CUSTOMER-CENTERED OMNICHANNEL STRATEGY

Retail strategy in the post ‘apocalypse’ and COVID era

Photo by Heidi Fin on Unsplash

The ‘Retail Apocalypse’

The last decade was a terrible period for retail with 2017 getting coined as the retail apocalypse at the time, as a record-breaking number of retailers filed for bankruptcy and a record number of retail outlets closed forever. But as the infographic below by CBInsigts shows, 2017 was only the beginning, and consequently, in 2018 and 2019, this trend continued. And due to the impact of the global pandemic, 2020 only turned out worse. So far, 2021 has been better, but there is no indication that this trend of closures and bankruptcies is about to stop.

Retail store closures in the US — 2016–2020 — more than 250k stores closed operations momentarily in 2020 & 2021 due to the impact of COVID-19
Retail store closures in the US — 2016–2020 — more than 250k stores closed operations momentarily in 2020 & 2021 due to the impact of COVID-19

The impact of COVID-19 on shopper behavior

This is important because the changes brought by COVID have long-term effects on shoppers’ behavior. Once everybody has lived through a year of COVID-19, new habits are eventually formed. However, these trends were happening before the pandemic and it only accelerated store closures. Therefore, retail closures and changes in consumer shopping behavior that may have taken three to five years to occur happened in only several months. Some of the changes that the pandemic brought about include:

Source: Statista — projected growth of online retail sales — various sources indication higher percentages ranging from 25–40% at times
Source: Statista — projected growth of online retail sales — various sources indicate higher percentages ranging from 25–40% at times
  • Consumers have different expectations for physical retail environments. Consumers expect retailers to exercise good hygiene practices, wear masks, have hand sanitizers accessible, enforce social distancing rules, provide gloves for employees, and have disinfection in-store. In short, consumers expect a low-touch environment.
  • Flexible working patterns — with more people working from home.
  • Retailers are focused on improving offline experiences. 30% of respondents reported that in-store customer service improved in 2020. The report also indicated that 60% of customers believe if they get a great in-store experience, they are more likely to shop offline than online.
  • Lacking brand loyalty. 48% of respondents said they have replaced products they typically purchase at physical stores with competitors’ online alternatives. Now, this could be due to lack of availability also. Among those who switched in 2020, 18% said their old brand was unavailable and 16% said a new brand offered a better discount or price than other options
  • Omnichannel experience will be key to success. 65% of customers show that a good offline experience will result in more online purchases from the same store/brand and vice versa.
  • When asked what drives the customer experience in-store, shoppers indicated product range and variety, quality of customer service, interaction with staff, and convenience factors such as the location and layout or ease of checking out as the main drivers of their experience.
  • After reopenings, as shoppers return to purchase in-store, they will tend to spend more time, which results in larger basket sizes.
  • Despite the impact of COVID-19 which has caused brand switching, customers still want to remain loyal. 57% of consumers remained loyal to a brand during a chaotic 2020, 45% say they wanted to feel like the brand appreciates them, 14% said they wanted to feel like a brand knows me, and 14% want to feel connected with the brand on a common cause or set of values.

Lasting trends

Pre-Covid trends exacerbated by the pandemic

There were three main trends that retailers were observing before the pandemic:

  • Enhanced customer experience. Retailers that have a product-centric sales approach (e.g. cross-sell, upsell) will be at a disadvantage, and those stores whose salespeople serve as a guide or help and provide a shopping experience will be the emerging winners.
  • Digital. Is a major force of change at play, with Amazon as the front runner in this revolution.

Post-COVID changes

There are indications that several changes will be observed in retail:

  • Strip malls or community centers did better than ‘B’ and ‘C’ malls. This is a change as to where people are shopping and shops will most likely move toward strip malls and community centers as business reopens.
  • General stores such as Walmart, Amazon, and Target have grown in power. With shoppers increasing their purchases potentially due to convenience and wider assortments.
  • New digital native brands such as Dollar Shave Club will be beating established brands such as Gillette. This is due to two underlying drives — first, they have strong brands because they are listening to customers and offering messages that resonate with their communities; second, they are direct-to-consumer which gives them the power to collect first-party (end customer) data to make insightful decisions; and third, they have a subscription pricing model which maximizes value for the customer and increases their lifetime value while traditional brands remain transactional in nature.
Dollar Shave Club founder Michael Dubin on a razor-sharp idea | iConic Conference 2017 | CNBC

Strategic post-COVID-19 changes to retail

We will be seeing several lasting changes in the retail sector post-pandemic:

  • Importance of creating an in-store experience that builds trust. Due to the impact of the COVID, customers need to trust stores to deliver their loyalty, which will mean a major shift from discount and product-focused messaging towards a relationship-building one.
Photo by Tristan Colangelo on Unsplash

Leading in the new retail environment

Long-term sources of competitive advantage will come in the form of one or several of the following differentiated advantages:

  • Customer experience
  • Frictionless
  • Low price
Kahn’s retail success matrix — four strategies for winning in a new retail environment
Kahn’s retail success matrix — four strategies for winning in a new retail environment
  1. Use the winning capabilities it has in a quadrant of focus and decide which quadrant it wants to establish leadership in
  2. Pick a second quadrant that it wants to build an advantage in
  3. Deliver at least the minimum deliverables in the other two quadrants

Case example of a retail leader: Amazon

Amazon’s virtuous growth cycle
Amazon’s virtuous growth cycle

Priority 1: frictionless strategy

Amazon invented 1-click shopping and patented it in 1997, which did not expire until 2017, for 20 years. If other retailers wanted to use this frictionless method of shopping, then Amazon could sue them. Simply put, Amazon invented frictionless shopping.

Amazon CEO: Focus on the customer is key — CNN

Priority 2: low pricing

Furthermore, Amazon’s data analytics are providing it with an optimized supply chain that helps it price according to each customer to maximize retention and minimize costs. When Amazon launched back in 1997, it did not have a low-cost advantage compared to traditional players, especially when considering last-mile delivery costs. Even today Amazon’s profits do not come from retail sales. While retail does account for a major share of Amazon’s top line, its profits come from other services including AWS (Amazon Web Services) which accounts for 60% of total profits and fulfillment, logistics, and advertising services. In short, Amazon does not really make profits from its retail transactions and hence it has the advantage to drop its prices to small margins (i.e. cost-based pricing).

Priority 3: reducing the power of brands

Amazon aims to evaluate the power of established products by lowering customer expectation of perceived value in a brand, which does not seem to be succeeding, yet.

Priority 4: enhancing customer experience through an omnichannel presence

Amazon is opening up retail stores that foster convenient purchase and checkout processes, just as easy as purchasing online. The interesting point about Amazon’s retail stores is that it collects customers’ offline data and integrates it with online data to provide an enhanced customer experience on both fronts. Furthermore, Amazon’s offline retail move (i.e. Amazon Go) is providing a frictionless experience, which is at the core of its primary retailing strategy.

Kahn’s retail success matrix — Amazon’s retail strategy
Kahn’s retail success matrix — Amazon’s retail strategy

Case examples of other retail leaders

Everyday low price retail: Walmart

Walmart has extremely lean business operations that allow it to have low-cost advantages. But Amazon’s entry has pushed it to perform on the frictionless and omnichannel delivery of its retail value and to achieve this goal, Walmart has acquired Jet.com bringing an online product, organizational know-how, and talent to bridge the gap.

Kahn’s retail success matrix — Walmart’s retail strategy
Kahn’s retail success matrix — Walmart’s retail strategy

Everyday low price retail: Target

Target's stores are very well designed with an amazing flow from one category to the other through wide aisles, and great lighting and signage. The sales associates are easily identifiable and help customers solve problems and find solutions, rather than push products onto them. Target also collaborates with brands to bring a fun experience into the store such as with Apple and Missoni. In short, shoppers like to shop at Target because it’s a fun experience and offers product and brand partnerships.

Kahn’s retail success matrix — Target’s retail strategy
Kahn’s retail success matrix — Target’s retail strategy

Everyday low price retail: Costco

Costco started as a warehouse in 1983 in Seattle as a membership club. Its strategy is to make money off of its membership program and guarantee the lowest prices on the market through buying in bulk from suppliers. The downside of this strategy is that Costco has a limited product assortment as it stocks about 4,000 items while Walmart stocks over +100,000 product lines. Costco also employs a treasure hunt or limited stock tactic whereby 20% of its stock may not be available next time shoppers go to its stores which entices an impulse purchase behavior and gives its shoppers a unique and differentiated experience. However, on the downside, Costco does not offer a frictionless experience and this made it lack service during the COVID period and has partnered with Instacart to overcome this lag but it still is not a great solution compared to Amazon. But despite this, CostCo still managed to do well as it has a loyal base of customers who enjoy the experience and the low-cost bulk buying approach.

Kahn’s retail success matrix — Costco’s retail strategy
Kahn’s retail success matrix — Costco’s retail strategy

The case of luxury retail

Kahn’s retail success matrix — Luxury’s retail strategy
  • Amazing offline exprieince
  • Connecting these experiences through customer data which can be gathered either online (e.g. mobile app) or offline (e.g. sales associates)
Photo by Korie Cull on Unsplash

Technology as enabler of success

To build better brands and communicate the true value of a product with customers, content development and management, digital marketing, and customer data analytics will be key to success.

Kahn’s retail success matrix — Technology enablers of success
Photo by Artificial Photography on Unsplash

Post-COVID online/offline integration

While we know that shoppers will most likely make mundane and repeat grocery shopping online, the future of offline retail is integrated into delivering a differentiated shopping experience. This will require malls and traditional retailers to move towards customer-centered omnichannel retailing whereby they deliver an in-store experience that inspires trust with traditional and digital-native companies converging to be everywhere customers want them to be.

Amazon is going offline and Walmart has gone online

In the post-COVID era, some malls and department stores will never reopen as they will have gone bankrupt and those that do will need to pivot and reconfigure their value proposition. The buy online and pick-up at the store is here to stay triggering a new way of utilizing physical retail space. Today, it is standard to have a front space for shopping and a back office for distribution and fulfillment. If the pick-up culture scales, we may witness a business model change and retailers may repurpose their space and transform more into distribution centers.

Digital native vs. legacy retail players: bridging weaknesses

Kahn’s retail success matrix — Digital native vs. Legacy players
Kahn’s retail success matrix — Digital native vs. Legacy players
Photo by Annie Spratt on Unsplash

The case of China: a forefront in new retail

  • Trust between consumers and retailers needs to start way before they go into the store. While in the US, the trust is provided upfront unless something goes wrong. Therefore it’s quite difficult to establish trust in China and this is where the Key Opinion Leaders or Social Influencers become important for retail. These influencers have shaped what is coined Social Commerce in China
  • Chinese shoppers also share their purchase experiences with others on social media, for example showing their recent purchase of a luxury brand or innovative item to their communities. Which is very different from what one would see in the West
  • China has experienced a retail technology leapfrog whereby 98% of retail purchases are made on mobile phones. And therefore, online channels are optimized for social purchases which through the ease of changing apps, sharing content on social platforms is very easy
  • While the West has maybe too much retail space per capita, China lacks this infrastructure, especially in 3rd, 4th, and 5th tier cities. And therefore online and mobile retail has grown tremendously
  • Payments in China is quite frictionless, with mobile tap and QR code scans, making checkouts and final impulse decision of customer seamless

Retailer’s strategies in China: Alibaba

Most Chinese retailers including Alibaba did very well during COVID as most of their business was online to start with. Alibaba is a treasure hunt platform that’s about product discovery and killing time or Shoptainment. It has two big platforms that it operates, Taobao and Tmall.

  • Tmall — is about developing and delivering brands to Chinese consumers with many Chinese and international brands wanting to connect to the lucrative Chinese consumer
Kahn’s retail success matrix — Alibaba’s retail strategy — Alibaba has a diversified portfolio approach through Taobao and Tmal and hence there are more combinations of positioning in its retail strategy matrix
Kahn’s retail success matrix — Alibaba’s retail strategy — Alibaba has a diversified portfolio approach through Taobao and Tmal and hence there are more combinations of positioning in its retail strategy matrix

Retailer’s strategies in China: JD.com

JD is smaller than Alibaba and is about efficient shopping with 50% of the assortment owned by the platform and within its control, and the other 50% as a marketplace where merchants sell on their platform. JD is very similar to Amazon where it offers peace of mind to the customer that they are not buying counterfeits as the platform controls the assortment.

Kahn’s retail success matrix — JD.com’s retail strategy
Kahn’s retail success matrix — JD.com’s retail strategy

Retailer’s strategies in China: PinDuoDuo

PDD started in 2015 as a low-price marketplace very similar to a dollar store similar to Dollarama with commodity products. But gradually PDD took the low-price strategy and combined it with a fun customer experience through group buying.

What is Pinduoduo? | KrASIA
Kahn’s retail success matrix — PinDuoDuo’s retail strategy which makes it a market leader on three strategic fronts, propelling to fast growth and profits — a unique market position to be in
Kahn’s retail success matrix — PinDuoDuo’s retail strategy which makes it a market leader on three strategic fronts, propelling to fast growth and profits — a unique market position to be in
Photo by Alexey Mak on Unsplash

Brand strategy and retail

Formally, a brand is a proprietary trademark for a specific product or service. Conceptually a brand is a contract between a company and its customers that promises specific benefits, quality, and value and aims to deliver a mutually beneficial relationship. In reality, a brand is no longer what the business tells the consumer was it is, but rather what the consumers tell each other about it.

  • The point of differentiation relative to the competition
  • The frame of reference or the context from which consumers view it
  • The reasons to believe the promise

Brands as a force for ‘good’

Brand Citizenship — from ME to WE —the ‘ Me-to-we ‘continuum to help businesses gain lasting credit for sustainability and social responsibility initiatives
Business as a Force For Good — Sarah Wleklinski — Director of Retail Strategy, WE, Nike
How Nike Turns Controversy Into Dollars | CNBC
Photo by Sangga Rima Roman Selia on Unsplash

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Nima Torabi

Nima Torabi

1.3K Followers

Never not learning, always growing — nothing is written, and nothing is not written, the journey is the goal