The Path to Retail Reinvention, Part 1: The Challenge

This is the first installment in a four-part series examining the role of CPG marketers in reinventing retail through bigger, more consequential in-store experiences. In this article, we look at the multiple pressures confronting bricks & mortar stores and the need for new thinking.Take a look at the workload piling up on your desk. Maybe you’re staring at some new packaging ideas, or another seasonal initiative from the account team, or even a major rebranding proposal. Big problems, big challenges, right?Wrong. You’re not thinking big enough. Thinking big is imagining a world where bricks & mortar stores are quaint relics of days gone by, like drive-in movies or carhops. A world without stores – for CPG marketers, at least – may seem light years away, but many industry observers say that today’s retail industry already is headed that way, and a lot faster than most executives realize.“Bricks & mortar retailers are facing critical challenges,” says Patrick Fitzmaurice, principal, The Capré Group. “Channel dynamics in both bricks and online are fragmenting shopping patterns and accelerating competition for trips. Online shopping has raised consumer expectations for a higher-level, more-tailored in-store experience. The path to purchase is hyper-complicated with ever-evolving digital overlays. The best operators know they have to reinvent their brand promise as well as the in-store shopping experience.”Joseph Magnacca, president, daily living products & solutions at Walgreen Co., agrees. He recently told Shopper Marketing magazine (see Related Articles) that because of the competitive pressures posed by e-commerce and channel blurring, Walgreens has begun to look at each store as a unique footprint or “snowflake.”“Every store needs to have some sort of ‘theater’ or reason for being,” Magnacca says. “We have to give people a reason to come to the store.”A Blunt WarningE-commerce, of course, is already a disruptive force inside the store due to “showrooming,” a term learned instantly, industry-wide, in the wake of a February 2012 memo from Target CEO Gregg Steinhafel to the chain’s “most important vendor partners.” Painfully aware that mobile phone apps that do price comparisons are becoming commonplace, Steinhafel warned that Target would not “let online-only retailers use our bricks & mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands.”The memo seemed to offer two primary differentiation options: provide more exclusive merchandise or lower your prices if exclusives aren’t available.But there are even larger disruptors on the horizon, and none is more significant than Amazon.com’s recently reported test of same-day delivery. New distribution centers and distribution points, including lockers in bricks & mortar stores, make CPGs and the center store more vulnerable. If Amazon can get items to shoppers in a day or less, shelf-stable and even perishable goods become a much easier sell. “If [Amazon] can pull that off, the company will permanently alter how we shop,” wrote Farhad Manjoo, Slate.com’s technology columnist. “To put it more bluntly: Physical retailers will be hosed.”Hosed? Not quite yet, but the game is definitely on. “The trade-off between online and offline will continue until one does something interesting and appealing to the shopper,” says Piers Fawkes, co-founder, PSFK. “What will be a tipping point?”How things will tip definitely involves CPG marketers, whether they like it – or even realize it – or not. And many major consultants already are challenging their clients with questions like:Is your company able to focus on truly big ideas for “retail reinvention”? These ideas can be a challenge, as they may span entire categories, be complex to execute, require joint planning with multiple stakeholders and require higher levels of executive approval.Are you discussing how you might create an in-store shopping experience that employs popular online shopping principles? According to Bruce Vierck, vice president at RTC, a global retail consultant, these principles include the bundling of multiple products into broader solution sets, the integration of user opinions, instant feedback and/or tutorials, and the delivery of a consistently updated presentation of new ideas.Is your company thinking about the shopper’s “higher-level” needs in-store? Vierck cites Nike as a prime example of a company that understands this principle: “You don’t go to Nike’s “Running Store” to look for a shoe,” he says. “You can do that anywhere. You go to that store because you want to become a runner – that’s the ‘higher-level’ need.” Nike meets this need by offering smartphone apps, coaching, related equipment and access to social media, an approach that is richer and deeper than a conventional “brand shop” or “store-within-a-store.”Can resources be shifted to plans that look three, five or even 10 years down the road?Is there a dynamic figure in your organization who can lead the charge?Rough Language Alert“There’s really no right answer to these questions,” says Fitzmaurice. “No one has figured it out.” The first hurdle, he adds, is to determine exactly what it’s going to take to get marketers, manufacturers and retailers to collectively say, “Oh sh*t,” and then get to work on long-term plans?Consider, for example, the rate at which center store sales are moving online: $1 billion in diapers, $500 million in pet food and $250 million in health and beauty items is expected to be spent in 2012, according to the GFK Group. Are diapers a traffic driver for your categories? Consider that 30% of diaper sales have moved online in some non-U.S. markets, according to James Sorensen, senior vice president, TNS Retail & Shopper. And these kinds of shifts in shopper behavior don’t stop at borders.Perhaps more urgently, should candy or gum vendors be worried about what will happen when the checkout lanes go away? Roughly half of smartphones in use will be NFC-enabled by 2014. “I feel it in my gut that it’s going to be a huge disrupter,” says Laura Davis-Taylor, senior vice president, BBDO ShopWork. Skeptics need only visit any Apple Store to experience just how seamlessly such systems can operate.And what about the “First Moment of Truth,” or the “Zero Moments,” or the many rapidly moving, ever-changing “moments” dictated by generational and technological differences? “Think about how Facebook wants to be the center of all activity,” says Valerie Jacobs, vice president and group director, LPK Trends. “Is that the future of retail? Not a digital, but a social hub. Is it going to shift entirely to something that we’re not even thinking about? It’s appropriate to be having an ‘oh sh*t’ moment; some of the questions aren’t even being asked.”Retail and CPG executives who aren’t asking these kinds of questions – and this goes to the highest levels of the executive suite – are already behind on the path to retail reinvention. There certainly have been enough attention-getting casualties. Borders Books, Blockbuster and Circuit City were early victims, and today every retailer and the brands sold within are at risk.“Perhaps the ones that are left will wake up,” says James Damian, founder of Damian Brand Integration Services, and former senior VP and chief design officer at Best Buy. “Eventually, retailers and manufacturers will have to grasp some true shopper insights and, instead of just trying to sell them things, provide shoppers with the goods and services they want. They’ll have to say, ‘If you’re going to find a better price that we aren’t aware of, we’re going to take care of you.’ There’s no other way.”Ticking Clocks & Time BombsRetailers and their CPG partners already have the information they need to reinvent the store. It’s in the shopper data collected at store level by retailers and the research conducted by CPGs. The trick is putting it all together, understanding it, developing actionable plans and getting buy-in across categories and departments.One thing experts agree on is that shoppers still head to bricks & mortar stores (the locale for 92% of all U.S. retail sales according to Forrester Research) because they like to touch, feel and try products in many categories. And that’s especially true of supermarket shoppers.And Sorensen, for one, thinks that fewer shoppers are actually using smartphones in stores to compare prices, availability or get deals than we’re led to believe: “There’s a ton of hype out there on how there are all these revolutionary technologies, yet I research every day and there is no one pulling out smartphones to decide what to buy in the carbonated beverage aisle. There’s a lot of habitual behavior, and grocery is going to be a really slow mover. But when you start dealing in the CPG space, there are going to be changes based on the impact of technology.”But whether it happens today, tomorrow or next week, there’s no doubt that as online retailers like Amazon and eBay perfect efficiencies in distribution and moving bulk items, the center store will become more vulnerable.It’s survival of the fittest, but that’s hardly new. “It used to be relatively easy to make money in retailing,” says Eric Gordon, professor of retail marketing at the University of Michigan. “You opened the only general store in Oshkosh, Wisconsin, and people came from miles around to buy your stuff. You just had to make sure it was the stuff they wanted.” Then came competitors and their innovations, and with each, he says, retail was prematurely declared dead: Malls were going to kill individual locations, supercenters were going to kill grocery, “and now Amazon is going to kill everything.”But retail persists, says Gordon, because the operations that can’t innovate are replaced by entrepreneurs who can: “If the entrenched people can’t get over their power battles and myopia, new people will make it happen. And it will happen, over their battered, bruised, dead bodies.”Most retailers today, Gordon says, are either realtors who rent shelf space, or logistics specialists who can move large quantities of goods more efficiently than ever. But the days of succeeding solely on these terms are rapidly coming to a close. “We have the best operations people on the planet, but we don’t understand the marketing,” he says.“It’s important to remember that people go shopping for the same reason they’ve always gone shopping – for social reasons and to fulfill wants and needs,” says Fawkes. “But the behaviors and expectations change. You need a better understanding of the customer.”Magnacca says that one reason Walgreens invested heavily in e-commerce is “because we believe that she will shop the way she wants to shop and when she wants to shop.” He does think that certain products such as impulse items, fresh produce or cosmetics that require testing or consultation may be more resistant to showrooming pressures because they involve the “excitement of shopping.” However, he adds, “We know that the in-store experience needs to be pretty incredible to get people into the stores.”Cliché Alert!Manufacturers and retailers need to come together and collaborate as never before. Odds are, you’re probably really, really sick of hearing lines like that at seminars, workshops and in the pages of this very magazine. The point of this first article is to stress that this series won’t be examining your father’s kind of industry collaboration. As one industry vendor puts it: “A lot of brands think they are doing a ‘category reinvention’ by just installing a lot of navigational signage – hot dogs here, buns over there. That might’ve made sense 10 years ago, but those days are over.”Among the questions to be posed in the next three articles: Why don’t CPGs – and retailers especially – seem capable of collaborating on bigger, more consequential programs? Are there other types of organizational structures that might allow them to rewrite business practices, boldly experiment with new formats, share data and think long-term? And what will it take to ensure that good concepts and successful store tests don’t stall out and instead, turn them into viable, long-term programs? RTC is a global team of more than 900 retail strategists, researchers, designers, engineers, manufacturing experts, logistics orchestrators, technology specialists and program managers who are helping some of the world’s best brands and most respected retailers to reinvent their retail presence. About the AuthorLaura Heller has been reporting on mass-market retail trends and initiatives since 1995 as a reporter for trade magazines, business outlets and Web sites including Discount Store News/Retailing Today, Grocery Headquarters, Chain Store Age, Consumer Electronics Daily, Drug Store News, Home Channel News, the Photo Marketing Association Magazine and License! Global.Her blog – The Point of Purchase – appears on Forbes.com, and she also contributes to Yahoo!, Store Brands Decisions, Dealnews.com and Ycharts.

The Path to Retail Reinvention, Part 1: The Challenge

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