Who will be left standing after the next retail shakeout?

Discussion
The North Face Urban Exploration Concept Shop, San Francisco - Photo: The North Face
Nov 20, 2017
Lee Peterson

Through a special arrangement, what follows is a summary of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.

We can say confidently that only those retailers embracing at least two of the three fundamental consumer driven strategies in our industry will be around much longer — Discount (D), Convenience (C) and Third Wave (TW).

Discount (D): As a strategy, discount is serving two very real needs: one, the American consumer’s psychic desire for a good deal (it’s in our DNA); and two, the needs of a growing consumer segment of the U.S. population losing economic ground as real wages stagnate, decreasing buying power. As recently noted in a study published in Harvard Business Review, how customers perceive price is as important as price itself. That’s one reason why, as a strategy, discount encompasses far more than the traditional retail “discounters” within the industry, and means much more than simple couponing. Not counting the one percent on top of the American consumer pyramid, there’s nothing that is more important to shoppers than price.

Convenience (C): Spearheaded by Amazon.com, this is the survival strategy that everyone (yep, everyone) must make a priority in 2018. The strategy includes excellent e-com, free shipping, BOPAS, home delivery, showroom (smaller) stores, lockers, pop ups, etc. In short, all the tiny (and big) fundamentals that make e-com more convenient need to be brought to life physically to make shopping your brand anywhere as convenient and frictionless as possible.

Third Wave (TW): If you live in a thriving urban neighborhood, you know plenty of one-off coffee shops and independent bookstores pulling this off; survival by quality, great environment, newness and spot on service. Urban Outfitters, Whole Foods, Apple and Starbucks get it too, as well as new players like Warby Parker. It’s the only strategy that retailers can still do better than Amazon.

To keep standing tall in 2018, figure out your primary survival strategy. Consumers are actually demanding that you at least commit to convenience. So, is it Discount & Convenience or Third Wave & Convenience? All three? Live and breathe your survival strategy within your brand positioning. And go further: Start doing things better than anyone else in your category.

DISCUSSION QUESTIONS: Do you agree that the three brand positions mentioned in the article — Discount, Convenience and Third Wave — sum up the options available to retailers to survive the ongoing retail disruption? Which combination is most practical for department stores and other chains under threat of demise?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Regardless of the combination a retailer is looking to achieve, convenience must be part of the equation."
"I’d take convenience but add Brand as the next most important factor. If you own a brand that shoppers want, then you’re a draw."
"Department stores will have a tough go. Perhaps they will totally go away and come back in some other form."

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36 Comments on "Who will be left standing after the next retail shakeout?"


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Mark Ryski
BrainTrust

While I do agree with the three brand positions mentioned, I don’t agree that there are only three. Retail is such a massive and complex system it’s impossible to generalize survival into merely three positions. Furthermore, the positions can overlap and blend. While it’s well understood that department stores are among the most challenged of any retail category, the formula for success is still very much a work in progress and the future is still very much uncertain.

Charles Dimov
Guest

I completely agree with you, Mark. The different sectors of retail will have different characteristics that define their area of ideal competitiveness. There are elements that are also important to customers like consistency, ability to see the products in person (touch, feel, smell … ), dependability, knowledgeable staff, expertise … With so many other factors, there are probably more criteria than just the three. It is a good start, though.

James Tenser
BrainTrust

This observation is spot on, as others in this thread have observed. While quite thought-provoking, and worthwhile, Mr. Peterson’s 3-part taxonomy doesn’t fulfill the MECE principle (Mutually Exclusive, Collectively Exhaustive). The concept of “Third Wave” is really a catch-all category that covers various aspects of the retail experience.

But rhetorical issues aside, I appreciate the intent of this analysis. Retail innovators with clear positioning, who focus on a recognized customer need or preference, will always create opportunities to chip market share away from the retail giants who gravitate inevitably toward the “big middle.”

Price and any-channel convenience remain must-have competencies for retailers of all stripes. Assortment, store concept, positioning, customization, advice, and services are differentiators. Chain stores should do continuous navel-gazing within their departments to assess whether they can leverage or build a reputation around being “best-at” one or more of these dimensions.

Aakash Varma
Guest

Can’t be better said! We can’t disagree that discount and convenience are major drivers but many other strategies like differentiation, personalization, product quality, etc. are also factors before making shopping decisions. I feel Lee tried to consider all others under Third Wave, but it won’t be accurate do it. As James rightly suggested, it doesn’t follow MECE principle, we can look at identifying more such strategies in this discussion so that we have a holistic and exhaustive list.

Dick Seesel
BrainTrust

Whether “discount” is part of your brand DNA, “value” needs to be. But don’t confuse one with the other — customers’ value perceptions may not be shaped by whether your store has the lowest price. It’s really about whether they are paying a fair price (in their minds) for the goods and services received, so “lowest common denominator” is not always the right answer.

Once you make the distinction between value and discount, I do agree that “convenience” is a common thread across all kinds of retailers. But what constitutes convenience? For some stores, it might be a saturation approach to their location strategy (think Starbucks or Walgreens). For others, like Nordstrom with fewer locations, it might involve everything from free shipping to the 24/7 curbside pickup that they are testing this holiday season. The Amazon model doesn’t fit all circumstances, but Amazon has clearly raised shoppers’ expectations.

Phil Chang
BrainTrust
Phil Chang
Retail Influencer, Speaker and Consultant
3 years 1 month ago

Good categorization to start with. Within each of these there are a lot of things that you can do to ensure that your convenience doesn’t look like that next retailer’s version of convenience.

Of the three, the only one that has futurity is Third Wave. Discount is a finite road that leads to pain, suffering and no profits. Convenience may be the same road, we just haven’t arrived there yet.

Third Wave might be too much to ask of department stores. Their logistical models, profit models and physical lease commitments may make being Third Wave too much, but it is where each of them can find a way to survive and be relevant. The problem is, does anyone at the department stores actually know what the difference is between them and their competition? Raison d’être is a primary challenge for most of these stores.

Cathy Hotka
BrainTrust

These three positions are useful, but there are others. Look at Amazon, Whole Foods, luxury eyewear stores and salons, which offer comfort and quality. There will be a lot of ways to win in retail, as long as the customer experience comes first.

Phil Masiello
BrainTrust

I don’t think a strategy is as simple as these three options. There is always an option for prestige as a brand position and others as well. The Third Wave option is more of a discovery position focused on independent “experts,” but that position is highlighted with national chains. I do not agree with the over-simplification of brand positioning into three buckets.

That said, department stores need to determine how best to engage with a target customer. The retailers, outside of Amazon and e-commerce, are singularly focused. In my mind, the department store is becoming irrelevant in the shopping experience. I see consumers choosing category “experts” to spend their money with.

Amazon is a unique platform and is more than a retailer at this point. They are becoming ingrained in the consumer’s life as a content solution, search platform and retailer.

Department stores need to find something to stand for in the consumer’s mind to survive.

Charles Dimov
Guest
Although I like the format and structure of three, I do NOT agree that TW “[is] the only strategy that retailers can still do better than Amazon.” Yes, it is a great idea. Ambiance, environment, extra-ordinary service quality and novelty are great. These are definitely areas that Amazon does not dominate, not does it do these well. These are great areas on which to focus retailer attention. However, C — convenience — is by no means dominated by Amazon. Amazon is desperately trying to get it’s rear-end in gear on the omnichannel retailing front. This is clear from its acquisition of Whole Foods, then the experiment of being in-store at Kohl’s and taking returns at Kohl’s. Given that ONLY 27 percent of North American (29.1 percent of U.S.) retailers have got BOPIS working, there is plenty of room to help customers with convenience. Think for a moment about this gift-giving season. When most men (like me) realize that there are only hours to go before Santa is supposed to lay out the gifts under the… Read more »
Art Suriano
Guest
I agree with Lee on the three brand positions. And I would say that for too many retailers the first two brand positions, unfortunately, are all that are getting their attention. Too many retailers are not focusing nearly enough on the Third Wave and are suffering because of it. Look at the brands Lee points out like Apple and Starbucks for example. Their prices are far from the lowest but their convenience, service and overall customer experience are fantastic. Too many retailers are too busy chasing after one another, not establishing any real brand identity, not providing exceptional service and other than their price they are not giving customers a good reason to shop them. Customers will still shop those retailers from time to time if the price is right and if it’s convenient but those retailers are not building brand loyalty like Apple or Starbucks. So if asked the question which is most important for Lee’s three brand positions, I would say the Third Wave. The reason: if the experience is right, you have… Read more »
Brandon Rael
BrainTrust

It’s simply too challenging to summarize the retail brand positioning strategies into only three segments. What we are seeing in the marketplace is a blended model, which could be simplified as “hybrid retail,” which is a retail strategy that has a digital-first approach supported by an in-store showroom-like transporting experience, and removes all of the shopping friction.

The key to survival in the new retail paradigm is to be passionate about your customers, adaptive to new technologies, agile and creative with both speed and flexibility, by blending art and science to get the model right.

Chris Petersen, PhD.
Guest

Given the escalating race between Amazon and Walmart, few others will have the infrastructure and resources required to compete on convenience factors now expected by customers for ordering, shipping and last-mile delivery.

Discount is a slippery slope. It requires scale to achieve best prices. And cheaper prices are easily matched by someone with more scale. Discounts are a temporary strategy, not a differentiator.

Lee Peterson’s description of the Third Wave describes those things which differentiate CX at “local touch points” where the consumer shops — whether it be online or in-store. More than 75 percent of customers begin their journey online, but that same percentage ends up purchasing in store — IF the local retailer customizes their CX and services.

At a recent Berkshire Hathaway meeting Warren Buffet stated that everything at the mall is online, and cheaper. The greatest survival skill for ALL retailers is to be able to offer experiences and services that customers can not get online.

Zel Bianco
BrainTrust

The integration of these will create more and for the better. Department stores will have a tough go. Perhaps they will totally go away and come back in some other form. This holiday shopping season will give us some indication but my gut tells me it will not be enough to alter the trend.

Dave Bruno
BrainTrust

Retail success in the future will be driven by the quality of the experience. While the Third Wave touches on the experience theme, it doesn’t go far enough. In my opinion we have to look beyond, as the article suggests, “quality, great environment, newness and spot on service.” Rather, we must consider every facet of experience as a critical piece of our strategy if we hope to remain relevant for the long term.

Lyle Bunn (Ph.D. Hon)
Guest

Shopper experience, a composite of value and pleasure encompassing selection and price along with discovery and fun, will always lead the way in retailer viability. When consumers’ determine what store they will drive to or walk into at the expense of their time, the “what’s in it for me” must have a suitable reply. Generally shoppers know about the stores that are visit candidates, so gaining the next visit based on the value of a current one is the challenge to be met.

Kiri Masters
BrainTrust

I like the breakdown, it seems like most value differentiators can be argued to fit in one of these categories.

Considering the first two categories, the take-away is that retail is becoming more about logistics and fulfillment capability than marketing capability.

Target and Walmart are upping their logistics game to improve convenience and value for shoppers.

And as for the Third Wave, Nordstrom has been experimenting with pop-ups, and Barney’s with “drops.” These give consumers the IRL experiences that they crave.

Department stores and other chains can still conceivably compete in any of these three areas if they make it a strategic priority.

Camille P. Schuster, PhD.
BrainTrust

The Third Wave encompasses many issues so it is difficult to think of this as only three. Price and convenience have always been major issues. Consumers will not pay more than they need to and have tools to determine where the low prices are. Convenience takes many forms; what is different is that convenience takes new forms as technology evolves.

The Third Wave seems to mean that retailers need to understand their consumers well enough to provide in-store experiences that entice them to come to the stores. I think retailers need to pay attention to all three strategies. Most of all they need to pay attention to what THEIR consumers want.

Jackie Breen
Guest

Discount (or better yet, value), Convenience and Third Wave, are three dominant brand positions but, as many others have stated, there are many other positions retailers can take to differentiate themselves and compete in today’s retail environment. I think the most important point is that retailer must be able to incorporate a combination of these values, not just one.

Regardless of the combination a retailer is looking to achieve, convenience must be part of the equation. If it is not easy for a consumer to obtain the product, they will easily get distracted by another offer and move on.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
3 years 1 month ago

This model is too simplistic. Future survival depends on category as much as any of these. Department stores lost tremendous business to warehouse stores — so they are the most threatened. Meanwhile, home improvement stores remain strong despite Amazon competition.

Convenience is important. But retailers must sort out convenience that matters to their specific consumers — NOT relying on this list.

In the list, for example, Amazon has raised expectations for free overnight shipping … because its investors pay a huge loss on it to buy consumer loyalty. That’s NOT a successful strategy in the long run because profits must arrive at some point.

Finally, what’s omitted here (yet again) is that many of the “Third Wave” stores mentioned succeeded because of product. Innovative, good, well-delivered product.

It seems we keep forgetting that stores ONLY exist for people to buy product.

Stuart Jackson
Guest
There’s no doubt in my mind that only those High Street stores that commit to the Third Wave will win out long-term. The other two ways come with big problems if they’re the basis for a survival strategy. Discounters can only survive if they remain the cheapest in the marketplace, but online will take that segment eventually, and consumers have no loyalty to discounters. Shoppers will go to the cheapest store, so that just drives the race to the bottom — and low, low profits. Online has its place, and always will. But there’s a ceiling to online shopping and I think people forget that — 85 percent of people still say they want to shop in malls or on the High Street and, while that may fall, there’s a real danger that retailers are writing off the brick-and-mortar store way too soon. For me, the Third Wave will always win: brands that have an identity, are known for quality and service and that people have a personal commitment and fondness for — these retailers… Read more »
Mark Price
BrainTrust
Mark Price
Managing Partner, Smart Data Solutions, ThreeBridge
3 years 1 month ago
I agree that these three strategies are critical, but I do not think they act as standalones. Rather, discount retailers must offer a solid multichannel experience and good customer service. There is no secret ingredient. Only by engaging customers in their preferred channel, and delivering a strong experience in-store, will retailers thrive in this new age of competition and declining customer engagement. One strategy that was not mentioned was the delivering of services to add value to the products. Education still has a high perceived value and acts as an incentive to drive customers into the store as well as to make them into raving fans, which every retailer wants. Other services such as yoga classes in stores that sell yoga equipment, fishing classes in fishing stores, etc. all add value to their brands, drive customer engagement and frequency and result in higher revenue in the long run. But one strategy stands above all the rest: engaging and empowering store associates to do the very best they can to connect with customers, leverage product and… Read more »
Neil Saunders
BrainTrust

I just don’t agree with these at all!

Discounting: Macy’s is discounting, J.C. Penney is discounting, heck Sears is discounting everything at the moment, yet all of them are doing badly. Nordstrom discounts far less and is doing better; Coach stopped discounting so much and its financials have improved. Value for money and justifying the price are important; discounting per se is not.

Convenience: IKEA is not as convenient as it should be, neither is Wegmans. Both do well because they have products people really want and are prepared to travel for.

Third Wave: Urban Outfitters and Whole Foods are mentioned, neither are doing that well and have seen sales slide. Not great examples of success!