The predicted demise of traditional brick-and-mortar retailers has become common wisdom as the Amazon juggernaut rolls on and the pandemic supercharged the move to online shopping.
It’s true that the traditional retail model has been under unprecedented strain, but that doesn’t mean that all is lost. There are ways for these players to thrive in the new economy.
To see how, look no further than Target. The big-store retailer knocked it out of the park in 2020. Its most recent earnings and sales trounced analyst expectations. Sales growth for the full year was greater than sales growth over the prior 11 years, combined. Even amid pandemic uncertainty, in-store comparable sales climbed.
Target’s gains suggest far more than just a stellar quarter. Indeed, they show there’s a way for major retail chains and for smaller, regional operators to compete with the behemoth.
The overarching lesson from Target’s success is that retailers and their leaders need to recognize the fundamental — and lasting — shifts in consumer expectations and then move decisively to take advantage of them.
During the crisis, Target shifted quickly to leverage its nearly 1,900 North American stores as assets, enabling it to in some ways to beat Amazon on speed and convenience. It ramped up its omnichannel delivery, offering consumers’ same-day services through in-store pick-up, drive-up pick-up, and its home delivery service, Shipt.
It also acted to make its in-store experience more appealing than its rivals, remodeling many stores and opening 29 new, smaller locations. Once at a Target, customers could count on a whole range of new services designed to make their experience easier and safer, including contact-less self-checkout, check-out with employee assistance anywhere in the store, and online monitoring and reservation of check-out spaces.
While not every retailer can match the scale and branding advantage of Target, they can all benefit to some degree by adopting its approach. Smaller players often have unique strengths they can leverage, such as locally sourced products or better knowledge about their customers.
The Key to Beating Amazon’s Last Mile
Perhaps the biggest lesson from Target is the need to embrace omnichannel marketing to respond to the change in consumer expectations.
That’s the key to leveraging retailers’ physical locations to beat Amazon to the last mile. To do so, they need to invest in their digital and online platforms to ensure that customers have a seamless experience across their devices, whether they’re shopping from home or in the store. Technology and service that allows same day order-to-delivery or curbside pickup execution, easy checkout and multiple payment options should be among the top priorities.
Retailers can also reap benefits from re-imagining their physical stores to save costs and make them more relevant and appealing to customers. The future of retail is likely to look more like the Apple Store — smaller physical spaces will be used as more of a showroom, with customers able to digitally browse the full inventory either online or in-store.
New Model, Reduced Shrinkage
The old model of stocking shelves full of products in large stores in the hope that customers buy them will start to look outdated. Among the potential benefits of the store of the future will be lower base rent, reduced percentage rent as sales are pushed to the e-commerce channel and even reduced shrink.
The importance of leveraging data to understand and influence customer behavior goes hand-in-hand with the greater use of mobile and web platforms.
Tying customers into online accounts and apps can yield a wealth of valuable data that retailers should be using. That data can be used to generate add-on product recommendations or special offers based on a customer’s demographic or past purchases. Operators should also be using the wealth of analytical tools and data available to understand the competitive landscape and how to differentiate themselves from rivals.
It’s clear by now that the shift we’re seeing in consumer behavior is going to outlast the pandemic. Despite that, many retailers seem to be holding back on making the transformation through the necessary investments in omni-channel marketing and the technology that enables it.
It may seem cost-prohibitive right now, but the alternative is fading into irrelevance as the Targets of the world sweep up.
James Pollock is a senior manager, restructuring at Plante Moran.