Retail is on a precipice. The power balance is shifting to highly educated, very demanding consumers who want what they want, where they want it, and at the price they desire. Teetering in the balance is the business plan of every retailer and manufacturer on the planet.Nothing short of a retail revolution is underway, and no old price, positioning or superstore is safe. Decisions on moving toward the future are left to the individual retailer, but we offer a few strategies to keep in mind:
Consider the Shopping Needs of Different Generations
Currently, 5 generations are active shoppers —no two with the same needs or buying habits. Less buying on the part of Baby Boomers and the “Silent Generation” — who have “aged out” of their peak consumption years — will make for an annual decline of $55 billion in retail spending. Meanwhile, the “big basket” shopper roles previously filled by those Boomers are not being assumed by their children. Millennials are buried under more than a trillion dollars in student loan debt. They are delaying starting families, sharing urban apartments rather than purchasing homes, and spend less altogether due to comparatively smaller incomes. The majority of Americans earn less than $20 an hour and 25% of workers are part time. For retailers, it all adds up to a more complex and less profitable marketplace.
Differentiate Your Offering From Your Competition
Retail strategists suggest that only two core positionings deliver superior return on invested capital:
- high quality
- low cost
Only about 30% of retailers currently fall into one or the other of these brackets. The remaining 70% reside in the middle and have the lowest growth rates and lowest returns on invested capital.
For example, Aldi recently became the sixth largest supermarket chain in the U.K. after a 17% sales spurt in 2015’s first quarter. Lidl, another bargain player, rose 12% in the same period. Meanwhile, in April, Tesco posted a record loss of $9.7 billion, due largely to a write-down for unsuccessful store expansion. On the quality positioning side in the U.S. is Wegmans. The family-run chain fills half its selling space with fresh and prepared foods and continues to thrive in large-format stores, while hundreds of others shut their doors.
Localize Your Footprint
This is another positioning strategy that will be employed by daring retailers who will decide to cede some territory and shift to smaller footprints that will address shopper demands for proximity—especially in urban areas. This strategy will require SKU rationalization and reduction and will surely create flux in the brand supply chain and revenue stream.
Engage Customers Digitally
The prediction is that 30-50% of transactions will take place through a digital platform and about 25-30% of the store will migrate to online purchase within the coming decade. Now, using the Savings Catcher app, Walmart customers don’t need to monitor competitive prices. They just scan a barcode on their receipts and, in 72 hours, Walmart delivers them the value of lower prices in their areas in the form of a Walmart.com gift card. “With mobile, we can make a small store feel like a big store and a big store feel like the Internet,” says Gibu Thomas, Walmart’s SVP of mobile and digital.
The blended world of mobile and store based Retail will offer a number of new, powerful ways to reach the consumer. “Intermediaries” such as RetailMeNot and Instacart are growing rapidly and could soon represent the gateway to delivering mass shopper activation.
Maximize Private Label
CPGs are capable of creating exclusive, chain-differentiated solutions—backed by marketing dollars—that lead shoppers to brands, and give them compelling reasons to buy. Kroger, meanwhile, has reported 24 straight quarters of sales increases rocking a four-tier own brand strategy covering everything from low-cost to super-premium. The chain’s private label business is approaching $20 billion annually and accounts for a quarter of all its revenues outside of its pharmacy and gasoline businesses.
Apps, mobile search, and even websites on desktop PCs (still the highest-volume transactional vehicles in the digital world) are making delivery options checklist items on retail battle plans.
New forms of retail collaboration will require new more flexible and collaborative organizational structures, leveraging new, more powerful retail insights and understanding of how to drive shopper behavior. Shopper activation will be critical, and it will need to be achieved across multiple touch points.
Perhaps the most important requirement of this brave new world will be the willingness to test and learn. The brand manufacturer world must acclimate itself with the concept of “fail fast, fail cheap.”
For information on how WestRock is developing innovative in-store solutions to turn shoppers into stoppers and browsers into buyers, call your WestRock representative.