The Three Pillars of Success in Retail 2020 - Store Intelligence

The Three Pillars of Success in Retail 2020
Retail and Consumer Industries are in a volatile state of transformation and
change. Over the last seventy years three distinct retail business phases can be
identified.

Until 1950, Retail had a captive audience, the economy and its Retailers were producer led and
demand constrained. From 1950-1994, the Retail Industry began the transition to Consumer-
Centricity, for the first time, with supply constraints removed, and distribution networks unleashed,
brands had to create demand for their products and the advertising agency was born. In 1994
Amazon was founded and since then eCommerce has been transforming the nature of retailing.
Underpinning these changes throughout this era, new formats such as discounters, big box
retailers, specialty retailers and fast fashion retailers have collectively re-defined the industry at
various stages.

Undoubtedly, eCommerce has catalyzed change in retail, and physical retailers who failed to
embrace the new reality have struggled and, in many cases, failed. However, the 2008 Recession
accelerated the impact of the seismic shift that was occurring in retail and to win in 2020 retailers
must embrace new concepts and approaches. Retailers who win in 2020 and beyond will be those
who conceive different concepts and approach their consumer in new ways. I summarize these
concepts in three pillars – Community, Connection and Cool. You will note that Consumer is not
one of them, yet Consumer-Centricity is at the heart of all of these concepts. The transition from
producer led to consumer led has already occurred. The music stopped somewhere in a smoke
filled Mad-Men inspired room in the 1980s. It’s not however as simple as focusing on the
consumer, the how is now the most important.

Community

For me Community means two things. Firstly, Consumers in the new Paradigm connect to retailers
and brands they feel share their values. Warby Parker’s “Buy a pair, give a pair” program and the
Toms shoes concept prioritize giving back in addition to delivering quality products. They have
realized that today’s consumer seeks out brands which not only reflect their lifestyle but share their
values and embraced that as a foundational part of their merchandising strategy

Secondly, Brand Communities have become powerful tools for promotion and collaboration. In
retail’s second wave from 1950-1994, Consumer and Retail Industries alike realized the balance of
power had shifted from the Producer to the Consumer. However, throughout the 2000s – the
means by which brands and retailers connected to consumers became increasingly diverse.
Branding formerly meant traditional media buys, billboard advertisements, magazine ads, and
move placements. The sources of product affinity became increasingly ethereal. Modern
consumers are as likely to be influenced by a YouTube star or Instagram influencer as a traditional
media ad. Online communities such as Sephora’s Beauty Forum are powerful platforms used by
consumers to share reviews, best practices, insights and opinions. Consumers shopping on
Amazon consistently refer to the online reviews posted by the larger Amazon shopping community
to rate products and make buying decisions.

Retailers and brands who embrace customer values and leverage communities to learn from and
connect with their consumer, will drive competitive advantage and win in the new paradigm.

Connection

It’s clear that Retailers who will thrive in 2020 will need to develop ever deeper connections to their
guests, brand partners and associates. Much of what consumers love about the online experience
has to do with connection --- a deep understanding of their shopper journey, interests, purchase
history and stated preferences aggregating to individualized experiences and recommendations
which drive closer affinity to retailers and their brands. For brands – the online experience
provides an increasingly valuable feedback loop directly with consumers which enables brand
developers to test and experiment with new concepts, collaborate directly with their consumer, and
take calculated risks with limited scope.

New in-store technologies allow deeper levels of connection to consumers, associates and brand
partners through electronic shelf labels enabled with NFC, locationing, connected shelf edges,
Bluetooth Low Energy beacons and various types of connected promotional displays. With these
emerging technologies in place In-store retailers can enjoy the same advantages as online retailers
in being able to connect directly with shoppers and deliver individualized experiences through their
mobile device. This combined with the physical immediacy of products and instant delivery can
drive significant competitive advantages for the in-store retailer.

Fundamentally, in-store retailers who create unique and personalized experiences for their
shoppers will thrive in 2020. Consumers crave unique experiences and connection and Connected
Stores can deliver this experience.

Cool

At the end of the day, no amount of new technology, connected experience or brand values can
compensate for sub-par merchandise. While retailers must continuously innovate with formats,
delivery mechanisms, in-store experiences and channels, fundamentally, it’s about the
merchandise. Retailers who deliver unique and engaging products will always triumph, even if
Community and Connected Experience become table stakes. But what does that mean in 2020?

The Retailers who thrive in 2020 will be those who innovate around merchandise, experience and
service. For example, Gucci DIY custom merchandise is a great example of already cool
merchandise which is enhanced by a personalized option. New technologies like AR (augmented
reality) are already delivering new experiences in retail. For example, Lacoste’s LCST AR App
enables shoppers to virtually try on sneakers. Gelson’s Markets Sip and Shop is a great example
of service innovation. Shoppers can enjoy a glass of wine at the Gelson’s bar while an associate
picks their basket and delivers it to their car. These kinds of innovative models will characterize the
winners in 2020.

Conclusion
Despite volatility, turmoil and increasing challenges from online competition, the rise of digitally
native brands and brand partners who are increasingly looking to directly connect with the
consumer, there is a great future for in-store retail. Those who innovate, focus on the consumer
and deliver cool merchandise, experience and service will thrive. In subsequent posts, I will expand
on each of these areas.

Footnote: the importance of Connectivity in the post-Covid world.

Through the massive upheaval of the Covid-19 crisis, frontline workers in grocery retail, food
service and distribution have worked tirelessly to support the essential services we all need. It’s
clear that in the next normal, many of the elements of Connected Store will become critical to
retailers and their customers. As more retail moves to different channels where the store becomes
a micro fulfillment center as well as a store, the ability to optimize and understand shopper and
associate journeys through a physical space becomes exponentially more valuable. Shoppers
have grown used to online retail in areas where the store previously dominated and in grocery, the
Covid crisis has likely precipitated a paradigm shift in the way shoppers engage with their favorite
brands. Store Intelligence Connected Store capabilities will deliver a significant competitive
advantage in the post-Covid era.