June 14, 2004Retail MerchandisingStore Wars: How Retail eCommerce Executives Can Win the Battle for the Last Aisle Four Tips for Success for In-Store Digital Merchandising & Customer Self-Service In the next two years, leading eCommerce executives in the retail industry will see a growing need to implement an in-store, digital merchandising strategy in order to gain sustainable competitive advantage and to improve profitability. Despite the success of Amazon.com, most leading banks and retailers have beaten most of the dotcoms at their own game. According to The New York Times, an estimated 200 consumer eCommerce sites have folded in the past five years, such as ToySmart, eLuxury, Toys.Com, NetGrocer, Webvan, just to name a few. By leveraging decades of advertising, strong merchandising and improved retail storefront networks, as well as investing billions into the basic building blocks of eCommerce: (IP, Email, Web Stores, CRM, Supply Chain,HR/Intranets, Pricing), leading retailers have taken back consumers in droves. Consumers now have the ability to order most goods at their home computer screen, yet nearly half the US population visits a Wal-Mart Store or a grocery store once per week. Why? One could argue that it's hard to order hamburger meat and bagels online, but I suspect that it is a result of our basic need for convenience, immediate gratification that comes from doing business with trusted retail brands. Branded retail stores provide consumers a safe (aka "trusted") way to quickly purchase goods without the wait. It will be difficult if not altogether impossible for eCommerce Execs to continue to ignore the storefront, especially with the convergence of a myriad of in-store applications including: Web ordering/In-Store Pick-up, In-Store Special Order Taking, Upselling/Cross-Selling Systems, Product Demonstrations and Configurators, Employee Training and, of course, Self-Service Checkout and Couponing. Retail Stores Close Sales In the next two years, eCommerce Executives should consider shifting the battleground back to the physical store since they have rediscovered the importance of the storefront as a key "point of influence"; physical stores close sales efficiently and reinforce the brand to consumers better than many other sales channels such as catalogs and eCommerce. The battle for the "last aisle" will be one of the biggest challenges for eCommerce and retail executives in the next 36 months. Over the past decade, retail consumers have demonstrated an insatiable demand for convenience and time-savings since they have 12% less free time than only eight years ago. The DNA of consumers is also rapidly changing due to their 24/7 diet of digital information; consumers can access thousands of product choices and prices at the touch of a finger. Year round sales by retailers have reset consumer expectations to buy only when they see 20% or more discounts on products. The new breed of retailer marketers must embed the expectations of the next generation of consumers inside their stores through digital merchandising and self-service solutions to allow for consumers to extend, seamlessly, the consumer's passion for solving buying problems through digital technology. The Multi-Channel Shopper Today's consumer has also been trained as a multi-channel shopper, which is a fancy way of saying that consumers like to buy products through stores, catalogs, websites, direct mail, TV, and telephone. Today's consumers tend to use catalogs to build awareness about a company's products. Retailers use websites to nudge consumers from a consideration to a preference. Then consumers, armed with new buying intelligence, get into their cars and purchase products inside of retail buildings since retail stores are a "trusted" place to "close the sale". In short, the in-store eCommerce channel will transform from a "nice to have" to a "must have" in order for retailers to create and maintain a loyal and profitable customer base. Ready To Go Solutions On the technology supplier front, retailers now have a wide variety of affordable, retail-hardened, digital merchandising solutions to choose from. Low-cost Web POS, smart screens & kiosks, wireless in-store networks, digital signage, shelf-talkers, web-based packaged software, off the shelf /small footprint PCs, Web-POS, Inventory Extension Software and reliable system security are just a few of the tools that allow retailers to affordably deploy and maintain in-store consumer applications while keeping their capital expenditure budgets in tact. Retailers can also deliver sophisticated live and on-demand, high-quality video efficiently at the time and place most likely to influence the buying decision: the point of purchase. This same communication mode can also serve internally for more effective employee training and corporate communications that ultimately drive sales. On the services side of the fence, many interactive agencies and the media are moving rapidly into the physical world in order to capture incremental advertising and marketing dollars. Since interactive agencies and media already control the digital marketing assets of their clients, the redeployment of these assets to the storefront channel should be a natural extension of their marketing strategies.
I believe that the growth of "Stores within a Store" will also grow dramatically as leading marketers realize the potential of using their marketing assets (DNR-Digitally Network Ready!) to improve customer service and sales through branded "digital touchpoints", without the expense of building physical storefronts. Banks, which typically spend about $1 Million in construction for a new branch, have practiced this approach for many years with ATMs and mini-branches inside of grocery stores. Behr Paint kiosks, located in the paint department in Home Depot stores, allows customers to instantly find the right paint color for their home at the touch of a finger - without waiting for customer service staff. At 7-Eleven stores, customers can use VCOM ATM kiosks to pay bills, order flowers, cash checks, and buy lottery tickets. It's just a matter of time before other retail categories, historically dependent of retail staff to close the sale (such as cosmetic counters), to convert to digital automation. I believe that Retail eCommerce Executives can leverage this wave if they focus on a few key issues.
Initially, many retailers think about in store technology from the point of view of hardware first and then the software application. The discussion begins with what type of kiosks or display monitors do I need to fit inside my venue? How will it be branded? What kind of hardware, and so on. From my experience, this type of thinking leads to a failed pilot and rollout. In my opinion, in-store eCommerce was put on the planet to solve a specific problem on the mind of the consumer, within that moment of time and in that specific six square feet of space. My hope for the retail industry would be to transcend from a constant vocabulary focused on cool hardware/software components to one that focuses on merchandising - defined as the promoting and selling of products. A good exercise to help your mind make this shift in thinking is to stop pretending that you are a technology expert like Bill Gates and visualize for a moment that you are the director of merchandising for a shoe retailer and have to position 500 products on the floor. Also imagine that 100% of your salary is based on incremental store sales. As Director of Merchandising, what questions would you ask? Would I create a "Men's Department"? Where would I place Woman's Shoes? Would I place men socks adjacent to men's shoes or create a general sock department? Where would I want to sign up for the loyalty program? How would I allow customers to buy gift cards? How would my customers want to pay for their shoes? How would my sales staff keep informed about new pricing? How would I promote special sales from Nike or Adidas without going broke on printed signage? How would I promote shoes that are out of stock? As you can see, this exercise forces you to get inside the head of the consumer and ask simple buying decision questions. I would suggest you go through this exercise specific to your customer prior to any discussion about digital merchandising technology. And remember that the more your digital merchandising technology strategy is based on contextual placement, the more you can define the consumer experience. Learn about the World of Category Management The subject of "Category Management" has been adopted rapidly by retailers and brands in order to facilitate the answer to many of these questions. With the right approach to merchandising, it is my perspective that Category Management leaders will soon adopt the tools from the Digital Merchandising industry in order to increase same store sales and will leverage their eCommerce assets for a myriad of consumer-activated applications such as "Web Ordering" and In-Store Pickup, In-Store Special Order Taking, Upselling/Cross-Selling Systems, Product Demonstrations, Employee Training and of course, Self-Service Checkout. 2) Create a Customer Showcase, Not a Technology Showcase: Keep it Simple and Avoid Designing Spruce Gooses Another obstacle to success will be the typical urge by the technology providers and internal IT departments to create complex hardware/solution solutions that push technology as the main project goal. As with other technology industries, smart people are often attracted by the "gee whiz" element of various solutions and focus on building "technological showcases" that demonstrate the high levels of their intelligence. I call this the "Spruce Goose" syndrome. In the late 1940s, Howard Hughes received funding from the US Government to build the most expensive aircraft in history. As with many technology projects, the Spruce Goose was behind schedule, over budget and highly over-engineered - for example it had Mahogany instrument panels and consequently was not able fly more than fifty feet off the ground. I highly recommend that you get a poster of the Spruce Goose and tack it up in your CTO's office as a reminder of how not to build a digital merchandising application. Marketing leaders must rally together in order to allow their companies affordable and scalable solutions that clearly demonstrate ROI in a matter of months... and not years. Focus on "Making it Work" first and then jazzing it up later. This is a good strategy for ensuring that your kiosk project transforms from a small pilot to a large-scale rollout. I strongly believe that digital merchandising applications must improve the consumer experience and connect brands with consumers, seamlessly. And, they must work 24 hours per day, 365 days a year, without a coffee break. 3) Is ROI Important? In general, I've always felt very strongly that the best way to improve customer service at any location is by hiring great, well-trained people. But as the CEO of Toys"R"Us had pointed out, most retailers put their lowest cost employees in front of the customer. And, it's no secret that employee turnover ranges from 50% in the auto industry to over 100% in the retail industry, costing the industry billions of dollars in recruiting, screening, and training. In regard to return on investment issues, my experience is that if you can't explain the simple ROI of a digital merchandising project on the back of a napkin, you'll never move the project from pilot to rollout. For applications that have repeatable consumer applications such as airline boarding passes, ATMs, movie ticketing, store checkout, the paybacks are fairly easy to comprehend. Despite the arguments from the CFO, generally ROI is typically the number third or fourth reason why projects are adopted, although self-service has an intrinsic ROI through labor savings, especially in this time of high employee turnover. In combination with the reduced costs of eCommerce hardware and software, I believe that the burden of the investment will segue from the retailer to the manufacturers and vendors that want to win the battle inside this increasingly important real estate. The battle for the last aisle will be funded by brands that understand the importance of these new "points of influence" while Retail eCommerce leaders will focus on technology standards, channel convergence, POS Integration, Inventory Extensions, pricing/bill back and Security. The management of this exciting new eCommerce asset will become rapidly profitable to retail if the right vendors are selected as category partners that have the same level of digital merchandising assets, expertise and fulfillment. 4) Practice eCommerce Basics Inside the Storefront A good reminder of eCommerce 101 is to recall the four basic elements of a successful Consumer eCommerce application: 1) Attraction: This is not pretty pictures or rapid MPEG movies. It's the ability to quickly demonstrate to the consumer how this application solves one or two problems. 2) Interaction: the ability of the application to allow the consumer to find the answer to their problem. This also involves the cross and up-selling of the consumer to more profitable goods and services 3) Transaction: the ability of the application to make the cash register ring. Does the application leverage the consumer's email address to allow for forwarding of selected products for purchase by the consumer to their home or work? 4) Satisfaction: Can the retailer's application fulfill the promises? Will it be delivered in-store? Or, at the consumers home? Is it a secure and private transaction? Does the application work? Summary: Self-Service is the Best Service! In the self-service industry, as well as in other facets of life, success will be determined on how your vision helps consumers solve simple problems through the basic self-service value proposition. The eCommerce leaders that can help customers answer that question will be the winners in 2004 and beyond. Internet Grows for Multi-Channel, Especially in Women Nielsen/NetRatings recently reported that some 204.3 million, or nearly 75% of Americans, have access to the Internet. In comparison, Internet access penetration hovered around 66 percent in February 2003, rising nine percentage points in the past year. "In just a handful of years, online access has managed to gain the type of traction that took other mediums decades to achieve," said Kenneth Cassar, director of strategic analysis, Nielsen/NetRatings. Women represent a higher proportion of Web surfers, with over eighty percent, some 34.6 million women between the ages of 35-54, accessing the Internet at home. Men in this same age range reached an access penetration rate of 80%, accounting for nearly 32.4 million surfers. Seventy-seven percent of females within the 25-34 age group are Web surfers, while 75.6 percent of males in this age bracket have Internet access. "Women make the majority of purchases and household decisions, so it's no surprise that they are utilizing the Internet as a tool for daily living," said Cassar. Source: Nielsen/NetRatings Enumeration Study, February 2004 About the Author
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