What Is Going On In The World?

Retail is a relentless pursuit. You can’t take your eye off the ball for one minute, or you risk losing track of where it’s going next. So where is the world of retail headed? There are ten trends re-drawing the lines of retail competition. The following is a snapshot of each.

1. The World Does Not Need Another…..
In the western world, there isn’t a category of retail that is not contested by incumbent retail businesses. Because of this, customer’s shopping behaviours are already set and – in the case of needs shopping in particular – habitual. With the average person’s shopping habits narrowing rather than expanding, another of “the same” (in the customer’s perception) will not force the customer to re-draw the lines of where they shop.
What does this mean for specialty retail?
If you need to gain a greater share of foot traffic or you are starting a new brand, you have no choice but to do something that is seen and noted by the customer as radically different. In the words of Jack Trout, you must “differentiate or die”. You also have to understand the customers existing shopping patterns and either piggy back on them or interrupt them in order to have any chance of success.

2. Profit Through Volume Versus Specialty Retailing
Profit through volume, market-leaders are a misunderstood breed. Their model is not fully comprehended by many specialty retailers. The price leader in a mass market, high volume franchise is built on a customer perception of delivering the cheapest price on customer benchmarked price reinforcers. These products are always national brands available from multiple outlets in a market.

Profit through volume operators work on gross profit dollars – not gross profit percentage. They offset a lower margin per item through higher volume and increased basket size. They will always have the lowest cost of doing business (CODB). They work the 80/20 rule, constantly trimming the edges of their ranges to focus on always being in stock at the lowest possible price on the 20% of the product that produces 80% of the sales volume.

They are a generalist with a broad offer of departments or categories. Paradoxically, they offer a restricted range within the category itself as they work the 80/20 rule. The “Mass-tige” paradigm shift – prestige allure at mass market prices – has elevated the perception of their ranges to the realms of “cheap chic”.

They are an exploiter rather than an innovator and they forgo immersive engagement in the quest for shallow efficiency and lowest cost of doing business.

What does this mean for specialty retail?
Compete head-on with these giants on price and you are dead. David did not beat Goliath by taking him on in a fistfight. Specialty retailers cost base and reason for existence lies outside pure price competition. Specialty retailers instead have to convince customers they provide a reason to invest their time and other reasons to buy their product rather than the benchmarked national brand.

Specialty retailers need to understand how to use pricing architecture to overcome single item price dominance. They need to move away from products that are easily benchmarked by the customer – this single move could remove the key strength of the profit through volume leader from their armoury. After all, if the profit through volume retailer is the only one that stocks X branded item, how can they reinforce their price leadership?

Increasingly cheap price is becoming a blunt weapon as customer seek service and solutions, immersion and education in order to reduce hassle, increase their personal efficiency, reward them for investing their time and create an easy solution which works for them. Smart specialty retailers are also increasingly focussing on purpose and usage (how and why) rather than the item itself (the what).

3. Time Is The New Gold
The single biggest customer aha moment of the last twenty years has been the realisation that time is finite and what this means to the individual. Customers see almost every other area of their lives – in particular money – as elastic, with the exception of time. We all have too much to do and too many options competing for our time and this had led to what I call the new personal key performance indicator – R.O.T. TM or return on time. Today the customer seeks areas to save time in order to invest time where they get a personal reward.

Their time must deliver entertainment, education, engagement and stimulation or they have wasted it. And buy do they get grumpy when they feel like their time is being wasted.

What does this mean for specialty retail?
Any retailer who cannot value their customer’s time is in for a very rough ride indeed. What this means is understanding where the customer places value and where they simply see something as a commodity demanding efficiency. Wherever the customer perceives they are spending time must have a return. No return to the customer, means you better find a way to make it efficient. Transaction processing is a prime example, where speed wins.

4. We Sell Visually
This is Chuck William’s – founder of US home wares retailer Williams-Sonoma – personal credo. We sell visually. Which also means, the customer buys visually. Interestingly our aesthetic appreciation is sophisticating at the same time as visual noise is exploding. Our eyes are the first sense that registers anything in retail. They are our primary editing device as consumers – constantly scanning for anything new or of interest.

In retail, visual appeal and visual comprehension is the critical first sensor that must be conquered in order to lift conversion.

What does this mean for specialty retail?
The fundamentals of retail apply here. Less is more. If we want customer to see and not anything, if we want them to behave a certain way, we have to focus our message in order to get them to focus their behaviour. Chuck Williams is fond of saying “We seduce through the eyes”. Product is the hero, but how you present it determines success.

5. Commoditisation Is Not Customer Led
In the five attributes that determine customer relevance – access, experience, pricing, product and service – price is the most rational. After all, only one retailer can be the absolute winner on price leadership. Interestingly more and more consumer research – including that undertaken for some of the worlds leading profit through volume retailers – is indicating that customers place higher importance on value for money than cheapest price.
Deflation and commoditisation is not customer led. They aren’t waking up every morning seeking yet another cheap discount outlet. Sure, anybody with half a brain would say they’d love to pay less for an item they want to buy. But retailers determine the price a product is sold for through competitive pricing – not the customer.

It is true that – in absence of any other choice criteria offered to the customer – cheap price wins. However, there is increasing dissatisfaction amongst consumer about the effect of cheap price on choice. They are seeing products that they loved de-listed or changed and stores they loved closed.

What does this mean for specialty retail?
If you want to play the cheap price game you better have the lowest cost of doing business of any retailer out there and a model that can exploit scale. Otherwise you need to explore the other four attributes – access, experience, product and service – in order to develop differentiation that the customer values and is willing to pay for. You also need to understand how to use sell-from and sell-to strategies in a good, better, best structure. Anything else is economic suicide.

6. Productivity Rules
While customer have realised the limitations of time, retailers have begun to realise the law of diminishing returns. Best practice globally has turned away from top line growth and cost minimisation to productivity. Productivity leads to consolidation and the 80/20 rule being applied to all inputs and outputs in a quest to drive up yields or returns for capital, time, organisational energy and opportunity cost. A note of warning – this thinking also applies to best practice landlords.

What does this mean for specialty retail?
You must identify and focus on how to leverage the critical drivers of productivity in your business. Find out and apply industry average and best practice key performance indicators and measure yourself against them. Most of all ensure you strive for productive growth – not growth at all costs.

7. It’s All About The People
Specialty retail has always been about human interaction. For over 3,000 years and the birth of shopping in Lydia (Asia-minor), specialty retail has combined the exchange of stories, selling patter, goods and services and money through human contact in a selling environment.

Self-serve or low-serve are owned by discount department stores and profit through volume operators. For everyone else, service matters. It isn’t an option – it is a cost of entry. People deliver service, expertise and productivity at the front end. People create relationships and deepen them to evangelise customers.

What does this mean for specialty retail?
People are a productivity driver not a cost. Your aim is not to reduce them as a cost but to drive productivity through them. Staff costs should have a return on investment and all best practice retailers are constantly testing sales outcomes against their people initiatives. Mentoring, provide appropriate skills and expertise enhancement, building product and service knowledge and encouraging staff to build relationships are just some of the initiatives that enhance profit through people.

The smart retailers also view their store staff as the first customer. Head office effectively has to sell the store staff in order to energise them to sell the customer. They see great store staff as evangelists who can encourage not just customers, but their family and friends to buy from them.

8. Cheap, Fast Or Immersive
With R.O.T. TM (Return On Time) demanding such a fast payback for customers, returns are now being calculated in terms of financial gains (save me money), efficiency gains (save me time, solve my problem) or stimulation gains (educate me, entertain me or both).

What does this mean for specialty retail?
For specialty retailers the customer scenario is very black and white. Deliver one of these gains or returns or face the consequences. With cheap being perceptually owned by discount department stores and profit through volume leaders, specialty retailers have to build on efficiency and immersion and understand where to deploy both in a way that the customer values it.

9. I Love Stories
Storytelling is the oldest form of selling. For human beings it has anthropological roots. After all, most history pre-dating the Guttenberg press was predominantly kept through verbal storytelling and the use of mythology. In retail, editorial publicity thrives on stories. The art of story telling embellishes product and connect with customers on an emotional level that justifies premium. The ability for Louis Vuitton to achieve $2,000 for an item that does the same thing as one in Strandbags for $49.95 is their story.

From observing many research groups in recent times, there is a growing belief amongst shoppers that retailers have – in general – become far too transactional and have lost the art of seduction through storytelling.

What does this mean for specialty retail?
Mass retailers trade off other people’s stories. Specialty retail leaders create stories. And great stories aren’t just for customers. They are for staff as well. A great story is on told by staff to customers, with passion. It helps them to sell more confidently and more enthusiastically when a well-crafted story is behind it. Great stories make product more human, while conveying attributes and benefits and key learning that leaves customers feeling better for the encounter. Great stories are also best brought to life with visual enhancement. After all, a picture does tell a thousand words.

10. Communities Are Back
The new marketing buzzword is “communities”. It’s been adopted by the propeller heads from the Internet world. The reality in retail is that communities never went away. Specialty retail brands at their best have always created a following based on shared interests, shared attitudes and shared behaviours. Retail is a form of social connection and becoming increasingly so.

What does this mean for specialty retail?
Best practice retailers around the world have always encouraged the concept of communities. They understand the concept of evangelists or brand champions. People who are so connected to what the brand does and how it does it that they go out and actively recruit and convert their family, friends, colleagues and peers.
Great retailers build environments that encourage interaction. They engage, communicate with, share, stimulate and reward their most frequent and highest value evangelists. They build aspirational appeal.

Above all though, they make customer earn the right to be part of the inner sanctum of “connected” customers rather than give it away to anyone who shops.

These are ten trends that are sweeping the world of retail. There are others and there will be more to come. The one great thing about retail is that – while the fundamentals are set in stone – the trends that overlay it and shape it are constantly changing.

Think about your business, your customers and your competitors. Embrace change – not in a foolhardy way – in a measured approach based on productive outcomes. It is after all, measured change that will keep you relevant and deliver you continued success in specialty retail.