Do vertical retailers have a customer engagement edge?

Discussion
Mar 16, 2016

While vertical stores are seen having a price advantage because they avoid using wholesalers, they are also positioned to better engage customers in an increasingly digital age.

That’s a view shared by Les Berglass, chairman and CEO of Berglass & Associates, an executive recruiter, and David Munczinski, founder and CEO of Brickwork, a marketing software platform that helps retailers link online traffic to in-store purchases. Both spoke recently at a press briefing at the offices of Berns Communications Group.

The two were asked to name the most experiential stores. The resulting list featured Victoria’s Secret, Apple, Williams Sonoma, Warby Parker, Lululemon and Urban Outfitters. In the food space, Trader Joe’s, coveted for its private label mix, and Starbucks were also mentioned. Notably absent were the leading department stores and big box discounters.

Prodded for some non-vertical stores, Costco and Nordstrom earned some praise. But even some currently poorly performing vertical stores such as J. Crew stood out more for their capacity to connect with their key consumers through events and digital outreach.

“You just have an advantage that’s extraordinary,” said Mr. Berglass of vertical retailers. “They live and sleep in that category. When you’re a re-seller of market goods, you’re at a tremendous disadvantage.”

On the other hand, the demise of former department store staples, Liz Claiborne and Jones New York, underscore the challenges brands without stores face resonating with consumers, said Mr. Berglass.

Mr. Munczinski sees stores currently making a comeback thanks in part to dot.coms that are opening physical outlets to better engage and build loyalty with customers. Rather than real estate, these retailers see stores more as assets to deliver content and support brand storytelling. Said Mr. Munczinski, “Your story is your strategy.”

Beyond engagement on social media and other areas, Mr. Munczinski believes vertical stores have an advantage in building a company’s culture that connects with consumers.

Mr. Berglass summed it up: “What’s special about these retailers is they have something unique to them and they tend to own their category. It’s a good place to be.”

Photo: Warby Parker

 

DISCUSSION QUESTIONS: What advantages do you see vertical stores having over stores selling numerous non-proprietary brands? How big a challenge is digital communications for department stores and others selling national brands?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"It’s all about brand equity. Vertical retailers such as Apple have demonstrated an ability to develop retail experiences consistent with the positioning of the brand they carry. There are plenty of other good examples, but Apple stands out."
"It’s’ not impossible for retailers to partner with great brands and create more in-store emotional engagement. It’s just harder and more expensive, so they back away instead of being brave. Converting real-life engagement to digital content is the "new black.""
"The greatest advantage of vertical stores is also their greatest threat — they have a single consistent brand image. They also have concentrated their upside and their risk — if they move in the wrong direction, there is nothing to defray the impact of their mistake."

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16 Comments on "Do vertical retailers have a customer engagement edge?"


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Dick Seesel
Guest
6 years 2 months ago

It’s all about brand equity. Vertical retailers such as Apple have demonstrated an ability to develop retail experiences consistent with the positioning of the brand they carry. There are plenty of other good examples (Victoria’s Secret, Nike, etc.) but Apple stands out. The simple, interactive design of the store certainly mirrors what the company aspires to in its product development. And Apple has never gotten into the trenches of price-promotional warfare — they don’t have to and they feel it would cheapen the brand image.

Paula Rosenblum
Guest
6 years 2 months ago

Besides the obvious gross margin dollars, vertical retailers have the opportunity to be associated with “the look” and the customer experience. Having just bought my first Warby Parker glasses, at a trendy Wynwood store location, I have to say I was blown away. Great price, great service and a willingness to have a very uncluttered space.

But remember, vertical retailers live and die by “the look.” Think Abercrombie and Fitch, Gap … tastes change and then vertical brands flounder.

Department stores have bigger issues. They’re fundamentally not very stoppable and there’s no easy way out of that mess.

Ralph Jacobson
Guest
6 years 2 months ago

If the retailer has developed a following of their brands, there is a significant operational potential advantage for them. However, there are plenty of examples across the globe of where a retailer without private-label brands has optimized their vertical ops. Digital communications is part of an overall strategy that should be executed to maximize the cost extraction along the supply chain.

Anne Howe
Guest
6 years 2 months ago

Vertical stores have the opportunity to continually morph and refine their stories and experiences for shoppers. Those that pay close attention to trends and culture shifts can stay relevant. Liz and Jones NY likely took their eyes off the shopper for a bit too long.

Department stores and other mass retailers that resell national brands have to understand that while digital is essential, the emotional connections created by in-store experiences are much more translatable into action (read as sales) from the shopper. It’s’ not impossible for retailers to partner with great brands and create more in-store emotional engagement. It’s just harder and more expensive, so they back away instead of being brave. What they don’t understand is that converting real-life engagement to digital content is the “new black” and that video done right can be very engaging and persuasive.

Borrowing from BrainJuicer, remember that “Feel Something, Do Something” is the goal for shopper engagement.

Tom Redd
Guest
6 years 2 months ago
For vertical stores and department stores their is one common challenge — owning the deal. What this really means is owning the demands of the shopper, mapping that to a supplier and delivering to the demand of the shopper. In a vertical retailer the process is easier and higher quality can be assured. The vertical retail operation owns the whole ball game, like Under Armour does, from concept to measurement of actual product usage to enduser feedback, all with digital technology. Digital technology starts with strengthening the core foundation of an operation, no matter the shape, horizontal (department store) or vertical (Brooks Brothers). From there, with common real-time information access to every element of the demand to the fulfillment of the demand (the sale) is where all the digital action plays a role. The rate of digital adoption seems to be faster with vertical ops simply because they own every process. Some horizontal retailers have figured out that they can leverage digital as fast as a vertical shop if they leverage the right, proven technologies. Digital… Read more »
Peter J. Charness
Guest
6 years 2 months ago

It’s the brand and the exclusivity and control of distribution. If someone wants your brand then you can’t be undercut on price or be out-promoted or outsold by Amazon. In the end the brand is the thing and if you don’t own one you have to compete on price, service or location, none of which are long-term sustainable advantages.

Camille P. Schuster, Ph.D.
Guest
6 years 2 months ago

Vertical stores are responsible for their understanding of consumers, product development, inventory control, communication with consumers and creating relevant consumer experiences. This is an expensive proposition and not all vertical stores do it well. For other retailers excelling in all these areas requires collaboration with brands. Not many retailers do this well. Not collaborating well means they can not excel in these areas.

Digital communication is not special or separate. It is just another form of communication with consumers and suppliers. Digital communication needs to be integrated with all other forms of communication.

Lee Peterson
Guest
6 years 2 months ago

Yes. You’re more nimble, you know exactly what the customer wants and most importantly, you can build private label — which is the only thing that keeps you from being Amazon-ed.

The dark side of being vertical is what to do with all the items you CAN’T sell. You need a jobber (old school term) to help you get rid of those mistakes. But hopefully, if you’re any good at just-in-time manufacturing, you won’t have a lot of that.

David Schulz
Guest
David Schulz
6 years 2 months ago

Curate. Curate. Curate. The merchandise — physical or digital in presentation — is an exhibition not unlike a gallery or museum. Know the customers, know their tastes, know what they will purchase and the business will do well. Just saying you have stuff won’t cut it. The vertical retailers, the good ones anyway, excel at marketing, something department stores and big boxes rarely do.

Mark Price
Guest
Mark Price
6 years 2 months ago

The greatest advantage of vertical stores is also their greatest threat — they have a single consistent brand image. They also have concentrated their upside and their risk — if they move in the wrong direction, there is nothing to defray the impact of their mistake. Retailers with a broader array of products have many challenges, but also defray their risk, since it is unlikely that every brand they carry will miss consumer needs and trends at the same time.

The risk of the broad-array strategy is a lack of control or even influence over the direction of the brands they carry — they are truly in the “hit” business — if their brands do not have a hit in a given year, then they are out of luck.

Digital communications is also much more difficult for these retailers — just obtaining and managing images, positioning and copy for each brand is a daunting task, let alone pleasing the brands who each want their products and positioning featured.

Lee Kent
Guest
6 years 2 months ago

Because verticals are, well, vertical, they have a clearer vision of their brand straight through to the customer. Does this give them an advantage? Yes, if they choose to use it. Many brands mentioned have done just that and been successful.

And then we have seen some that lost sight of their vertical path and crumbled.

Bottom line though is, it’s all about serving the customer and giving them what they want and expect. Though department stores can’t often be that spry, they can still deliver experiences that wow their customers.

In the case of the vertical, it is mostly about the product. In the case of the department store, it is all about the customer’s journey.

And that’s my 2 cents.

Roger Saunders
Guest
6 years 2 months ago

When customers and store personnel have a clear focus and understanding as to why they are both in the store, vertical holds distinct advantage over many competitors. In this sense, both parties know that they own the shopping experience. Customers don’t get “lost” or “confused” while on their shopping journey.

Non-verticals can be every bit as effective, as both Costco and Nordstrom offer as an example. While each of these retailers sell company and branded merchandise, they are masters at creating experience. Watch husband and wife teams shop Costco. Men will rush to join their wives like a dog after a bone when the invitation is to go to Costco. Nordstrom’s legendary customer service is felt throughout the store because the company builds it into the culture of the organization.

Ryan Mathews
Guest
6 years 2 months ago

The obvious advantages vertical stores enjoy are flexibility, control, the ability to create a proprietary relationship with the customer, targeted inventory focus, and the ability to concentrate everything against a single brand image.

The problem for department stores, supermarkets and anyone else selling national brands is to explain why brands that can be purchased virtually anywhere should be purchased from them, i.e., how do they establish preferred curatorial acceptance and recognized authority.

Gajendra Ratnavel
Guest
6 years 2 months ago

Vertical stores can be experts and have better training with fewer resources. They can develop expertise in the staff that will further enhance customer experience, and data collected can be more useful as it’s focused on their category.

At the same time, you lose cross selling opportunities and leveraging dwell time to increase sale of other products, etc.

W. Frank Dell II, CMC
Guest
6 years 2 months ago

The idea that chains’ distribution systems are more efficient than wholesalers’ is a myth. Wholesalers must be more efficient to create profit, otherwise independent retailers would all go out of business. Retailers selling many brands appeal to a larger group of consumers. Very few consumers only buy 1 brand for all their needs, even in apparel.

The real problem for most retailers is that no one knows where the digital communication is going. It is expensive to create something only to find out the consumer does not want it. The consumer does not know what they want and neither do the people trying to provide something. Market research has to get down to work when the consumer range of digital experience is wide.

Charles Whiteman
Guest
6 years 2 months ago
The best way to understand the huge advantage enjoyed by brands that also retail the products they make is to remember that for these companies, their website is BOTH a Sales Channel and a Marketing Channel. This means that more resources are invested in the website so that it both generates sales AND creates brand engagement. In our experience, retailers that sell others’ brands not only contend with thinner margins, they also limit online investment based on the web’s value as a Sales Channel. Rarely do we see the CMO of a retailer of other people’s goods contribute resources to the website. Instead, it’s left to the VP of ECommerce to manage that P&L purely on the basis of the sales transacted online. Occasionally, enlightened clients will boost online investment because of multi-channel attribution (i.e., the shop online, buy in-store omnichannel consumer behavior), but investing solely to build the brand of the products presented is never the goal of a retail site. To see how much brands are willing to invest in the web as… Read more »
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Braintrust
"It’s all about brand equity. Vertical retailers such as Apple have demonstrated an ability to develop retail experiences consistent with the positioning of the brand they carry. There are plenty of other good examples, but Apple stands out."
"It’s’ not impossible for retailers to partner with great brands and create more in-store emotional engagement. It’s just harder and more expensive, so they back away instead of being brave. Converting real-life engagement to digital content is the "new black.""
"The greatest advantage of vertical stores is also their greatest threat — they have a single consistent brand image. They also have concentrated their upside and their risk — if they move in the wrong direction, there is nothing to defray the impact of their mistake."

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