The Future of Retail- Thinking Outside the Big Box

Retail is undergoing a profound transformation worldwide, driven by advances in technology. A key driver of these changes is the alignment of advances in shopper data analytics, deeper insights about in-store behaviour of shoppers and new social media behaviour analytics tools. Marketers from many segments such as fashion, telecom, grocery, merchandise and others can benefit from these emerging best practice strategies.

Macys is leading this transformation in the US with some innovative strategies. I talked about the trend towards localization and channel integration in a recent BNN interview and specifically about the role of online shopping to drive business growth.

We have seen some progression towards localization and channel integration in Canada in the grocery category. Canadian retailers have also made excellent progress in reorganizing stores such as locating high frequency purchase items (milk, eggs, bread) towards the periphery of the store and emphasizing sights and sounds of sensory lines (bread, Coffee) at the front end. Attention to detail and staging is critical. For example, Martin Lindstrom in his book, Brandwashed, talks about how Supermarket chain Whole Foods uses specific display techniques to reinforce its position of natural and organic products. He points out that when you enter many Whole Foods stores, employees are cutting fresh flowers. They are telling you at a subconscious level that, in fact, everything is fresh in this store.

There is a lot of room for improvement. It requires a deeper dive into what motivations of shoppers.

Here are some strategies being adopted by leading innovators in the US and Europe:

Localization of merchandize:

A significant trend in retail is to localize distribution and product offerings. This is a departure from the traditional centralized warehousing model. In the localized model adopted by leading innovators like Macys, store inventory is linked to local shopping patterns and preferences. Macys has seen a 2.5 percent increase in same store sales in its pilot stores that have adopted the model. We have seen this model being adopted in grocery retail to some extent in the larger cities in Canada. It is yet to shift in a significant way into other product categories.

For example, a key component of Macy’s strategic plan for growth is to adapt the company’s fashion expertise and offer it to customers in a highly customized merchandise mix that is aligned by region, city, and store based on a profile of shoppers in each area. A strategy that is increasingly being adopted is to dedicate 15 percent of the merchandise for the customers who shop regularly at a store. This approach has increased the appeal of retailers as strategic business partners for emerging local vendors. 

Integrate shopping channels

A key driver of the trend toward customization has been a deeper understanding of shopping behaviour in-store.   Retail brands that integrate their online stores with in-store inventory are likely to see increased top line growth. In store pick up is a growing trend in Canada and the US. Shoppers buy merchandise online and pick it up at the store. According to an article in the New York Times, this strategy is increasing store traffic by offering new occasions for store visits, especially by  Wal-Mart, Macy’s, Best Buy, Sears, and other retailers. For example, Arcus’s research indicates that heavy users of social media spend up to 1.4 times more online than light users of social media. Retailers that align online engagement strategies with heavy social media users are likely to see increases in both online and in-store sales.

Customer-Centric offerings

An essential strategy of customization requires points of differentiation. Offering exclusive lines and unique merchandize can be powerful tactics to differentiate retail brands from the competition. Retailers that leverage their portfolio of private brands and offer exclusive merchandize are likely to attract loyal shoppers. Successful innovators in retail tend to generate 20 percent of sales from private labels and up to 40 percent of sales from private labels and exclusive merchandize. In this clip from CNBC, we learn that the gateway into the store is probably the single most important point of engagement with shoppers and needs to be carefully planned to enhance the shopping experience.

These are examples from Arcus’s retail insights research survey of 1,800 retail executives that has identified a repository of over 3,400 best practices across 36 retail categories. Please share your insights and perspective on other emerging trends that are driving growth in specific sectors.

Merril Mascarenhas

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Tags: Retail, Social Media, Customer Insights, Branding, Experiential, Research, Integration