By John Howard, SVP, Applied Predictive Technologies
Consumers today are demanding personalization, service and immediacy. To keep up with shopper expectations, it's more important than ever for retailers to enhance and integrate the physical and digital. As we move further into 2017, the retail world will see a reversal of some previous trends and the emergence of others.
1. Brick-and-mortar's got a lot of life left
Once thought to be taking a backseat to e-commerce, brick-and-mortar is increasingly relevant within the entire omnichannel toolkit. Big-box retailers are introducing small-format stores to better connect their physical and digital channels; for instance, IKEA has opened several “order and collection points” where customers can pick up online purchases.
This trend manifests most clearly among online-only players that are establishing a physical presence. Amazon already operates physical bookstores and plansto open several grocery stores. Warby Parker, Bonobos and Casper are among other online-only players introducing physical stores to provide customers with tangible access to products.
A data-driven approach enables retailers to make smarter decisions as they make these changes. For instance, retailers can leverage customer insights like channel preference or shopper travel distance to pinpoint locations where certain programs will thrive and generate sales across channels. Evaluating how incremental profit contribution varies by store size, product assortment and labor hours also helps drive strong return from physical store investments.
2. Not showrooming, but smart use of store space
As retailers have integrated channels and begun to price-match more closely with online competitors, fears of the dreaded "showroom effect" seem to be in the past. Retailers are turning stores (and completely new venues) into spaces focused on educating customers about products, rather than sales. Some “showrooms” don't hold inventory at all. Target’s Open House in San Francisco is far from a traditional store space as it focuses on educating consumers about "smart" home devices. Other retailers are turning to completely new avenues to showcase products. For instance, West Elm and Restoration Hardware are both opening hotels to feature their furniture via the ultimate product demonstration.
Retailers must balance the desire to educate and entertain with the ability to convert purchases. Attributing a customer's in-store experience to a later purchase in another sales channel is challenging, but essential to understanding the impact of these efforts.
3. Experiences build the brand
Consumers are increasingly seeking unique experiences when shopping. In response, retailers are offering new programs. For example, Toys R Us hosts Lego-building workshops, Pokémon trading and birthday celebrations.
Experimentation with in-store experiences is key to ensuring new programs don't just drive traffic, but also incremental sales and sustained brand preference. While experiential programs can be costly, deploying these initiatives in select locations allows retailers to determine which initiatives work, and which stores in their network will generate the highest return from such investments.
4. Minimum effort means maximum sales
Retailers are taking advantage of new technologies that make it easier for customers to find and buy exactly what they want. For example, Sephora shoppers can message chatbots to make reservations and match makeup colors. Similarly, Saks Fifth Avenue has implemented Salesfloor technology that allows online shoppers to chat with sales associates at nearby stores and make appointments to meet.
Consumers seek easy shopping and ordering, and they want products in-hand quickly. In response, retailers are introducing faster shipping and buy online, pick up in-store options that expedite delivery.
Quantifying incremental sales and profit across channels is critical to account for purchases driven by cross-channel browsing and comparison. Retailers must measure both the impact of new initiatives on staffing or inventory and how it varies by location. For example, while chatbots may typically reduce the need for sales staff, an associate’s personalized service may benefit specific customers and product offerings. Similarly, in-store pickup may require delivery frequency increases and surgical inventory adjustments, plus carefully calibrated and timed adjustments to labor to handle the additional product and pick-ups.
5. Inventory that fits just right
Retailers are looking to reduce inventory where possible to expedite inventory turn, cut backroom and distribution costs, minimize markdowns and de-clutter stores. Nordstrom, Home Depot and Ross are among those that have reduced inventory levels. Some retailers are also offering products as online exclusives. Target, for instance, scaled back the number of products in backrooms and stopped carrying bulky items like patio furniture in stores. Others are hoping new fulfillment techniques like ship-from-store, which lululemon recently expanded will help with inventory cutbacks.
Cutting inventory is rarely straightforward; it can mean costly out-of-stocks, and accurate product demand forecasting by sales channel and location is challenging. By experimenting with different product styles and lines, as well as inventory availability across channels, retailers can better anticipate local inventory needs and improve demand fulfillment without overstocking.
These initiatives, from new omnichannel programs to in-store experiences, represent both risk and reward. Given the challenge to innovate profitably, retailers must prioritize a pipeline of business experiments, enabling them to understand true ROI. Equipped with the right tools, retailers can effectively position themselves to innovate through 2017 and beyond with new ideas that significantly drive profit.