We are all aware that retailing is changing, but, are you taking the appropriate steps to work with the changes?
Many performance reports I see have the same pattern. Overall in-store sales down, gross profit down, average sale and average price down, whilst stock turn is up. This indicates that retailers are drawing consumers in based on price. This may work in the short term, but is not a long term strategy to build customer traffic.
Not all retailers are joining this trend, there is movement going on that is changing the way consumers shop. Yes, online retailing is growing, but whilst “clicks” retailers are starting to open “bricks” stores, “bricks” stores are opening “clicks” stores. The reason for this is that consumers love the shopping experience as well as the convenience of shopping.
The future store
Imagine walking into a supermarket and carrying out your weekly shop and then attending a cooking school and using the keep-fit facility in the same building under the same brand. If you live in some American communities this is already happening and the definition of what is retailing is blurring at the edges.
There are some key trends taking place. The aim being to stop customers from being “poached” by the competition.
What does a retailer need to consider to develop their business?
The traditional retailers approach to increasing sales it is to cram more product into the store and to provide more choice and a bigger range. That has now changed. Retailers are now considering how they can reduce the range and to allocate more space to developing experiences for their customers that will keep these customers coming back to them rather than drifting away to the competition. As a result of this product is being removed and replaced with destination facilities linked to the retail function such as cooking, gardening and hardware schools. Space is also being developed to encourage the consumer to linger longer, the facilities include child care, coffee shops and keep fit facilities.
The allocation of retail space and experience space is critically important in the future development of “bricks” retailing. The customer can purchase more product online which means many products can be stored rather than merchandised and that space can be used for building an experience.
In 1906 Joseph M Juan observed that 80% of the land in Italy was owned by 20% of the people. A result of this observation was the study of the Pareto Principle or 80-20 rule. This rule still applies today and applies to retailing 80% of the effect comes from 20% of the cause. If a retailer reduced 20% or their product line they would see a marked increase in their financial results, plus more space available for creating experiences.
I recently worked with a “fast food” retailer who was having financial problems. Amongst other things he was offering 7 different sauces for the sandwiches he was making. He mentioned that two of the sauces kept going “off” and had to be thrown away as customers were not using them. The answer, do not offer them. If customers ask, be honest. If it does not sell do not stock it. Many department stores are now reducing their range because of this principle.
Do not think you know what customers want
Successful retailers do not think they know what customers want. They find out what is wanted by asking not only their existing customer but also the potential new customer. Millennials are the new consumers and they think differently to older customers and have different needs and wants. The secret is to provide what the more traditional consumer is looking for, but to also provide what the new young customer is looking for. This may mean a retailer needs to develop focus groups with that age group to understand what their needs are and how to address them.
Retailing in the future will need to focus on providing consistent experiences that will entice the customer to keep coming back. These customers will not be loyal in the way they were in the past, but provide experiences and they have a reason to keep coming back.