Envision the Retail Future

1. Envision the Future: Part 1

Note: Following are findings from a study encompassing an industrywide retailer survey and interviews by Meridian- NorthStar Partners and Progressive Grocer; a similar supplier survey and interviews; a Web-based survey of 1,000 shop­pers across age groups by Carbonview Research, a division of Stagnito Business Information + Edgell Communications; a review of industry learning; and incorporation of “real-world” in-market experience.

Changes—including new shopper purchase/delivery options, information sources, preferences for Millennials and others, and blurring of channels, including retail/“e-tail”—are redefining “requirements for success,” as noted by 91 percent of retailers and 95 percent of suppliers in an industrywide study.

Market changes are creating entirely new challenges and an unprecedented demand for new thinking and solutions. “Brick-and-mortar retailers need to come up with a better proposition to lure shoppers into their stores,” Chicago-based business consultancy Alix Partners told the New York Times. “‘Stack it high and let it fly’ doesn’t work anymore. They have to figure out how to make shopping fun again.”

The first challenge is Differentiation and Relevance. Expanding shopper options—for meal solutions, health and beauty, pet, and other categories—are a source of competition, especially with Millennials. Up to one-third of all shoppers and almost half of Millennials, shop in specialty stores, and online creates further challenges. These options are changing require­ments for success. “We traditionally look at market basket and traffic,” said one retailer responding to our survey, “But our more fundamental need is differentiation and relevance in a world with more shopping options.”

A second challenge is Physical/Virtual Balance. Will the store be seen by shoppers, and Millennials in particular, as rel­evant 5 years from now? The answer is yes, but with a caveat: The store must elevate its game. First, the good news: Shoppers, and Millennials specifically, feel online shopping will grow over the next 5 years, but the physical store will continue to play a big role for shopping and pickup. “Shoppers want both options—physical and virtual—and the ability to move between them,” another retailer responded.

Now, the caveat: A physical store must link to virtual shop­ping options, but not diminish focus on the first challenge—dif­ferentiation, relevance, and ability of the store to attract and excite people. As one retailer put it, “Focus on the store in an omnichannel environment is critical to our long-term survival.” A food supplier said, “We are projecting huge online growth, but even by 2020, this will only be 3 percent of our sales.”

Category management has played a key role for decades and will continue to do so, but today there is also need for an approach above this: to address the higher-level needs of shop­pers and total-store needs of retailers. Shoppers’ needs aren’t confined by traditional category boundaries. For retailers, a gap exists between solutions developed across 150-plus categories and their need to prioritize and integrate these into a unified whole to excite and engage shoppers, and differentiate overall operations.

Suppliers and retailers both recognize there are limitations to category management for future shopper and store manage­ment needs. “Category management is important, but it’s the price of entry, and by definition is more limited in scope and the kind of solutions it can provide,” a retailer responded. “You can’t win with this.” This higher-level shopper/store approach impacts the type and depth of insights that are developed, as well as the application of these insights.

While virtually all suppliers today have shopper insights, retailers express the need for broader business insights that are developed to more fully address both shopper and store needs. In addition to deeper and more developed insights, there’s a need for applications that identify “white space” beyond cat­egory definitions, in terms of shopper need states and also retail execution.

2. Envision the Future: Part 2

Note: Following are findings from a study encompassing an industrywide retailer survey and interviews by Meridian- NorthStar Partners and Progressive Grocer; a similar supplier survey and interviews; a Web-based survey of 1,000 shop­pers across age groups by Carbonview Research, a division of Stagnito Business Information + Edgell Communications; a review of industry learning; and incorporation of “real-world” in-market experience.

Winning in today’s environment demands more, given the blurring of channels, both physical and virtual; the need to focus on not just consumer needs but also shopper needs; the retailers’ needs to address these in a compelling way; and a shift in the industry’s perceived “moment of truth,” from when a shopper is in front of a shelf with products to a much earlier point when the shopper considers which channel/retailer to shop.

The 2Es are critical today as differentiators—to excite and engage shoppers, and address the retailer need for a differenti­ated image and relevance. Excitement: When shoppers walk by a section of the store, does it create a “wow”? An emotional connection? Does it make them need to enter and check it out? Does it provide a compelling alternative to specialty outlets? Engagement: The tactic of promotion focuses on communica­tion to the shopper, but engagement focuses on dialog origi­nating from the shopper. To compete with restaurant takeout, for example, where shoppers often use a mobile device to call ahead, is the same option available for your prepared food sec­tion? With other sections of the store, is there opportunity for dialog before, in, and after the store?

Only 50 percent of shoppers indicated that they’re “fully or pretty loyal” to their primary grocery store; only 51 percent said that they have “high or somewhat high enjoyment” in the shopping experience; 41 percent said that it’s “not organized to the way I shop”; and 30 percent said, “I don’t think they focus on shopper needs when organizing products.” The 2Es have the potential to change the game. The “treasure hunt” of club stores and the “fun/excitement” in many specialty stores, noted in various studies, provide a helpful reference point. In our study, more than three-quarters of shoppers indicated that they’d be likely to shift “back” to their regular store if it offered a more engaging shopping experience.

In a very different business environment, it’s also instruc­tive to revisit industry “truths” in two areas. The first is percep­tions of the perimeter and the center store. The perimeter has unique elements, but also several others that can be broadly applied, such as category integration, visual appeal, informa- tion/news, “stations,” and more.

The second is perception of a “common look” across the store. “Common look can be more weakness than strength,” another retailer asserted. “Why should the pet aisle look the same as household cleaning or snacks or HBC? These sections need to connect with shoppers, not just provide products. A pet is a family member. Beverages provide purity, variety, enjoy­ment. OTC meets treatment and preventive needs.” Creating a more exciting, engaging retail experience must take a broader approach than trying to solve center store problems with center store tactics, or maintaining a common look across the store.

Look at a top-five grocery retailer to illustrate certain opportunities, but observations and implications also apply to other channels. The store has a typical perimeter, and the cen­ter store has 24 aisles. There’s a numbered sign at the end of each aisle that lists seven to eight product types found in that aisle, or almost 200 categories. Signs are the same shape and color, and aisles generally use the same “fixturing” and other elements. Certain product types (e.g., beverages) occupy three entire aisles, but aren’t next to one another. Other product types (e.g., HBC, pet, general merchandise) are typically their own aisles. End-aisle displays are used, often for items that typically don’t align with the product types stocked in the aisles adjacent to them.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.