Rethinking Retail Scale
Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog. The article first appeared on the Licensing Industry Merchandisers’ Association (LIMA) blog.
Not that long ago, retailers ran their online and offline operations in silos. In many cases, they actually competed against themselves in different channels. These days, retailers from mass to class see all channels — including mobile — as synergistic and seamless touchpoints and, along the way, scale has been redefined.
Retailers’ new criteria for scale are no longer thousands of stores, but they aren’t millions of online impressions or mobile transactions either. It’s all of these combined. That’s why retailers are paying attention to their online presence once again. But now their focus has evolved from building virtual shopping carts to connecting their sites to their stores. It’s why in-store kiosks and strategically placed signs beckon shoppers to order online and then pick up in-store, as demonstrated by a growing number of new retail formats, including Walmart’s Express concept.
Although the Express stores have been portrayed by the media and other observers primarily as a small-format move, building site-to-store scale is a huge part of the Express story that is largely being overlooked. All of those small stores will not only service new customers in neighborhoods that used to only have dollar stores, but they will also serve as pick-up locations for the over 40,000 unique items that Walmart offers online.
Walmart’s site-to-store capabilities have the potential to be its killer advantage over dollar stores, which have built massive scale through store proliferation while largely ignoring online opportunities. Dollar General recently changed that with its September e-commerce launch, however, the site went live with direct shipment rather than with site-to-store capabilities.
Target’s decision to bring its online operation in-house came quite close to its announcement that it too will enter the small-format fray with its City Target concept. Coincidence? I think not. Once Target gets its site-to-store integration up to par, every tiny Target store will have the potential to realize exponential sales that belie the inventory held in the back room.
The granddaddy of all e-tailers, Amazon, seems to be on the verge of coming out of the clouds to form an alliance with a large-scale retailer on terra firma. According to a smattering of online reports, a 7-11 store location in Seattle holds a stack of lockers that, although unbranded for now, actually belong to Amazon. The lockers are part of a beta in which Amazon customers will receive an email notification when their purchases are delivered to a local 7-11. After scanning a bar code on their smartphones, a PIN will appear that opens the locker and releases the goods. If successful, this clandestine beta is rumored to be ready for rollout to 7-11 stores by next summer.
The major retail players have redefined scale. Will others as well?
Discussion Questions
Discussion Questions: What do you think of the recent efforts of the major retailers — Walmart, Target and Amazon — to meld offline and online channels? What’s the likelihood that in-store pickup options will become a major competitive advantage for larger retailers? How should other retailers respond?
Creating a holistic, intelligent cross-channel marketing and merchandising ecosystem is imperative for retailers and brands alike. Digitally empowered shoppers are taking control of who, what, where, when, how and why they connect with brands of their choice. They also select the channel — mobile, online, in-store, on-air or print — in which they are receptive to brand messages. Brands and retailers need to be proactively engaged in a digitally empowered global community but be prepared to communicate relevantly and personally with their shopper/customer at any given time, through any given channel. A daunting task, but one the consumer is expecting. Designing this ecosystem and its associated workflows is the challenge at hand. In-store pickup may be one of the best ways to stimulate relevancy to a brand’s brick-and-mortar presence.
As a bricks and mortar retailer, you want to eventually have your online shopper come into the store for any reason. It creates more selling opportunity, especially when the pickup area is strategically placed within the store. The up sell and cross sell opportunities are limitless as long as you can get the person to walk into the door. Offering in store pickup and returns achieves that. As for the locker situation at 7-Eleven, I like the idea in theory but the putting them by the bathrooms in the UK was not what I consider ‘strategic’ positioning. You can sell more merchandise or associative products when the customer can see, touch, taste and feel the actual item.
Walmart, Target and Amazon are seeking to differentiate their offerings by leveraging existing brick-and-mortar to permit customers to pick up items at central locations. The benefit that Target has in this strategy is the potential that their customers will also purchase some impulse items when they pick up an item in the store. The incremental revenue opportunity far exceeds the investment, even more so now that Target has increased their product selection.
I wonder if the store-pickup has a benefit beyond “same day order and pick up” shoppers. For other customers, why not have the items delivered to your home, if it can be done so safely and reliably?
For retailers where same day is very important, such as the auto parts industry, the ability to source, order and pick up on the same day has real value. But I do not see the benefit as much for industries such as fashion or electronics.
It’s great to see online and offline working hand in hand rather than competing. I see an opportunity on both sides here: Pickup at store level gives an opportunity to sales associates to up-sell and cross-sell. Conversely, these same sales associates may rely on the brand’s website to order out-of-stock items and get them delivered to their customers’ door. Of course, this implies merging marketing efforts, inventories and prices.
In-store pickup is a highly convenient option which definitely could give larger players yet another competitive advantage. Several studies show a large majority of shoppers research products first before buying them in-store, so purchasing them in advance is a logical next step.
Consumers want a seamless transaction, so retailers must provide it. Not every retailer needs to offer a site-to-store experience. They must, however, offer the ability to buy something online and return it to a store.
In-store pickup will offer an advantage for large retailers, provided that it works as advertised and saves consumers time. If someone buys an item through Amazon, gets it at 7-11, takes a look at it and doesn’t like it, will she be able to return it at 7-11 as well?
Site-to-store also means that retail websites must be easy to use, allowing consumers to find what they want with a minimum of effort. Neither Walmart nor Target meet this criteria. This is where Amazon shines.
Regardless of where a consumer chooses to complete a purchase, traditional values still apply: The item should be easy to find, it should be offered at a good price and it should be backed by great customer service. Site-to-store works when all of these values are met.
Had to read this one twice. I don’t think this is limited to just large retailers.
Retailers generally like “buy on line, pick up in store” because the customers tend to spend more So providing pick-up at 7-11 doesn’t really do much for Amazon besides kinda sorta level the playing field.
Customers like in-store pickup because it’s RAPID gratification and guaranteed secure delivery.
But you know, there’s no reason smaller retailers can’t do the same thing. After all, their sphere of influence is fundamentally narrower, and they can provide customers with the experience they want with a lot less “overhead”.
Brand-driven retailing is the wave of the future. The channel is becoming irrelevant.
There is no doubt in my mind that bringing the online and physical store together is a must. Shoppers will expect everything they experience online to be replicated and supported in-store as they “pre-shop” online, download coupons, building shopping lists and view promotions. Stores that are not in compliance will lose market share to those that are. Further, and extremely important, is the ability of the retailer to have “one view” of the customer, across all customer touch points and media, whether it be via social media, kiosk, retailer’s website, or other.
Specifically, in-store pick up is a natural early first step in this process, providing e-commerce options to the customer and expanding the retailer’s reach with this competitive advantage! Retailers that are prepared to commit to e-commerce and in-store pick up, both technically and operationally, should find success with this, albeit as a longer term play.
Consumers do not want to think about online purchasing separate from in-store purchasing. Retailers absolutely need to understand that, to a consumer, it’s all one and the same.
Consumers don’t see the difference between internet and their local store. Integration of the two is imperative and inevitable.
Interesting to see how everyone (in the consulting community at least) seems to have suddenly woken up to the need to fully integrate brick and click operations, including marketing, CRM, logistics and site-store “touchpoints”. I wonder how long it will take for the majority of retailers to accomplish this, and to what extent coming late to the game (with the zeal of the converted) can be an advantage.
Clearly, having customers take care of the last mile themselves (i.e., pick up in-store) cuts out one of the most expensive parts of the fulfillment process (which costs Amazon 4% of revenues net of shipping fees it charges to customers, on top of central warehouse fulfillment expenses). In fact,the proportion of store pick-up vs home delivery may well be one of the main determinants of click and brick profitability in sectors with particularly high internet penetration such as electronics.
It appears that some retails recognize the fact that shoppers choose different retail and online options to satisfy varying needs. One person can buy in a store, online, via phone, etc. Hence, if retailers target their broad base with the flexibility consumers require, they will become that one stop retailer destination…through various distribution outlets. Smart!
I’ve been managing a series of dinners across the country with retailers who report that cross-channel commerce is very hard. Information silos, organizational issues, non-interoperable programs and bad habits continue to frustrate customers. And every retailer in the room has his/her own horror story about cross-channel customer frustration. We have a long way to go but work is progressing.
Shoppers that select online and buy in-store generate more revenue per trip. This is true with big box retail — Target gets a higher average basket from shoppers who shop both online and in-store. It is just as valid for specialty retail — Pier 1 To-Go sells more than physical stores alone as shoppers add items to their baskets.
How to maximize online to in-store:
1. Sell the experience. Make your online content, from items to reviews, indexable by search engines and shareable by social consumers. Reinforce the value of in-store pickup, from free shipping to convenient timing to live answers to product questions. Offer coupons to online shoppers that can only be redeemed in-store to drive cross-channel traffic.
2. Tighten lead times. Separate and highlight common in-stock items that require no waiting. (More sophisticated retailers will identify store-level availability even for niche items.) For out-of-stock items that require shipping, provide a narrow window, such as within 3-5 days, being clear about when the window ends.
3. Cross-sell intelligently. Don’t rely on the pluck of associates to recommend items. Train the pickup staff, which should be separate from regular staff, how to cross-sell. Use information systems that suggest complementary items on the pickup screen
There is no reason why only the largest retailers should benefit from cross-managing online and in-store marketing and operations. Smaller stores can replicate this.
It’s understandable that retailers needed to set up a new division to break through in the online space. It’s also sensible that they are now integrating these capabilities to deliver more than the sum of the parts through the synergies and opportunities that the integrated channels provide.
There are some interesting dynamics, though I’d suggest still some way to go, for instance in integrating data/insights and a single contact/communication strategy. They also now have a whole lot of new channels and competitive pressures to wrestle with that would be easier to focus on with integration behind them.
In-store pick-up could be helpful as a convenient option for some customers if delivery isn’t an option. What is more exciting to me are the collaborations that this kind of approach could begin to drive. Are we on a path to more “open-source” retailing?
Well, some retailers have had this model in place for years. Sears Holdings has a brilliant model for online order based on your Sears store of preference or selection based on convenience and pick up at the customer service entrance. Any item stocked in-store can be ordered in advance and picked up in an hour — from tractors, to grills, appliances or home electronics to soft goods.
The MyGofer concept is supported in select Kmart stores where you can shop online for all your consumables or alternate needs and pick up in-store.
The consumer is king and should have the convenience to choose where and when to pick up their goods. The beauty of this strategy is in its ability to grow online buyer penetration and conversion, plus lift average spend through the ease of selection and depth of merchandise online. If an item isn’t in stock, always offer free shipping to complete the order and drive preference. Those retailers that have a seamless online/in-store solution can win in this space. Integration with rewards/recognition type programs to bonus shoppers for use of this solution is indicated to lift average spend and grow share of wallet.
While I appreciate the sentiment of the article, I think the silos are still mostly in place in retail. Certainly the best retailers are taking positive steps to change this, but there is a long way to go. As one example, look at the common divisions of online and offline media, with each measured in different ways, with different standards, and with different impacts on individuals’ goals and compensation by silo. It’ll change, but in general, in retail it hasn’t yet.
Now we’re getting somewhere! The initial idea of separating online and physical was a mistake. And the idea that Walmart stores didn’t have a top competitor in Amazon was a mistake as well. Most analysts think the dollar stores took Walmart’s heat — but few look at the reality and power of Amazon’s brand and ability to deliver not only price, but speed, convenience and quality. Look out below!
The fact that online retailers are now going physical with drop points, etc. will only exacerbate the rivalry. All of the above and more is what makes this the most exciting time in retail history … with a big shake out coming in the next generation.
We have two words for the future of retail here: Smaller / Better. Fewer stores, smaller stores, more online, better experience for both. A customer’s dream vs. an operator’s dream. Looking forward to it.
The only questions regarding the total transition to online shopping are “when and how?” When will the last brick and mortar store close and how will we get to that point? I think it will be a long time before the last store closes but there are some businesses who are already transitioning that could answer the how.
Think about the music industry and the transition to online music stores. Think about USAA, ING and Ally Bank for the transition to online banking. Most recently you can consider today’s 36% drop in the value of Netflix as they admit the loss of slightly over 800,000 customers during lousy handling of the transition to video streaming.
It is almost painful to watch as branch-heavy banks have struggled to replace lost swipe fees through new fees rather than change their business model to embrace the Internet. Retailers have been essentially spared because of the “must have it now syndrome” and the custom nature of some products and supply chains such as apparel and the supermarket cold chain. But as consumers become more comfortable with living in a virtual world, the likelihood is they will also expand their online shopping. We already know there are many fully online retailers. The question is how gracefully brick and mortar retailers will make the transition. I hope there are not too many Netflix examples.
I am a big fan of the pick-up in-store model, but I don’t think it will be retailers who are running the pick-up location. Think USPS. The postal service has its own business model issues, but an untapped possibility is the establishment of 24-hour accessible boxes. Just as the 7-11 discussion in the article, the USPS could offer pickup points for consumers.
For Walmart and Target, this is a great idea. What better way to keep your traditional “brick and mortar” stores relevant than by tying them directly to your online channels. Of course, it’s all in the execution. Mr. Frechtling makes some very good points in regards to that. Because, the truth is, people like to order online a lot of the time because they don’t have to leave their house to do it. So it’s all about how these stores convince people that ordering online and picking up in store is beneficial to them. There’s a lot of potential here though, once they overcome that hurdle.
For Amazon, it’s different. Frankly, I don’t see the advantage for them. Currently, their advantage is that people can literally ordering anything online and have it delivered right to their house. So I don’t see what they are looking to gain by giving people the opportunity to pick it up at a store rather than have it delivered to their house. In theory, it’s a pretty cool idea, using your phone to open a locker that contains a package you ordered online the other day. It’s very futuristic. But, in practice, I don’t see it as something that either the consumer or Amazon needs.
It’s one thing to open a chain of Amazon retail stores to compete with the likes of Walmart and Target, it’s another to create a mini-Amazon post office in some 7-Elevens. But who knows. I think the fact that they’re making the effort to meld the online/offline channels is great and I’m excited to see how it evolves from here.