Are Retail Brands Ready to Compete in the New Normal?
Over the past several years, rapid technological growth has resulted in an enormous change in consumer behavior. As a result, brands hoping to engage these consumers have had to also adjust their programs and strategies to keep up. Perhaps no industry has faced this challenge more directly than retail. Today, customers rely on mobile devices to conduct in-store research prior to purchase. Millennials in particular, with an annual retail spending power projected to reach $1.4 trillion by 2020, have fundamentally disrupted the shopping process. And their behavior has trickled up to older generations. In fact, according to research conducted by Accenture, 41 percent of all retailers said they now practice “showrooming,” traveling to brick-and-mortar locations to engage with a product and then shopping for it online to find the best price. Retailers are now faced with enormous challenges such as:
How to obtain an accurate understanding across many channels of their fractured customer-base.
How to engage various customer segments given the overwhelming amount of sources vying for their attention.
- How to shift legacy business operations to compete with upstart business models designed to match new customer preferences.
If it sounds daunting, that’s because it is. Retail leaders must be nervous about the ability of their brands to compete in this new normal. Right?
As it turns out, the view from the top is more optimistic than you might imagine. This according to new research published by The Economist Intelligence Unit and sponsored by cloud-based retail platform provider Demandware. In a global report titled, “Finding Retail Growth: A View From the Corner Office,” 300 executives in the retail industry were surveyed, with 79 percent describing themselves as “very” or “extremely prepared” to compete in terms of offering perceived value for money paid. Additionally, 76 percent of respondents reported the same level of confidence in their readiness to compete in “product excellence,” “seamless service” and the ability to “operate efficiently.” What are retail executives less confident about? While a majority still reported high confidence in the ability to attract technologically-savvy talent to compete, 42 percent responded with being at best, “somewhat prepared to compete.”
I spoke with Rob Garf, VP of Industry Strategy and Insights at Demandware, to learn more about why these retail leaders had such a high sense of confidence in their ability to compete.
“This surprised us, perhaps they are over-confident and not as ready to adapt and to change. They plan to differentiate by going back to the basics in two ways: product excellence and seamless service. The data suggests that executives underestimate what it will take to deliver that. They need to put the customer at the center. Product excellence as an example, it’s about personalizing the product. On the seamless service side, it’s not just reacting, but being proactive in engaging consumers through intelligent experiences. They recognize they need to operationalize their technology, putting the requisite incentives and rewards in place, the organizational change is required. Much of this is what retailers have been talking about for a while, but it’s a matter of putting action behind the efforts.”
Interestingly, there was a difference in tone and the priorities of brands that were deemed “high-performers,” defined by three metrics: Same store sales, margin and inventory turn. Garf believes the behaviors of high-performance retailers is where the industry should be looking to set future strategy. “The ‘A-Ha’ moment for us was when we dug deeper into the data and uncovered the high-performance segment," Garf explains. "They are seeing more opportunity than threats and they are increasing investment in technology by two to three times the lower performers.”
High-performance retailers also prioritized three growth initiatives:
1. Globalization: Both the increased competition being driven by international brands and the opportunity for their brands to move into new international markets.
2. Strategic partnerships: Smart retailers are looking for ways to improve the customer experience through partnerships such as a store within a store, technology and traditional retail, or other outside the box relationships.
3. New store formats: Integrating digital media into the in-store shopping environment and making it more of a destination experience is a priority for high-performance brands.
High-performers also had different perceptions on the importance of various retail trends. For example, 69 percent of high-performers who see globalization as an important trend also see it as an opportunity, while only 43 percent of lower performers view it as an opportunity. Globalization is also a top growth initiative, cited by 43 percent of high-performers and only 33 percent of lower performers.
Competitive marketplaces that can simultaneously be partners and competitors to retailers were also viewed differently by each segment. While 52 percent of high-performers that noted the importance of marketplaces see their rise as an opportunity, only 35 percent of the lower performers feel the same. New stores and formats were an important initiative for 30 percent of high performers and 20 percent of lower performers.