It’s The Business Model Itself That’s Changing: Top Retail Trends
By Jonathan Marek, APT, a Mastercard company
It is no secret that retailers are facing headwinds due to increasing online competition and shifting consumer preferences, among other factors. In response, they are growing their offerings, from implementing new technologies like augmented and virtual reality (AR and VR) to revamping the in-store experience.
With these new formulas for success come new considerations and pitfalls for retailers to consider as they innovate and strive to understand how different channels and customer touch points interact. Based on experience working with leading retailers globally, here are four retail trends to watch.
Give Shoppers A Reason To Visit The Store
Retailers need to think like Disney World: it is the experience that people pay for. You can buy goods in a variety of ways, but in-store is the only way you can truly experience them. In response to online competition, brick-and-mortar retailers are ramping up their experiential merchandising strategies to drive traffic. For example, Nike recently dedicated space in 5,000 stores to their new Nike Pants Studio, and supermarkets like Bristol Farms have added butchery services, while other retailers are offering personalized experiences.
While retailers hope to drive traffic to stores, grow baskets and build engagement with their brand by introducing elements that are only available in person, as with any initiative, success is not a guarantee. Retailers must ensure that new experiential strategies drive incremental sales and justify the space tradeoffs — and carefully determine how these initiatives affect business decisions around staffing levels, employee specialization and personalized outreach.
Retailers Blur The Lines Between Online And In-Store
In addition to turning physical stores into experiential destinations, retailers are blurring the lines between online and brick-and-mortar retail by enhancing omnichannel offerings with faster delivery options. For example, to accelerate growth in China, H&M is collaborating with Alibaba to make H&M available on Tmall, China’s largest e-Commerce platform.
While only 40% of retailers have merged online and offline channels so far, an additional 34% plan to do so in the coming years. Any new service or product has implications across all channels, yet measuring the omnichannel impact of new initiatives is challenging. Without accurately analyzing the total channel impact of new innovations and deciding whether a collaborative or in-house strategy works best, retailers risk losing share to the competition.
Retailers Subscribe For Success
On the heels of subscription pioneers such as Netflix and Blue Apron, retailers like Stitch Fix have followed suit, creating new recurring revenue streams in the process. Most recently, Under Armour is introducing ArmourBox, and Rent the Runway continues to refine its subscription programs with lower-cost options.
Subscription services necessitate focusing on key performance metrics beyond sales comps, including customer acquisition and retention, making strong customer analytical capabilities a key ingredient for success. To win in this space, retailers must use these capabilities to tailor customer outreach for new, current and lapsed customer segments. With many subscription boxes offering a discounted rate, retailers also must measure the long-term effect of these services on customer loyalty and customer lifetime value. Subscription retailers who come out on top will know how to best maximize total sales, design customer outreach and build basket size.
Private-Label Brands Become Highly Publicized
With 68% of retailers growing their in-store assortment, according to a recent report from APT, a Mastercard company, incorporating research and analysis from the Economist Intelligence Unit, many retailers are turning to new private-label products to drive their businesses forward. For example, grocers like Lidl and Kroger are offering apparel brands in a move that can provide a halo effect across the store.
In these new endeavors, retailers will need to reevaluate their merchandising strategies. What is the optimal mix and space allocation for private-label products in stores? Do new offerings cannibalize or build add-on sales for other products, both online and offline? To answer these questions, retailers must look at customer baskets over time to analyze both what customer segments are buying today, and how new products will affect their total basket in the future.
These four trends are just the start — new channels and customer touch points will continue to emerge, and each one will bring new operational and analytical considerations. For each new opportunity, retailers must understand the impact on profits, customer metrics and channels to truly drive growth for the business.
Jonathan Marek, Senior Vice President at APT, a Mastercard company, leads engagements with casual dining, quick service restaurant, specialty retail, big box retail and banking clients. He has helped clients improve performance through better capital strategy, new concept development, emerging media strategy, media optimization, store labor planning and site selection.