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Why specialty retailers should tap digital platforms to drive growth

Very few specialty retailers have proven they understand the digital world and everything it can offer. When employed correctly, digital can greatly increase customer engagement, brand loyalty, and sales.

January 14, 2016

By Matt Douglas

I'd like to share some thoughts about how specialty retailers can grow faster using digital platforms. From my perspective, very few specialty retailers have proven they understand the digital world and everything it can offer. When employed correctly, digital can greatly increase customer engagement, brand loyalty, and sales. I believe most specialty retailers do not fully realize how digital platforms can help them grow very fast on all of the financial metrics that matter.

Before we go too far, let's cover an important definition. Specialty retailers are defined as "retail businesses that focus on specific product categories, such as office supplies, men's or women's clothing, or carpet. It isn't the product they sell that determines if a company is a specialty store but rather the breadth of their product offering." Good examples of specialty retailers are pet stores (like Petsmart), office supplies stores (Staples), electronics stores (Best Buy), or in my current industry — party supply stores (Party City).

Specialty retailers have a unique opportunity to own a customer's wallet and mindshare, but very few are investing in platforms and technology to deeply connect with consumers. And that's a shame. In terms of revenue, the impact of digital connection is huge: 76 percent of consumers say they interact with products or brands long before they step into a brick and mortar store and it's estimated digital interactions will influence 64 cents of every dollar spent in retail stores by the end of 2015. That's $2.2 trillion dollars.

5 reasons retailers lag in adopting digital platforms

1) Most speciality retailers are run by management teams that are experts in retail operations, merchandising, and inventory management, but they have very little background in consumer technology and its potential. These are "old-school" managers who are seasoned in retail, but are technology neophytes.

2) Digital teams are often separated from the core management team. One tip-off of this kind of thinking are specialty retailers that have a "chief digital officer." They assign digital as a focus for one manager, rather than being deeply integrated into the core competency of the entire senior management team.

3) Specialty retailers are measured by overall revenue and year over year same store sales growth. This can lead to tunnel vision, where each quarter is spent optimizing existing business and little investment is made in truly disruptive digital technology.

4) To date, most investments in digital are being spent on operation "fundamentals" such as mobile solutions to manage the supply chain and inventory, basic ecommerce fulfillment, and direct response marketing (e.g. coupons, cash-back rewards, search, email). These investments are easy to justify and relatively simple to understand for a brick and mortar specialty retailer.

5) Finance teams at retailers build pro forma models that calculate NPV (net present value) of digital investment projects on too short of a time horizon. Many digital initiatives take long-range thinking, and these investments must be given a long time horizon to succeed.

Matt Douglas is an entrepreneur, startup advisor, and investor with 20-plus years of experience in technology and business.He is the founder and CEO of Punchbowl.com.