Retailers - Stop Chasing Shiny Technologies and Focus on Products & Experience

A recent Forbes headline read “Retailers Running Scared Turn To Technology For Salvation,” and the article began with:

“Will robots that assist you in trying on clothes, or “smart data,” not be confused with “big data,” help save the retail industry?*

Technology has become the preoccupation of a sagging retail sector, evidenced by the National Retail Federation’s Big Show last month in New York.”*

The root of this fear is that consumers have, quite suddenly, found themselves in control of when, where, and how they shop, and big box retailers have no idea what to do about it.

Focusing on tech trends is the wrong thing to do in response.

Retailers need to get back to basics and focus on assortment quality and consumer experience if they hope to keep (and win back) consumers.

The Old Rule is Out: Location Location Location

Think back to 10 years ago, around when Amazon Prime first launched: When I needed to go to the grocery store I went to Shaw’s, the closest, even though I preferred Whole Foods because I didn’t want to drive the extra 15 minute drive each way to Cambridge. Similarly I used to shop at BJ’s instead of Costco since there was a BJ’s and not a Costco near me.

This location-oriented shopping choice lead to retailers becoming, in a way, lazy about selecting the products they carried, since they were only really competing with other stores that were physically close.

Said another way: having a great location used to be a source of power over local consumers. Retailers controlled when (store hours), where (location), and how (one way) consumers could shop.

Moreover, in a battle between two similarly located stores, assortment size rather than quality won. For example, Walmart could move into any town and a dozen local businesses would go bankrupt - main street compete with price of size of Walmart’s assortment, let alone the price. And once Walmart moved in, they could basically rely on consumers coming by to buy…whatever was available.

In this world, a retailer’s biggest competition was themselves (and yes, I know that’s a little simplistic, but bear with me). That is, Walmart would optimize assortment to increase same-store sales, substituting one product for another, painstakingly, by the metrics.

Today, a retailer’s competition is not local but global: anyone that can ship the product to me. It’s not enough to have better or more products than the guy two miles down the road; you somehow have to beat Amazon, Jet, and everyone else that ships as well.

It’s no longer about location, location, location.

Here are some new rules to consider:

New Rule 1: Assortment Assortment Assortment

I haven’t been to a grocery store in months, because my wife & I use a combination of Peapod, Instacart (to Whole Foods and Hmart), and Amazon Pantry. I haven’t been to a clothing store in months either. Bonobos, Me Undies, Huckberry, Zappos, and Amazon have me covered (pun intended).

Part of this is convenience, sure. But mostly it’s due to product. Instacart (via Hmart & Whole Foods) has ingredients that I can’t find at Shaw’s. Bonobos clothes are all better fitting and better looking than what I find in stores; I used to buy lots of clothes at Macy’s and Target, but it’s simply harder to find clothes that I like in those stores as much as Bonobos.

The key point is that this change in my shopping habits is about competition on assortment and not just about convenience. All the shiny tech talk focuses on convenience, which is beside the point.

I’ve previously written on how you can’t out-Amazon Amazon. That is, simply competing on size of assortment is not going to be enough to bring a consumer into your store or onto your site. To compete today, you have to take a different tactic involving a curated, interesting assortment and a compelling consumer experience.

New Rule 2: Experience Experience Experience

A key theme in the technology conversation are millennials. How do we cater to them? It’s mobile! It’s local! It’s SnapChat! It’s buy buttons everywhere for impulse buys! It’s robots to try on your clothes for you!

No. It’s none of those.

Business Insider nailed it recently, “Most retail is just painfully boring. In fact, the majority of store chains, malls and shopping centers have become beacons of boredom, monuments to mediocrity and havens of ho hum.”

You must have cool products they want to buy and provide a real shopping experience (i.e. a store worth visiting). It’s been reported over and over and over that they spend money on experiences and not simply stuff.

A big box store has to be more than just a big box. They must reinvent how they think about what it means to have a physical space.

One example of a big box that’s always done this well is Barnes & Noble (they may be on the ropes, but you must ask how they’ve managed to survive when Borders did not?). I’ve always been a fan, in large part because being in one of their stores is really pleasant. I used to spend hours in the computer programming section in the 90s (remember when those existed?) drinking coffee and dreaming of what would be possible. A couple months ago my wife & I were in Manhattan on vacation and we went to a Barnes & Noble just to grab coffee, browse around, and discover some new vacation reading. I never discover anything on Amazon; I just go there to buy what I already know I want.

Similarly, Ikea’s in-store cafeteria and differentiated browsing system (one long hallway) are great examples of providing a real experience.

Offering services and a pleasant experience will bring people into the stores.

The New Rules of Retail

  1. Differentiated, interesting products
  2. Enjoyable in-store experience

There is so much the traditional big box players could do to evolve in a great direction.Some of the old big box retailers are beginning to understand this new world and adapt to it. I loved the Fortune profile on JC Penney CEO Marvin Ellison, and how he’s re-focusing on serving his core market (lower-middle class) with differentiated assortment (own brand plus sized clothing) and consumer experience (hair salons, etc.).

Big box retailers must fill their spaces with great products and great experiences to win in the new world of retail.