Global 100 Retail
Retail is in the midst of major transformation.
After years of caution following the financial crisis, shoppers are back. But they’ve changed. They want everything – the range of online shopping and the immediate gratification of physical stores – and they expect it all the time.
And in developed markets, the legacy of big stores designed for a weekly grocery stock-up is mismatched with shopping behavior shaped by increased urbanization, more boomer empty nesters and delayed family formation by Millennials.
Even the retail lexicon of the recent past – multichannel, omni-channel, “showrooming” – is inadequate as retailers attempt to provide seamless, customer-centric experience and gain greater customer share of life.
Retailers adjusted to these new realities as quickly as possible, given that many are weighted down with big stores, siloed organizations, narrow skill sets and old IT systems, the ballast of the business as it was in the recent past.
The retail category improved 16 percent in brand value, following a 17 percent rise a year ago, as developed market economies strengthened and retailers met the new realities with actions, including:
Retailers gained new skills by hiring staff from other disciplines, an approach taken by Germany’s Metro, and by learning from international partners.
Carrefour set up programs to identify talented women employees, mentor them, and accelerate their advancement into management.
The US drug chain CVS closed its $2 billion-a-year tobacco business because of its inconsistency with the brand’s essence as a healthcare destination.
Share of life
Successful brands did not pursue share of wallet (what can we sell you?) but rather share of life (how can we help you?). The outcome may be the same, more sales, but the mentality is different.
Share of life, insinuating the retail brand into all aspects of the customer’s routine, is best illustrated by the brand that invented the approach – Amazon, the world’s most valuable retail brand, which reported a 22 percent increase in sales to $74.4 billion, in 2013. Launched as an ecommerce site for the purchase of books in 1995, Amazon ended 2013 with over 237 million customers worldwide.
According to some estimates, Amazon now has over 20 million members of its Prime program, which connects the consumer to the brand with free shipping and a growing amount of online content, including movies, as Amazon becomes a media company as well as a retailer. Around 19 percent of all primary household shoppers in the US are Amazon Prime members, according to Kantar Retail.
Along with hardlines, Amazon also offers apparel, health and beauty, and grocery. To aim specifically at the warehouse clubs, Amazon launched its Pantry program, in which Prime customers can receive free shipping for a box load of household staples, items that would be unprofitable if ordered individually.
In the physical world
In its Fresh program, which competes with other online food providers, Amazon adds the advantage of being able to deliver non-food from the same distribution centers, which helps improve margins and also accelerates delivery time, burnishing the brand’s reputation for convenience. Amazon made ecommerce local by sourcing from local suppliers.
With a relentlessly focused brand proposition, Costco gained share of life with its roughly 650 warehouse club stores in eight countries, from customers who trust the brand for providing convenience, range, quality and low prices. Annual turnover surpassed $100 billion for the first time.
The conversation around national healthcare in the US helped strengthen the brand presence of drug store leaders Walgreens and CVS. Walgreens continued to cultivate share of life, integrating over 8,100 stores and its website. The website includes products from Boots, its UK partner in building a global business in health and wellness and what the brand calls “daily living.”
The Walgreens slogan, “at the corner of happy and health,” articulates the brand’s combination of convenience, attitude and purpose. CVS, in promising to eliminate tobacco sales from its stores by October 2014, affirmed its brand commitment to improving healthcare, reducing chronic disease and controlling healthcare costs. Both Walgreens and CVS enjoyed strong stock appreciation.
Seamlessness and the new convenience
Retailers experimented with innovations to create seamlessness for consumers who, conditioned by the Internet, increasingly expect infinite choice, good prices and rapid delivery service, with no extra charge for convenience.
Auchan and other hypermarket brands expanded click and collect, an option for picking up in the physical store groceries ordered online, which solves a problem for people not home during delivery hours. The concept has evolved to freestanding, drive-thru locations that customers conveniently pass on their commute home.
In France alone, retailers opened 726 pick-up locations in 2013, many of them standalone locations with no store attached, according to Kantar Retail, which added that today, in France express “drive” pick up points outnumber hypermarkets. Kantar Retail calculates that over 3,000 “drive” points exist throughout Continental Europe.
Asda, Walmart’s brand in the UK, tested same-day collection at several underground stops in London. Commuters placing orders in the morning could pick up their packages on their way home, in the parking area of their suburban train stations. Tesco introduced a similar program as well and also locations near certain libraries and other public facilities.
The “drive” concept is less advanced in the US. However, trading space for speed, Walmart partitioned some of its 3,300 US superstores into smaller stores with adjacent distribution centers. The arrangement enables Walmart to execute local rapid grocery deliver and to strengthen profit by including higher margin non-food items with grocery deliveries.
Brand clarity worked across categories
Whole Foods expanded its trend-setting approach to premium organic food in the US and continued to build the brand in the UK. The company added 32 new stores, ending 2013 with a total of 362. The stock price appreciated 20 percent.
Both Aldi and Lidl, the German-based, private label hard discounters reported strong results. Lidl continued adopting brands on an in-and-out basis for traffic driving promotions. With physical locations in 28 countries, it’s the most pan-European retailer. The Aldi brand operates a total of almost 10,000 stores from two divisions. In addition to Europe, Aldi is present in Australia and the US where it also operates the Trader Joe’s supermarkets, a Whole Foods competitor.
Both The Home Depot and Lowe’s were well positioned to benefit from the strengthening of the US housing market. IKEA also gained business from the recovery of developed market economies as well as from the aspirations of the middle class in fast growing markets.
The strength of the local Australian market helped Woolworths and Coles. In contrast, Falabella, the pan Latin America department store brand, produced strong results but declined in brand value because of slower economic growth in Chile, its home country, and a weakened stock market.
A store is a box. A screen is a box. Consumers don’t think in terms of these boxes. Retailers need to get away from that channel thinking, too. For example, a retailer called Sneaker Boy has created on online model with a physical face. The store, in Melbourne, offers one of every sku in every size. It’s a browsing experience, where customers can try on shoes for style and size, purchase on an iPad, and have their merchandise delivered to their home in a few days. The store maximizes retail space and inventory efficiency. And it can rapidly update the range to keep pace with seasonal and fashion changes.
Selling products is not enough anymore. Retailers need to offer an overall value proposition that frames their relationship with customers around gaining “share of life” rather than “share of wallet.” To its Prime customers Amazon is not just a merchant with free shipping, but also an entertainment content provider. Walmart is doing a lot around financial planning. The Home Depot and Lowe’s, home improvement retailers, offer financial services. Retailers need to think about “share of life” in ways that are brand relevant.
Vice President, Retail Insights