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The Retail Mantra for 2016

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While retailers have measured growth by their store’s square footage of their footprint, e-commerce requires no physical space, so the thinking needs to be realigned. What’s happened is that stores have expanded in search of growth that was fairly non-existent and now that’s coming back to haunt them.

Healey Cypher, CEO of Oak Labs and former leader of the Retail Innovation team at eBay, says, “The U.S. is the most over-retailed country on the planet. We have 46 square feet of retail space for every person. The next closest is the UK with 9 square feet…and supply is growing faster than demand.”

While retailers are challenged by short-term business growth, what they’ve got going for them that Amazon doesn’t is their store space! Amazon just can’t duplicate customer-service experience that stores can provide. And that’s why Amazon, as well as many other online retailers, are entering the brick-and-mortar universe.

60% of consumers say they would rather shop in stores instead of online because it gives them the ability to touch and feel a product, according to a report from PricewaterhouseCoopers. It doesn’t matter how large or small the store is. With customers now seeking and paying for “the experience” of vacations and fine dining, stores need to up their game by offering similar appeal.

Customer-centric personalization will be a requirement for retailers and will become much more targeted as retailers explore internal information, known preferences, and social media data to better understand and cater to their customers.

Zara, king of fast-fashion, gets a new line every two weeks, vs. traditional stores, which get a new line in about every four months. There’s a caveat here, though. Zara’s vertically integrated supply chain makes this quick changeover happen. Most retailers don’t have that advantage, but Zara’s visitation rate is 17 times a year, vs. 4 for traditional retailers. Customers don’t want to miss these new experiences.

More and more, stores are adopting digital technologies meant to enhance the in-store experience. Burberry’s technological tour-de-force is a great attraction. Its flagship store in London has 40-foot-high LED screens streaming live fashion shows. If you see something you like, you can scan the barcode with your phone and it will trigger a video, which tells you more about the product and its design. 500 screens not only disseminate information to the consumer, but also interact with them.

Steve Barr, a partner and the U.S. Retail and Consumer Sector leader at PricewaterhouseCoopers, notes that the value-based retailers, the fast-fashion retailers, and the high-end retailers all have very clear identities—and the consumer knows exactly why they go to shop there. The worst place for a retailer to be is in the middle—neither in the value space nor in high-end—without an identity.

A challenge that many large retailers face is the necessity to respond to shareholder demand. Short-term sales mandates have resulted in poor tactical decisions.

“The short-term pressures are exactly the reason why I think we’re going to see increased transactions,” Barr says. “The opportunity for retailers to go private is to give them the space they need to reinvent their brands, redo their store formats, and emerge a much stronger retailer.”

Many retailers have recently gone private, like PetSmart and Mills Fleet Farm, and Kohl’s is considering it. Restoration Hardware was experiencing difficulties and was taken private in 2008 for $177 million. Given the opportunity to reinvent itself and focus on its long-term position, Restoration Hardware now has a market cap of about $2.6 billion.

“If you can have a compelling experience and relationship with the consumer, there’s an opportunity to be healthy, whether you are store-based, online, or omnichannel,” Barr says. “You just have to connect with the consumer.”

TAGS: retail, retail trends, retailers, omni-channel,
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