positions can overlap and blend. While it’s well understood that department stores are among the most challenged of any retail category, the formula for success is still very much a work in progress and the future is still very much uncertain.

Charles Dimov
BrainTrust

I completely agree with you, Mark. The different sectors of retail will have different characteristics that define their area of ideal competitiveness. There are elements that are also important to customers like consistency, ability to see the products in person (touch, feel, smell … ), dependability, knowledgeable staff, expertise … With so many other factors, there are probably more criteria than just the three. It is a good start, though.

James Tenser
BrainTrust
This observation is spot on, as others in this thread have observed. While quite thought-provoking, and worthwhile, Mr. Peterson’s 3-part taxonomy doesn’t fulfill the MECE principle (Mutually Exclusive, Collectively Exhaustive). The concept of “Third Wave” is really a catch-all category that covers various aspects of the retail experience. But rhetorical issues aside, I appreciate the intent of this analysis. Retail innovators with clear positioning, who focus on a recognized customer need or preference, will always create opportunities to chip market share away from the retail giants who gravitate inevitably toward the “big middle.” Price and any-channel convenience remain must-have competencies… Read more »
Aakash Varma
Guest

Can’t be better said! We can’t disagree that discount and convenience are major drivers but many other strategies like differentiation, personalization, product quality, etc. are also factors before making shopping decisions. I feel Lee tried to consider all others under Third Wave, but it won’t be accurate do it. As James rightly suggested, it doesn’t follow MECE principle, we can look at identifying more such strategies in this discussion so that we have a holistic and exhaustive list.

Dick Seesel
BrainTrust
Whether “discount” is part of your brand DNA, “value” needs to be. But don’t confuse one with the other — customers’ value perceptions may not be shaped by whether your store has the lowest price. It’s really about whether they are paying a fair price (in their minds) for the goods and services received, so “lowest common denominator” is not always the right answer. Once you make the distinction between value and discount, I do agree that “convenience” is a common thread across all kinds of retailers. But what constitutes convenience? For some stores, it might be a saturation approach… Read more »
Phil Chang
BrainTrust
Good categorization to start with. Within each of these there are a lot of things that you can do to ensure that your convenience doesn’t look like that next retailer’s version of convenience. Of the three, the only one that has futurity is Third Wave. Discount is a finite road that leads to pain, suffering and no profits. Convenience may be the same road, we just haven’t arrived there yet. Third Wave might be too much to ask of department stores. Their logistical models, profit models and physical lease commitments may make being Third Wave too much, but it is… Read more »
Cathy Hotka
BrainTrust

These three positions are useful, but there are others. Look at Amazon, Whole Foods, luxury eyewear stores and salons, which offer comfort and quality. There will be a lot of ways to win in retail, as long as the customer experience comes first.

Phil Masiello
BrainTrust
I don’t think a strategy is as simple as these three options. There is always an option for prestige as a brand position and others as well. The Third Wave option is more of a discovery position focused on independent “experts,” but that position is highlighted with national chains. I do not agree with the over-simplification of brand positioning into three buckets. That said, department stores need to determine how best to engage with a target customer. The retailers, outside of Amazon and e-commerce, are singularly focused. In my mind, the department store is becoming irrelevant in the shopping experience.… Read more »
Charles Dimov
BrainTrust
Although I like the format and structure of three, I do NOT agree that TW “[is] the only strategy that retailers can still do better than Amazon.” Yes, it is a great idea. Ambiance, environment, extra-ordinary service quality and novelty are great. These are definitely areas that Amazon does not dominate, not does it do these well. These are great areas on which to focus retailer attention. However, C — convenience — is by no means dominated by Amazon. Amazon is desperately trying to get it’s rear-end in gear on the omnichannel retailing front. This is clear from its acquisition… Read more »
Art Suriano
BrainTrust
I agree with Lee on the three brand positions. And I would say that for too many retailers the first two brand positions, unfortunately, are all that are getting their attention. Too many retailers are not focusing nearly enough on the Third Wave and are suffering because of it. Look at the brands Lee points out like Apple and Starbucks for example. Their prices are far from the lowest but their convenience, service and overall customer experience are fantastic. Too many retailers are too busy chasing after one another, not establishing any real brand identity, not providing exceptional service and… Read more »
Brandon Rael
BrainTrust

It’s simply too challenging to summarize the retail brand positioning strategies into only three segments. What we are seeing in the marketplace is a blended model, which could be simplified as “hybrid retail,” which is a retail strategy that has a digital-first approach supported by an in-store showroom-like transporting experience, and removes all of the shopping friction.

The key to survival in the new retail paradigm is to be passionate about your customers, adaptive to new technologies, agile and creative with both speed and flexibility, by blending art and science to get the model right.

Chris Petersen, PhD.
BrainTrust
Given the escalating race between Amazon and Walmart, few others will have the infrastructure and resources required to compete on convenience factors now expected by customers for ordering, shipping and last-mile delivery. Discount is a slippery slope. It requires scale to achieve best prices. And cheaper prices are easily matched by someone with more scale. Discounts are a temporary strategy, not a differentiator. Lee Peterson’s description of the Third Wave describes those things which differentiate CX at “local touch points” where the consumer shops — whether it be online or in-store. More than 75 percent of customers begin their journey… Read more »
Zel Bianco
BrainTrust

The integration of these will create more and for the better. Department stores will have a tough go. Perhaps they will totally go away and come back in some other form. This holiday shopping season will give us some indication but my gut tells me it will not be enough to alter the trend.

Dave Bruno
BrainTrust

Retail success in the future will be driven by the quality of the experience. While the Third Wave touches on the experience theme, it doesn’t go far enough. In my opinion we have to look beyond, as the article suggests, “quality, great environment, newness and spot on service.” Rather, we must consider every facet of experience as a critical piece of our strategy if we hope to remain relevant for the long term.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Shopper experience, a composite of value and pleasure encompassing selection and price along with discovery and fun, will always lead the way in retailer viability. When consumers’ determine what store they will drive to or walk into at the expense of their time, the “what’s in it for me” must have a suitable reply. Generally shoppers know about the stores that are visit candidates, so gaining the next visit based on the value of a current one is the challenge to be met.

Kiri Masters
BrainTrust
I like the breakdown, it seems like most value differentiators can be argued to fit in one of these categories. Considering the first two categories, the take-away is that retail is becoming more about logistics and fulfillment capability than marketing capability. Target and Walmart are upping their logistics game to improve convenience and value for shoppers. And as for the Third Wave, Nordstrom has been experimenting with pop-ups, and Barney’s with “drops.” These give consumers the IRL experiences that they crave. Department stores and other chains can still conceivably compete in any of these three areas if they make it… Read more »
Camille P. Schuster, PhD.
BrainTrust
The Third Wave encompasses many issues so it is difficult to think of this as only three. Price and convenience have always been major issues. Consumers will not pay more than they need to and have tools to determine where the low prices are. Convenience takes many forms; what is different is that convenience takes new forms as technology evolves. The Third Wave seems to mean that retailers need to understand their consumers well enough to provide in-store experiences that entice them to come to the stores. I think retailers need to pay attention to all three strategies. Most of… Read more »
Jackie Breen
BrainTrust

Discount (or better yet, value), Convenience and Third Wave, are three dominant brand positions but, as many others have stated, there are many other positions retailers can take to differentiate themselves and compete in today’s retail environment. I think the most important point is that retailer must be able to incorporate a combination of these values, not just one.

Regardless of the combination a retailer is looking to achieve, convenience must be part of the equation. If it is not easy for a consumer to obtain the product, they will easily get distracted by another offer and move on.

Doug Garnett
BrainTrust
This model is too simplistic. Future survival depends on category as much as any of these. Department stores lost tremendous business to warehouse stores — so they are the most threatened. Meanwhile, home improvement stores remain strong despite Amazon competition. Convenience is important. But retailers must sort out convenience that matters to their specific consumers — NOT relying on this list. In the list, for example, Amazon has raised expectations for free overnight shipping … because its investors pay a huge loss on it to buy consumer loyalty. That’s NOT a successful strategy in the long run because profits must… Read more »
Stuart Jackson
BrainTrust
There’s no doubt in my mind that only those High Street stores that commit to the Third Wave will win out long-term. The other two ways come with big problems if they’re the basis for a survival strategy. Discounters can only survive if they remain the cheapest in the marketplace, but online will take that segment eventually, and consumers have no loyalty to discounters. Shoppers will go to the cheapest store, so that just drives the race to the bottom — and low, low profits. Online has its place, and always will. But there’s a ceiling to online shopping and… Read more »
Mark Price
BrainTrust
I agree that these three strategies are critical, but I do not think they act as standalones. Rather, discount retailers must offer a solid multichannel experience and good customer service. There is no secret ingredient. Only by engaging customers in their preferred channel, and delivering a strong experience in-store, will retailers thrive in this new age of competition and declining customer engagement. One strategy that was not mentioned was the delivering of services to add value to the products. Education still has a high perceived value and acts as an incentive to drive customers into the store as well as… Read more »
Neil Saunders
BrainTrust
I just don’t agree with these at all! Discounting: Macy’s is discounting, J.C. Penney is discounting, heck Sears is discounting everything at the moment, yet all of them are doing badly. Nordstrom discounts far less and is doing better; Coach stopped discounting so much and its financials have improved. Value for money and justifying the price are important; discounting per se is not. Convenience: IKEA is not as convenient as it should be, neither is Wegmans. Both do well because they have products people really want and are prepared to travel for. Third Wave: Urban Outfitters and Whole Foods are… Read more »
Peter Luff
BrainTrust

The three ways are solid and great definitions, but as soon as we say there are the only these three ways, someone smart will surely set about innovating to find another way. Use the three definitions with an open mind to finding the other ways.

Mohamed Amer
BrainTrust
The three brand positions offered here represent a viable approach, although the categories are overly broad and need not be mutually exclusive. They represent a good start. The old days of either having a lowest cost strategy or a differentiated strategy have become too simplistic with the myriad of choices consumers have today on top of the collapsing format and segment boundaries to which we’ve become accustomed. So, where do we go from here? I see the starting point being the market segment that the retailer is going after. How you position and engage not only depends on the product… Read more »
Ken Morris
BrainTrust
The retailers that survive will be the ones that focus on the best mix of strategies as well as establishing a BRAND. From a Discount (D) or price perspective, retailers don’t necessarily need to be the lowest price or need to match Amazon, if they have a differentiated product (BRAND) or service level. I see the brand as critical to survival. The best brands in the world today frequently don’t have discounts, convenience or third wave but they have a brand people want and will pay full price for. Long term survival requires the need to embrace at least the… Read more »
William Hogben
BrainTrust

Discount relies too heavily on economies of scale to beat Amazon/Walmart there, so convenience and third wave are the way forward.

Peter Charness
BrainTrust

I’d take convenience but add Brand as the next most important factor. If you own a brand that shoppers want, then you’re a draw. If you are just selling someone else’s products then the long term will not be as kind to you as the past was.

Craig Sundstrom
Guest

The categories seem to really be: Discount, Convenience and “Everything Else,” so yeah, I guess I would have to agree those are the categories. But as for “two of the three”? How does a luxury retailer fit in? They might be “convenient,” but they certainly won’t be “discount” … not if the term is to retain any meaning.

Perhaps I would sum all this up by saying every retailer should have a reason to exist — other than to make its owners money — and if it can’t explain succinctly what that reason is, it’s in trouble.

Katherine Black
Guest
21 days 20 hours ago
Wow! I think that to believe that these are the only three value propositions that will thrive is assuming that customers’ needs can be boiled down into three core needs and motivations (and I am not even sure what need state is being satisfied with “Third Wave” — local?). I believe that value and convenience are two value propositions that are winning more and more often, but I think that others can succeed as well, such as curating the right goods to make shopping easier, rotating assortment and providing content to inspire customers, making it easy for customers to shop… Read more »
Ralph Jacobson
BrainTrust
I think we are getting a bit sloppy if we throw all retailers into a bucket and say they have to exhibit at least two of these strategies. I also think the Third Wave strategy is leveraging way too much “je ne sais quoi” and allowing literally no guidance on exactly what those retailers are doing to be successful. We need to make those intangibles more tangible so we can learn from both successes and failures. “Discount” is too easy of an “excuse” to remain in the game. Anyone can do it and that is no longer a differentiator. “Convenience”… Read more »
Adrian Weidmann
BrainTrust
Trying to simplify the formula for retail survival down to three issues — with one of them being discount — is inviting a race to extinction. The challenge will be met when retailers decide to erase the status-quo, step back and understand themselves and who their customers are. Then and only then can you formulate a strategy along with its tactical implementation, analog and/or digital, to achieve your goals and objectives on your shoppers’ terms — not yours! Who are your loyal customers? Understand who they are and you can then design and implement processes that they value and reward.… Read more »
Naomi K. Shapiro
BrainTrust

Adrian, you summarized the problem well, but I think we should throw shoppers/”loyal customers” up for grabs, too, for that now appears to be a changing dynamic on which we may also not have a handle. Same with all the categories — they are changing and evolving and disrupting so rapidly that it’s hard to get a handle on any of them — sort of like riding a bull and trying to stay on! Hard to be scientific and on target under the circumstances.

Harley Feldman
BrainTrust

Discount, Convenience and Third Wave are all viable strategies, but all three are not needed by each retailer and there are other strategies. Another strategy for retailers is having unique products to offer that will attract consumers as their only option. Consumers likely will buy from the retailer that provides the best service at the best price, but some consumers will buy based only on price while others will sacrifice price for service. Department stores’ best strategy is to offer unique products, including private label, and provide great service either online or in-store.

Jeff Miller
BrainTrust
Solid and simplified breakdown but like most things in life, a little too simple to be applied to something as big as “retail.” I argue that there are probably a dozen vital factors under “Third Wave” with the most important which could be its own category being “people.” The people who work in brick and mortar stores are key. High quality and educated real customer service, where you walk away from a store knowing that you will come back because of the actual person to person engagement will be the key in the future. You may also want to have… Read more »
Min-Jee Hwang
BrainTrust
Striking the right balance between these three factors (as well as the numerous others we could put into play here) will choose the retail winners and losers. I think this would work better if “discount” were replaced with “value.” Think of a high-end brand that has been struggling lately. Discounting their products will alienate their target market, instead of encouraging them to check out again. For department stores, in order to pivot and thrive within the market, they must provide shoppers with items they find valuable at prices they’re willing to pay and wrap all this up in a pleasant… Read more »
Kai Clarke
BrainTrust

This is a bit myopic of a position considering that the next retail shakeout will be who best embraces the fusion of online and brick and mortar retail. This is demonstrated by the race between the king of online (Amazon) opening stores and the king of brick and mortar buying and developing a stronger online presence as rapidly as possible. Both of these Goliaths are racing to a clash that will terminate much of today’s retailers, with only a few select niche players left.

wpDiscuz
Braintrust
"Regardless of the combination a retailer is looking to achieve, convenience must be part of the equation."
"I’d take convenience but add Brand as the next most important factor. If you own a brand that shoppers want, then you’re a draw."
"Department stores will have a tough go. Perhaps they will totally go away and come back in some other form."

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