2013 Retail TouchPoints Outlook Guidew

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What are the greatest challenges facing retailers in 2013? How do you design a mobile site for the multitude of different phones and tablets? Is your supply chain design meeting the needs of your shoppers? What’s in store for mobile payments?

These and other questions are asked and answered in the Retail TouchPoints 2013 Outlook Guide. A total of 13 retail industry experts — including well-known analysts, consultants and researchers, and one retailer — have shared their expertise and predictions for 2013 and beyond.

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2013 Retail TouchPoints Outlook Guidew

  1. 1. 2013Outl k Guide Insights From 13 Of TheRetail Industry’s Leading Experts
  2. 2. Table of Contentsk Guide How do you design a mobile site for the multitude of different phones and tablets? Is your supply chain design meeting the needs of your shoppers? What’s in store for mobile payments? These and other questions are asked and answered in the Retail TouchPoints 2013 Outlook Guide. A total of 13 retail industry experts — including well-known analysts, consultants and researchers, and one retailer — have shared their expertise and predictions for 2013 and beyond. Some key topics include: BYOD, showrooming, personalization, collaboration, voice of the customer, omnichannel and new media. Our experts have2013 Outl contributed tips for executives in all types of retail segments, from specialty and big box to grocery and home improvement. 3 John Hazen, Fox Racing 4 Lora Cecere, Supply Chain Insights 5 Paula Rosenblum, Retail Systems Research 6 Jerry Sheldon, IHL Services 7 Al Ferrara, BDO USA 8 Joy Liuzzo, Wave Collapse 9 Pam Goodfellow, BIGinsight 10 Robert Passikoff, Brand Keys 11 Jim Dion, Dionco 12 Kevin Sterneckert, Gartner 13 Chris Cunnane, Aberdeen 14 Gary Schwartz, Impact Mobile 15 Laura Davis-Taylor, Shopwork, BBDO 16 About Retail TouchPoints 2
  3. 3. Mobile Sites... R.I.P. The difference in screen size between an iPad mini tabletk Guide John Hazen and a Galaxy S3 phone is about 60%. Yet the phone has a VP, Global e-Commerce higher resolution of 720x1280. In fact, the resolution for the Fox Racing Galaxy S3 is higher than what most average desktop visitors are using. With more than 15 years of experience in the retail and technology industries, John Hazen So What Are We Designing Into? has a specialty in the youth driven, action sports business. Prior to The concept of designing a seamless commerce joining Fox Racing, Hazen launched experience used to revolve around how much real estate e-Commerce sites and strategies for several well-known surf your consumers had on their screen. Circa 2009, a company companies, including Hurley and would create a standalone mobile site that catered to O’Neill. He also created patented2013 Outl those screen sizes. And it worked. A standard mobile site retail/e-Commerce technology for that pretty much fit all phone models. Yes, you had to companies such as Nike. maintain a secondary mobile site but hey, mobile was the future, and it was only one extra codebase, after all. The answer lies in responsive design. True responsive design is one site that allows style sheets to target and deliver Then came the iPad, which gave us a bigger device and content based on screen size. One code base and many excellent touch interface. Due to this more enhanced different sets of visual assets, typically three or four. This experience, we pointed it to our full web site. That generally makes life easier for developers, but a little tougher for the worked well, with conversions approaching desktop levels creative folks. And it will only get more difficult. on many sites, including ours at foxhead.com. It is amiss that today we have massive LED screens in our Then things got tricky: We had Kindle Fires, a variety of other homes that are thousands of pixels wide, yet most sites are Android tablets, iPads with retina displays, and phones with still designed with a top size of perhaps 960 pixels across. retina displays that grew physically in size. In fact, these Think ahead 24 months when these larger screens become larger, higher-resolution devices encouraged the birth of more inexpensive to the general public. Would you design the term “phablets,” defined as touch-screen devices with a custom web site for screens that are 50 inches and screens five to seven inches large. larger? Of course not; the site wouldn’t be scalable. But you would add one more responsive design layout that So, do you design based on resolution? If that’s the case, would allow your site to look stunning on a large-screen then every smartphone and tablet with a manufacturer television or monitor. suggested retail price of more than $100 would get the full site. How about by device? The iterations and mutations Look forward three years. If most of your company’s traffic simply are too much to keep up with. Companies buy won’t be coming from computers, are you going to build e-Commerce platforms with a life expectancy of three to or buy your platform around computers? No, e-Commerce seven years. Consumers buy phones for 18 months and leaders need to drive towards the goal of being device new models arrive at retail stores and online monthly, if not agnostic and device specific all at once. And responsive weekly. What about designing based on the physical size of design accomplishes that goal. the device? This works for phones and tablets, but breaks at the other end of the spectrum: large monitors. Who will lead responsive design? The large, not so nimble enterprise platforms themselves, or will today’s mobile The (current) answer is actually a hybrid strategy, taking vendors become responsive design vendors and run the into account resolution and screen size. We must design whole front end? into what the consumer will see when they look at the physical device. And that is what calls mobile’s mortality Regardless, the reign of a standalone mobile site has come into question. Just an extra set of code? Not anymore. to an end. For optimal experiences, we are talking many different R.I.P. sizes of the site, not just one. And this breaks our traditional paradigm of a mobile site being a one-off. 3
  4. 4. Supply Chain Design Must Reflect Brand Promise For the retailer, supply chain matters now more than ever.k Guide Lora Cecere However, companies cannot drive growth on the back Founder of their traditional supply chain designs. The business has Supply Chain Insights changed, and the design of the supply chain needs to morph to better deliver on the retail strategy. Lora Cecere is the founder of the research firm Supply Chain Insights. She is co-author of the new Growth Has Stalled book Bricks Matter. She also is the author of the enterprise software Key metrics — revenue/employee and growth/square blog Supply Chain Shaman. With foot of the store — are declining. Retailers have been more than 30 years of diverse supply chain experience, Cecere unsuccessful in driving growth through the increase of the spent nine years as an industry size of the store or the expansion into new global regions. For analyst with Gartner Group, AMR2013 Outl retail, the growth lever is the channel strategy. E-Commerce Research, and Altimeter Group. strategies offer greater growth potential, but success Prior to becoming a supply chain analyst she spent 15 years as a requires more than just a digital marketing strategy. It leader in the building of supply chain software at Manugistics and requires a fundamental rethinking of supply chain strategies Descartes Systems Group, and several years as a supply chain for fulfillment and availability. It also requires rethinking the practitioner at Procter & Gamble, Kraft/General Foods, Clorox, role of the store and redefining store operations. and Dreyers Grand Ice Cream (now a division of Nestle). Our prediction: there will be a greater shift to e-Commerce and disintermediation of the supply chain. Direct shipments and e-Commerce offers retailers a path forward to drive and the management of e-Commerce will grow more growth, but it also offers suppliers a new opportunity for complex. As a result, B2B will be redefined to have inter- disintermediation. Now more than ever, retailers can self- enterprise systems of record for perpetual inventory and manufacture and consumer products manufacturers can Available to Promise (ATP) across a network of trading partners. directly sell to the shopper. As a result, the definition of the banner to drive services and a unique experience are The Answer For Growth Is More Than A paramount. Our prediction: more retailers will become Front Office Imperative manufacturers. The distinction between manufacturer and retailer will blur. While many retailers turn to the front-office (digital marketing, mobile commerce initiatives, and Disintermediation. New Business Models. merchandising) to formulate growth strategies, the answer Redefinition Of Retail? now needs to be more holistic. It requires a redesign from the customer’s customer to the supplier’s supplier to answer The convergence of business models, the promise of the new brand promise of the banner. Leaders will use new technology, and the power shift to the shopper is redefining technologies to redefine the brand promise of the banner retail. For the bold it will be a revolution: a time to see new while laggards will continue to trudge down the same path leaders, new business models, and redefinition of the value of bricks and clicks. Our prediction: new business models chain. Just as Amazon rode the e-Commerce wave to will emerge. The use of social and mobile will give rise to power a new business model, the shift from digital marketing new business models. Like the eBay, Amazon and Zappos of to digital business offers an opportunity for the extended the last decade, we will see new players that offer a more supply chain — suppliers and retailers — to reshape value. personalized, meaningful experience in the next five years. Our prediction: more consumer products companies will become retailers. While disintermediation was frowned upon New Technologies Offer Promise... due to channel conflict in the dawn of e-Commerce in 2001, Few Are Ready today it is acceptable to operate in multiple channels. This realization will help consumer products companies better In the supply chain, power has shifted to the shopper. know their shopper and make inroads into Africa and China. The retailer is moving from digital marketing to digital business strategies. The average retailer has worked on As companies look to redefine their business models to a mobile strategy for less than two years; but today, it power growth, supply chains matter more than ever. needs to be more than mobile for the sake of mobile on Leaders will define use a broad definition from the driving sales in the channel. It has not become a pervasive customer’s customer to the supplier’s supplier, unleashing redesign to rethink how real-time data coupled with cross- the power in new business models while laggards will channel operations can redefine the retail response. continue to use existing technologies, to automate We are in a transition. The convergence of retail/social traditional supply chains serving traditional banners. 4
  5. 5. Retail Payment Update In a recent Q&A with Retail TouchPoints, Rosenblum sharedk Guide Paula Rosenblum her insights on the where the retail industry stands in terms of Analyst mobile payments, mPOS and credit card transaction fees. Retail Systems Research (RSR) Retail TouchPoints (RTP): At what stage is the retail industry Paula Rosenblum is widely today, in terms of saturation, and in being prepared to recognized as one of the top analysts in the retail industry. She accept mobile payments? formerly served as Vice President of Research & Content at Retail Rosenblum: The retail industry is ready for anything to reduce Systems Alert Group (RSAG), and the fees it pays to accept credit card transactions. There as Vice President of Aberdeen are about four to five players that are involved in those Group’s Retail Research practice. She was also retail research director transactions. Disintermediating them would be welcome. for AMR Research. Previous to2013 Outl Having said that, we were surprised to discover in our that, Rosenblum spent more than current e-Commerce survey, only 17% of respondents 20 years as a retail technology strongly agreed that mobile payments would be a viable executive and CIO. She works with Wall Street analysts and industry trade associations on a option in the next year, and another 19% somewhat agreed. regular basis. Paula received her MBA in 1991 from Northeastern I thought the number would be a lot higher. University, with a major in management of High Technology firms. RTP: At what point in time do you believe the majority of the consuming public will have smartphones able to complete RTP: What do you see as the primary benefits of mPOS mobile transactions? for retailers? Rosenblum: I think a better question might be “at what Rosenblum: Believe it or not, the ability to install POS without point in time do you think smartphone penetration will new wiring is a big deal. People who haven’t been in the be high enough to justify the expense of enabling mobile trenches really underestimate what a pain in the neck that payments?” and the answer to that is “Right now.” can be, and how it can limit a retailer’s POS options. But each sub-vertical will see different benefits. Only 17% of respondents strongly agreed RTP: With respect to the October 2015 date and shifting fraud liability in the marketplace, do merchants view this that mobile payments would be a viable shift as an incentive to enable EMV transactions — both contact and contactless — at their POS? option in the next year, and another 19% somewhat agreed. Rosenblum: It’s probably one of the driving forces behind MCX. I think the whole PCI initiative, coupled by high fees are really incenting retailers to go in their own direction. RTP: In discussions with retailers, do you find that many are I think retailers are tired of expensive mandates with planning to eliminate traditional POS in favor of mPOS? questionable results. Rosenblum: This is a tricky question. There’s hardware/ RTP: Please share any other information or perspectives on software, and then there are check-out stands. On some the retail payment scenario. level, you can think of mPOS as just another hardware disruptor. If you can accomplish the same thing with a $500 Rosenblum: Retailers are looking for alternatives [for iPad as you could with a $3000 register, wouldn’t you? But payment] and alternatives are being brought forward. If you the next level is, at what point do you use the same logic/ take a mobile payment using ISIS, for example, who is the platform for your digital channel as you do for your POS? responsible party in the event of fraud? What happens if we This is not such a simple trick, as there are devices, cash go to NFC chips? I think EMV is a short step along the way, management and other things required in POS, but I see a and was probably very viable 10 years ago. Now there are convergence there as well. other alternatives that make the whole chip-and-pin thing more complicated and slightly less relevant. So sure, lots of them would love to cut down on POS hardware costs and reduce the total number of applications they have, but each vertical will have different decisions to make. 5
  6. 6. Key Themes For 2013: BYOD & Mobile Payment BYOD has gotten a lot of attention over the past year andk Guide Jerry Sheldon rightly so. BYOD is the next big area for advancement in Analyst the rapid proliferation of mobile devices within the retail IHL Services enterprise. For the IT executive reading this piece there are two key words that will potentially bring angst, those In addition to having a Bachelor of Mechanical Engineering and being “next” and “rapid,” as it seems that for the last a Masters Degree in Mechanical couple of years, any technology tied to mobility, whether Engineering from Georgia Tech, that be consumer- or associate-facing, whether that be Jerry Sheldon also has an MBA handheld or tablet, can be described as both a significant from the University of Miami with a specialty in Marketing and advancement/technical challenge with an emphasis on Marketing Research. He brings 16 rapid, which in IT speak can be translated as “challenging to years of business experience in the current budget.” engineering and management2013 Outl through assignments with Pratt Whitney - United Technologies, When you consider the two most significant challenges — Georgia Tech School of Mathematics, and Milliken & Company. In his previous employment he was managing a stress testing wireless network security and employee permissions — the laboratory on the Space Shuttle engines. In the field of retail vast majority of retailers have already addressed those technology, Sheldon has researched and authored analyst in some fashion. Most retailers who are going to have a reports on Mobility, Price Optimization, POS Software and wireless network are either steadily on their way or have Hardware Systems, Printers, and WFM Solutions. Sheldon also provides the development expertise and analytics that go into the infrastructure in place. All retailers have experience IHL’s Sophia Retail Technology Database, Worldwide POS Vendor with defining access based permission, so while associate Database and Retail IT Spend model. owned devices may drive a new set of permissions, very few retailers will be required to re-invent the wheel. that retailers will not be embracing Square’s technology. The biggest game in town to date is PayPal, but early reviews I think the real gem in the entire BYOD story is the benefit do not suggest retailers have found the balance sought this can bring to employee satisfaction, with potential between fair fees and secure, yet reliable technology. money saved by retailers on hardware and maintenance a distant second. In my general travels to retailers, I do not Enter Merchant Customer Exchange (MCX), led by the see a great emphasis on employee satisfaction. When one following merchants: 7-Eleven, Inc.; Alon Brands; Bed considers the pay, benefits and astronomical turn rates for Bath & Beyond Inc.; Best Buy Co., Inc.; CVS/pharmacy; retail and hospitality employees, it becomes pretty easy to Darden Restaurants; Dillard’s, Inc.; Dunkin’ Brands; Gap see why. Today’s employees have a pretty high comfort Inc.; HMSHost; Hy-Vee, Inc.; Lowe’s; Michaels Stores, Inc.; level with their mobile devices and I vehemently believe Publix Super Markets, Inc.; Sears Holdings; Sheetz, Inc.; Shell have the desire to do a good job. Oil Products US; Sunoco, Inc.; Target Corp., Wakefern Food Corp. and Wal-Mart Stores, Inc. Mobile Payment And The MCX MCX was created for the purpose of “offering consumers While none of us were alive to experience how the Wild a customer-focused, versatile and seamlessly integrated West was actually won, anyone following the mobile mobile-commerce platform.” While swipe fees are notably payments arena will quickly recognize the two main absent from the mission statement, they are not lost on components: a giant land grab which is at stake, as well as anyone that follows the payment space. The beauty and first mover advantage, which will have tremendous strategic drive behind MCX is the opportunity to save money — a lot implications as time goes on. With swipe fees averaging of it. The real challenge will be if a large number of retailers about 2% of transactions, the zeros compound rapidly and can get together at the table and come up with a plan before you know it, billions of dollars are on the table. With they can all benefit from, all with competing interests. I’ll more than a dozen competing technologies, consortiums reiterate that I don’t pretend to know how MCX will shake and ideas being lobbied about, it is realistically far too early out, but given the participants, if I was a betting man, I to have a good idea which technologies will make the cut. would have a hard time betting against them. Without a doubt there will be a handful that survives. In the SMB space, it seems that Square has both a great business model, meets a need and charges that customers deem as reasonable. For larger enterprises, our research suggests 6
  7. 7. Retailers Eye Omnichannel Growth And Improved Customer Experience In 2013 Despite a heated political climate and an uncertaink Guide Al Ferrara economic landscape, retailers headed into the end of 2012 Partner & National Director with confidence and optimism for holiday sales. As retailers BDO USA shift focus from holiday promotions to 2013 initiatives, Al Ferrara is a partner and national omnichannel retailing is top of mind. Notwithstanding worries director of the Retail and Consumer over unemployment and consumer confidence, retailers Products practice at BDO USA, are finding new value in two important sources of growth: LLP. He is based in BDO’s New e-Commerce and an improved customer experience. York office. BDO’s Retail and Consumer Products practice can help organizations navigate Omnichannel: More Than Just A Name complex market challenges and identify opportunities. Client Omnichannel was a big buzzword in 2012, and it’s service teams are led by partners2013 Outl clear that there is still plenty of room for top-line growth who have experience working online. That is what 100 retail CFOs told us in our sixth with companies ranging from Fortune 500 corporations to entrepreneurial businesses. BDO provides a comprehensive suite annual BDO Retail Compass Survey of CFOs. As they of integrated, value-added services to brick-and-mortar and prepared for the final quarter of 2012, CFOs predicted a e-Commerce retailers, as well as organizations in the consumer 5.9% increase in total 2012 online sales — an impressive product, food & beverage and restaurant sectors. number when compared with their expectations of 4.1% growth in comparable store sales and 4.5% growth in undaunted by the practice. In fact, when asked if they view total sales for the year. showrooming as a threat to their business, a majority of CFOs surveyed (88%) said no. Online shopping now plays an increasingly important role in key retail calendar events — back-to-school shopping, Cyber Still, consumers are trained to hunt for deals, and Monday, the relatively new “Free Shipping Day,” and of showrooming may be here to stay. As a result, we’re seeing course, the entire holiday season. Tablet and smartphone use retailers put increased focus on customer service strategies also has turned traditional shopping on its head. According to bring and keep shoppers in stores. When asked about to IBM, mobile sales as a percentage of total online sales their primary strategy for countering showrooming, 25% of hit 16% this summer. Nearly one in five CFOs told us they are CFOs said that they are improving their customer service increasing their investment in mobile to capitalize on or catch model, and another 25% reported expanded options for up to the growth in mobile commerce. in-store pickups and returns for online purchases. We’ve already seen major retailers add more mobile and self- As consumers grow accustomed to free shipping, exclusive checkout counters and increase employee training to find online deals, and streamlined mobile apps and web the right level of associate involvement to satisfy shoppers. sites, retailers are learning to answer the call and better incorporate each channel into their overall sales strategy. Looking ahead to 2013, shoppers can expect to see these This has become a vital component of retail sales. strategies in action as retailers aim to make store visits more enjoyable and worthwhile. In addition to customer service, Undaunted By Showrooming, we expect to see more brands focusing on the look and feel Retailers Get Creative of their stores, as well as promoting events, exclusive deals and products and special services to increase foot traffic. With huge online growth, the relatively new concept of showrooming has been spotlighted as a looming threat to While retailers certainly are looking to capitalize on digital traditional brick-and-mortar retailing. Showrooming is the sales growth, a cohesive brand experience through brick- phenomenon of customers browsing in stores and then and-mortar, mobile and online channels is key. Retailers that buying online, typically at a lower price. While the supposed strike the right balance and differentiate their offering will menace has made headlines in recent months, retailers are come out on top in 2013. 7
  8. 8. Make Showrooming Part Of Your Mobile Strategy Mobile devices have ignited a seismic shift in consumerk Guide Joy Liuzzo behaviors and expectations of retail experiences. It is now President natural for shoppers to reach for a device when faced with Wave Collapse LLC a buying decision, either to compare prices, access reviews, Joy Liuzzo advises clients on or discover new items. optimizing strategies to drive revenue via mobile by using a A research report from Wave Collapse, titled: Perspectives foundation of in-depth research on Discoverability, uncovered insights from 1,500 mobile and insights. Within the last four subscribers in July 2012. Results indicated that 67% of years, Liuzzo has spoken over respondents used their smartphones and tablets on a at more than 50 conferences, providing a unique perspective on daily basis to search. Moreover, approximately 33% of all things mobile — from behavioral consumers reported that they searched for products they analysis, to emerging trends and2013 Outl have purchased in the past, while about 25% searched for advertising effectiveness. products they haven’t purchased. This tells us that retailers and brands need to have a strong mobile search presence options for the competition to eat your lunch. And no, in order to remain top-of-mind for consumers. this doesn’t mean you have to compete on price alone. While it’s clear that consumers are comparing online and Some shoppers want the best deal, but they also enjoy in-store prices via their smartphones now more than ever, it is the internal satisfaction that comes when they have a important to note that these behaviors did not develop out valuable retail experience. of the blue. The same shoppers who are comparing in-store Retailers can achieve this more compelling in-store prices have been doing so for years. Only now, thanks to the experience by building location-aware components into progression of smartphones, they can do it more efficiently. a mobile app that delivers time-sensitive notifications to shoppers, driving them to specific store aisles. To sweeten Retailers can achieve this more the deal even further, merchants can provide geo-targeted compelling in-store experience by coupons that can be used for a discount that day when an item is scanned by a mobile device. building location-aware components into Following this approach allows retailers to take advantage a mobile app that delivers time-sensitive of an established behavior (scanning bar codes) and notifications to shoppers, driving them to make shopping a convenient, compelling adventure. The customer is offered an unexpected value (a deal that specific store aisles. doesn’t happen every time they are in-store), and they are experiencing the internal satisfaction of getting a good deal (discount/coupon). Using this strategy, retailers aren’t Before smartphones, these shoppers would have gone into fighting price comparison. Rather, they are leveraging the store and left after a round of unsuccessful bargain consumers’ deal-seeking behaviors to offer value, and are hunting. This was in the days of analog, and the tools used embracing mobile tools and technologies to make the were written lists, printed store circulars and envelopes entire experience fun, interactive and easy. packed with paper coupons. Obviously, retailers didn’t see these consumers when they went home to compare prices Taking advantage of mobile’s ability to provide a two-way online, or call five different local stores to inquire about conversation — either while consumers are in-store or on the rates. Nowadays, it’s evident that retailers today are only go — retailers will be armed with the resources they need to worried about “showrooming” because they can actually more deeply connect with shoppers, communicate, and in see people using their smartphones in stores. turn, drive purchases and maximize loyalty. In this age of access, closing your eyes (or doors) to mobile won’t work. Trying to eliminate price comparison and “showrooming” activities by developing unique store-specific barcodes or products only opens up more 8
  9. 9. Three Media Trends Influencing Consumers’ Apparel Purchases The economic crisis that rocked our country nearly fivek Guide years ago has clearly left its mark on today’s consumers. Pam Goodfellow Gone are the days of excess when shoppers would spend Consumer Insights Director now and worry later. The “new normal” mindset mandates BIGinsight that consumers think twice about purchases, spend when Pam Goodfellow possesses a necessary, and scrimp and save at every corner. While the decade of expertise in consumer fiscal responsibility we’re seeing now is necessary for the behavior related to the economy, long-term health of our still-fragile economy, retailing as we retailing and spending plans. Goodfellow is editor of the monthly know it has become increasingly competitive. publication, titled: Consumer Snapshot, produces the monthly The challenge for retailers now is to attract customers, get Video Briefing, and is a contributor them into their stores and e-Commerce sites, and keep for both the Prosper Now blog on them there through checkout. In this new economy, it’s Forbes.com and the BIG Consumer2013 Outl imperative that retailers create marketing communications blog. She is frequently quoted on plans that integrate both new and traditional media in a issues relating to consumer insights manner that speaks to their core customers effectively and and marketplace changes. efficiently. With this in mind, BIGinsight identified three media trends influencing consumer purchases within the very Trending Upward: competitive apparel category. Social Media, Mobile And Blogs The Waning Influence Of Traditional Media While the various forms of mobile and social media marketing don’t appear on the media influencer list, Consumers indicate that the top 10 types of media their pull among clothing shoppers has become much influencing their apparel purchases are more traditional. stronger over the past two years. In fact, the influence However, half of these media have declined in influence of mobile devices on apparel purchases has increased over a two-year period, while others are showing slow or no 130% over June 2010. Social media (Facebook, Twitter, growth. With circulation rates slipping, it may come as no etc.) has increased nearly 40%, while blogs (Index* to June surprise that the effectiveness of newspapers (Index* to June 2010 = 140), videos on mobile devices (Index = 143), and 2010 = 83) and advertising inserts (Index = 85) are facing the text messaging on mobile devices (Index = 133) all have steepest declines. Other forms of print media are suffering experienced double-digit growth. as well; magazines and direct mail influence each have diminished 5% over a 24-month period. Today’s budget- New Media Growth: minded consumers appear to be keeping the influence Millennials Are In The Driver’s Seat of in-store promotions and coupons afloat. TV, email, and online advertising also have remained relatively stable. Millennial consumers born between 1983 and 1993 are the driving forces behind the growing influence of mobile and social media on apparel purchases. Compared to the average consumer (Adults 18+), Millennials are more than twice as likely to indicate that videos on mobile devices (Index* to Adults 18+ = 247) influence their clothing expenditures. Furthermore, blogs (Index = 238) and text messages on mobile devices (Index = 213) are highly influential with this younger group of consumers, as are social media (Index = 188) and mobile devices in general (Index = 195). While the economic downturn certainly had an impact on consumers, we also must consider how new technology has acted as a changing force for new shopping behaviors. While still relatively small, the growing influence of mobile Source: BIGinsight.com, Media Behaviors and Influence™ study - JUN-10, JUN-12 and social media on purchases cannot be ignored * Index of 100 is flat, while an index of 105 [or 95] indicates that a figure is 5% higher [or lower] than the comparative figure. by retailers. Today’s smart shoppers are tapping into a variety of media to access product information, reviews, availability, sales/promotions, and pricing. Knowing your customers and the types of media they adhere to both are key to developing a successful marketing strategy in the increasingly competitive retail environment. 9
  10. 10. Meeting Retail Expectations Over the 16 years that we’ve been tracking categoryk Guide engagement and loyalty, customer expectations have Robert Passikoff, Ph.D. increased on average by 28%. Brands overall have kept President and Founder up 8%. Retail brands haven’t even done that. They’ve only Brand Keys, Inc. managed to keep up by 5%, which anyone at the checkout Robert Passikoff is President and counter can tell you, is an awfully big gap between what Founder of Brand Keys, Inc. Dr. you have and what the customer really desires. Passikoff has 35 years of agency and client experience in all phases Customers have become impatient with retail brands of strategic brand planning for a wide variety of B2B and B2C unable to meet their ever-growing expectations about, product and service categories. well, everything that drives retail success. Most retailers have He has pioneered work in the discovered that discounting is the “price-of-entry” and area of loyalty and engagement, pretty much table stakes when it comes to consumers. See creating the Brand Keys Customer2013 Outl also: price guarantees, couponing, earlier opening times, Loyalty Engagement Index®, the and lay-away plans. Brandweek Loyalty Leaders List, the Sports Fan Loyalty Index®, and the Women’s Wear Daily Fashion Brand Engagement Index®. Take a look at the current overall consumer expectation levels held for six retail categories, in the chart below. loyalty than those that don’t. Not sometimes. Always. And They’ve been indexed to allow for cross-category because loyalty correlates extremely highly with positive comparison, with 100 as the benchmark. consumer behavior, it also correlates with sales and profits. 2012 Customer Expectation Levels: Retail Check out the most recent overall Brand Keys rankings in various retail categories. Compare those rankings based 159 158 upon a retailer’s ability to meet expectations consumers 160 152 hold for the Ideal (calculated at 100%) and same-store sales. 149 Take, for example, what drives loyalty for Retail Apparel 150 146 chains. This order of importance tells you how customers will view the category, how they’ll compare offerings, and how they’ll buy: 140 1. Value & Convenient Location (Am I getting value 128 130 for my dollar and is it close by?). 2. Brand Buzz (Does the brand act as a surrogate for 120 added-value, so much so that that those in the Luxury Goods Department Stores Specialty Apparel Discount Home Improvement Price Clubs know are talking about it?). INDEX POINTS = SIGNIFICANT DIFFERENCE AT 95% CONVIDENCE LEVEL 3. Shopping Experience © 2012 Brand Keya, Inc. (Are you wowed beyond product?). Most are pretty high. All are significantly higher than the 4. Unique and Stylish Range Of Merchandise For Me mean, so what’s the secret to meeting them? The obvious (Self-explanatory, although the “me” part is unique answers like “lower prices” or “holiday lay-away plans” are to this category). wrong — or at least not entirely right. The answer is a bit more multi-layered. Retailers succeed by being better able Which of the major Apparel Retail brands answers those to meet or exceed expectations that consumers hold for the questions best? If you said J. Crew you’d be right. J. Crew brands participating in the categories where they compete met expectations by 85%, and most-recently nearly doubled — especially when it comes to the emotional aspects that profits and saw same-store sales increase by 16%. If you said are in play in the category. Victoria’s Secret, you were close. They were number two, meeting expectations by 83%, with same-store sales up 10%. The most critical part of that statement is “the categories If you said H&M, take another look at the category drivers where they compete.” Results in our national survey of and their expectations levels again. H&M same-store sales 49,000+ consumers, about 83 categories, covering 598 were only up by 2%. brands, proves that measuring real engagement is a category-specific business. Consumers do not engage and In some retail categories the drivers are the same, but buy in one category the same way they do in another. customers use them to judge retail brands in a different way. Nobody buys towels the same way they buy toothpaste, or Discount Retailers have the same drivers as Department blue jeans the way they buy breakfast cereal. Stores, but consumers use them in a different order: Merchandise Range, Value & Convenient Location, Store If you measure a retail brand against those drivers and Reputation, and Shopping Experience. Highest level of expectations, the one best able to meet or even exceed expectation? Value & Convenient Location. The lowest? 10 those expectations will see higher levels of engagement and Shopping Experience. The winner? Wal-Mart at 90%.
  11. 11. Retailer-Supplier Collaboration: Last Best Hope The year 2013 will be known as the year that many brandk Guide Jim Dion name suppliers are forced to “choose sides” and take Founder and President a stand on which retailers they will actively support and Dionco which retailers they will not sell to. As well, 2013 will be the year when retailers will be forced to choose what brands Jim Dion is an internationally known consultant, keynote speaker, trainer, to continue to carry that will help ensure their survival. author and one of North America’s The race to the bottom, which has created the practice leading experts on consumer of showrooming, has to end soon. Too many brands and trends, retail technology, selling retailers are in a death spiral that will consume them if they and service, retail merchandising and operations. Dion started his don’t stop the current insanity. retail career in 1964 in a men’s wear store in Chicago. From 1975 to The future for most brick-and-mortar 1980 he was employed by Sears Canada in Retail Management.2013 Outl He was promoted to Buyer, Jeanswear and was responsible for retailers in this brave new world of total buying and marketing for 68 retail and 958 catalogue stores. In 1980 he became National Sales Training Manager for Levi transparency demands that they establish Strauss. From 1985 to 1988 he was Executive Vice President of Gilmore’s Department Stores in Kalamazoo, Michigan, where he very close relationships with key vendors. repositioned a 106-year-old chain in a highly competitive retail environment. He has authored the retail selling manual, titled: Retail Selling Ain’t Brain Surgery, It’s Twice As Hard. In addition, he has co-authored Start and Run a Retail Business for Self-Council And then there’s the web. The simple immutable fact that a Press and is the author of The Complete Guide to Starting and web-only based business has far lower operating expenses Running a Retail Store. than a brick-and-mortar store selling the same product, will always give either a margin advantage, price advantage Unfortunately, this hyper-competitive environment of the or both to the web-based business. So, with the consumer 800-pound gorillas fighting it out is resulting in tremendous having the power to search the lowest price on any product collateral damage to specialty retailers. wherever and whenever they wish, they will exercise that power for any product that they chose to. If there is not a significant change in this dynamic in 2013 we will see an acceleration of the demise of specialty non- The future for most brick-and-mortar retailers in this branded retail in the US. brave new world of total transparency demands that they establish very close relationships with key vendors Ultimately, The Only Real Solution that not only help the vendor by protecting their brand image but also protect the retailer from unfair direct price Is Collaboration comparisons. This will also require closer technology links, The only hope to reverse these trends and stop collaborative planning and retailers giving greater visibility showrooming and price wars is for brands to take a stand of sales to their vendors. on not only their MAP policies (minimum advertised price) And then, there is the double edge sword of specialization. which quite frankly have been largely ineffective as most For many specialty stores, success is based on the sale of consumers will add the item to the shopping cart to see the one or two categories of product and if there is significant discounted price, to a complete unilateral minimum price price or margin pressure on one of these categories, the policy (UMP) that protects the specialty retailer and as well, results can be a disaster. Contrast this with many of the can prevent “free riding” by companies that offer the low discount channels such as Amazon.com, Wall-Mart, Dick’s price but not the high service as defined in the Leegin v. Sporting Goods, Target, or Kohl’s, just to name a few, who PSKS, Inc. case that the U.S. Supreme Court decided in 2007 sell numerous different categories which allows them to be which reversed almost 100 years of anti-trust law. The courts hyper-competitive in some of the categories or products have given manufactures the green light to protect their within the categories but then be able to compensate for brands and their retail partners. Retailers from their end will this loss of margin by having other categories that are not have the ability to choose whom to partner with and their as price sensitive and deliver significantly higher margins. survival will very much depend on this decision. Technology has given retailers and manufacturers the ability to collaborate like never before. 2013 will tell if they do either. 11
  12. 12. Tapping Consumer X-Ray Vision My outlook for 2013 emphasizes the mandatoryk Guide Kevin Sterneckert development and use of consumer X-Ray Vision. Consumers Research Vice President are empowered with real-time information and the ability Gartner to act on a plethora of choice. I see leading retailers vigorously developing consumer insights and decision Kevin Sterneckert researches and analyzes Pattern-Based Strategy optimization technologies. It is important to note that activities within the demand- these leaders are doing far more than just providing more driven value networks of consumer customer information to their business decision-makers. manufacturers and retailers. He is Consumer X-Ray Vision describes not only what consumers an expert analyst of merchandise life cycle (assortment, space, price, are doing, but why, when and where they will do things in promotion, markdown and offer) the future. While most have a long journey ahead, I believe optimization. Prior to joining Gartner, winning retailers will be those that develop consumer Sterneckert was the senior director2013 Outl behavior insights with localized intimacy. of global product strategy for merchandise planning, optimization and supply chain at Oracle Retail. He also served as the GM The insights derived from consumer X-Ray and VP of Retail for DemandTec, a provider of merchandise optimization solutions. Kevin also held positions at HEB Grocery vision can be applied to assortment, Co., Wal-Mart Supercenters and a leading provider of private label services, Daymon Worldwide. space, price, promotion, inventory, forecasting, and campaign decisions. Often consumers are asked why they bought one item over another or what their decision process was. Their answers are not always aligned with reality. Many causal factors There are a number of great examples where the use of influence consumer purchases. In a physical store, aroma consumer X-Ray Vision is returning high dividends. David’s or lighting may have influenced the consumer to choose Bridal, Kroger and Macy’s each are applying a version of one item over another. There are other causal influencers consumer X-Ray Vision. David’s Bridal is leveraging social for the online shopping experience (recommendations from media gamification to understand the success of wedding friends, product ratings or competitive delivery choices) gowns in the marketplace before they are manufactured, that subconsciously lead to a decision. The good news shipped and available in stores. These insights lead to for retailers: consumers leave behind digital footprints. proper order quantities as well as improved opening price These footprints come in many forms and feed insight and points. Macy’s has transformed its financial performance optimization systems that make up this X-Ray Vision. with its “My Macy’s” approach to sales and merchandising. Assortments are tailored to the consumer preferences I see 2013 as a breakout year for consumer X-Ray Vision in of individual stores. Kroger’s journey of consumer insights which a significant number of retailers will make progress permeates business decisions across the entire enterprise. in applying advanced consumer insights to merchandising The application of insight-driven decisions provides distinct and supply chain decisions. I believe retailers who fail to market advantage as a result of the retailer’s intimate pursue these capabilities will find an increasingly difficult understanding of the consumer. retail competitive environment. They will be bringing a slingshot to a nuclear war. The insights derived from consumer X-Ray vision can be applied to assortment, space, price, promotion, inventory, forecasting, and campaign decisions. As with the invention and use of X-Ray technology, users were able to see what is not obvious and extract value from seeing through layers. Winning retailers will be those that are able to understand the customer and leverage those insights to improve what is offered. 12
  13. 13. The Voice Of The Customer Is Changing The Face Of Retail When people think about the voice of the customer, and itsk Guide Chris Cunnane impact on retailers, the first thing that comes to mind is social Research Analyst media. Approximately 86% of Best-in-Class retailers from Aberdeen Aberdeen’s recent omnichannel retailing research are using social media as an interaction channel and are monitoring Chris Cunnane is a Research Analyst for the Retail, Hospitality the customer experience, compared to about 50% of and Banking Practice. Cunnane’s Average and Laggard organizations. The interesting part of research focuses on customer- this is that from a retail standpoint, the brand is king. These facing technologies within retail companies are more than two times more likely to track and hospitality to identify the practices, technologies, and social commentary on the brand than on the individual behaviors that separate Best-in-Class retailers from their peers. location. This highlights the importance of maintaining a Cunnane’s retail coverage focuses on the customer experience, seamless customer experience across all channels. and topics include cross-channel retail, customer loyalty,2013 Outl enterprise marketing, and campaign management. His hospitality coverage includes property management, customer experience Customer intelligence and feedback management, and revenue management and forecasting. Cunnane brings years of retail experience to Aberdeen, including loops, from mystery shopping and store roles in inventory management, marketing and customer service. intercepts to web, social, and call center feedback, help to drive innovation and Best-in-Class retailers are also incorporating customer insights into their supply chain plans. Supply chain address inconsistencies or shortcomings planning, and the associated inventory and merchandising within the brand. strategies, are impacted by how the customer views the source to consumer process. Today’s consumer is more concerned with the source of products — from the food However, while monitoring, measuring and analyzing social they eat to the toys their children play with. This means media commentary, on both the brand and individual retailers need to understand whether how their products locations, are important, there are other aspects of the are sourced or fulfilled make an impact on sales. Consumer voice of the customer that must be considered. Specifically, insights help to bridge this knowledge gap, and allow retailers need to apply customer insights to their strategic retailers to ensure their supply chain plans are aligned to business planning. Customer intelligence and feedback their customer’s desires. loops, from mystery shopping and store intercepts to web, social, and call center feedback, help to drive innovation The final piece of the puzzle is to use customer insights for and address inconsistencies or shortcomings within the store operations plans. These insights affect all aspects of brand. Incorporating these insights into strategic plans the store experience, from product availability and store demonstrates to the customer that their opinions matter, layout, to associate behavior. By incorporating customer and the organization cares about its customers. Retailers are insights into store operations plans, retailers are able to applying the customer insights they gather to their pricing, ensure that the brand is aligned to how the customer wants promotions, supply chain, and store operations plans. the store experience to be. Ignoring these insights alienates customers, and can make the difference between a loyal From a pricing and promotions standpoint, retailers are using customer and a lost customer. customer intelligence to understand which promotions are working and which are not. Using these insights, the CMO’s The use of these customer insights helps to align the brand office can make more informed decisions regarding their more favorably to consumers, and can be a driving factor marketing mix and promotional calendar. Retailers are for better performance. Retailers that are incorporating also able to understand how their prices are seen in a very customer feedback tools into their strategic initiatives competitive landscape. The use of customer insights allow have seen nearly double the year-over-year growth in for a focused effort on revamping pricing structures, which both customer conversion rates and average transaction begins with the source of the product. value. Understanding your customer is a key ingredient for personalizing the experience and continuing to drive innovation in 2013 and beyond. 13
  14. 14. The Future Of Retail As Reflected In The Malls Many mall owners would like to jump into a time capsule. Ifk Guide they could fly through the disrupted business models of 2012 Gary Schwartz into a less turbulent 2015, what would they find? Landing President from a bumpy (but enlightening ride) would they be Impact Mobile surprised at the new mall tenants? Would the shoppers be Gary Schwartz has played a engaged and buying? Would the mall realtors of the future leadership role in the mobile be in business or retired in Tampa on a golf course with other industry, founding Impact Mobile disrupted media executives? in 2002 and running the first cross- carrier short code campaign in North America. In 2006, Schwartz The future may not be this bleak, but change is coming and founded the mobile committee for it may be prudent for mall owners and their tenants to take the Interactive Advertising Bureau a peek into their not-too-distant future. Let’s take a look at (IAB) and has worked to publish the shape of the new mall and a few things to take stock of literature such as the Mobile Buyer’s2013 Outl as we court a mobile shopper. Guide, helping extend the digital buy into mobile (for which he Let’s start with a conversation I had with Brett Bonner, received an IAB award for industry the head of innovation at Kroger. Brett explained that excellence in 2009). In 2010, he was elected Chair of MEF North America with a remit to develop a mobile commerce practice the store and the mall have always been primarily about to service brands, retailers and content owners (for which he entertainment. The Leave-It-To-Beaver ‘50s family’s trip to received a MEF award for industry excellence). Schwartz is the the mall was not only about utility it was about the outing. recipient of the Asia and Japan Foundation Fellowship as well as The family dressed up to fill the basket. No one got into the the Macromedia People’s Choice Award and Dodge Foundation Chevy without dressing in their finest. Award for innovation. He authored the books Click2K’Ching: The Mobile Shopper and The Impulse Economy. The modern mall has evolved to service shoppers’ entertainment needs. Malls continue to be entertainment destinations, and movie theatres and Starbucks have So where does this leave the future mall? Let’s take a look at become standard hookup locations. Mall developers some categories: and management have increased their emphasis on entertainment, trying to provide a consumer value 1. Without a subsidised model for commerce, exchange. However, the 2010s may bring this ROI Best Buy and Barnes & Noble are not going to calculation into question. be around in their present form. The stores are important showroom entertainment but these stores The Mall Is Fun. But Is This Fun cannot reinvent themselves (while supporting their Financially Viable? incumbent legacy footprint). With so much entertainment, we know that the mall is in 2. Amazon, Zappos or some other new entrant will need of a “showrooming” business model. Somehow all develop a pure showrooming business model that this foot traffic needs to end in a purchase and if the mall seamlessly allows for a mall-to-cloud commerce cannot put this purchase on their balance sheet, it may be relationship with the mall goer. in trouble. 3. Starbucks and movie theatres will continue to grow For brands and retailers the whole concept of “path to their entertainment footing. purchase” has changed. It has always been a perilous path, but with an always-on mobile shopper, in many cases 4. Grocery will continue to be destination to touch, purchase can happen without the path. feel and buy your vegetables and fruit. Oh, and of For this digital generation, the shopper, in many cases, course the rest of your food basket. has researched online and is ready to make a purchase decision pre-store, pre-mall. Google calls this the Zero 5. Pharmacy will still be the trusted destination for Moment Of Truth (Z-MOT) — if the shopper is in the market medical information. Oh, and of course the rest of for a dishwasher or dress, they have already scoured the your drug basket. web for information on the best product at the best price. 6. Specialty will continue to differentiate itself from the If the brand can make a purchase of a dish washer simple cloud as a come-look-and-see shopping destination. at point of decision at a bus shelter or billboard, then the shopper is highly likely to act on this advertisement. Path A viable mall business model depends on: cost of goods to purchase becomes simply “purchase.” Where does this (price), proximity of purchase (convenience) and leave the store and its realtor, the mall? experience (trust). We all know that the modern mall cannot win on price alone. Convenience, trust and, of course, the The mobile phone becomes the dispenser and the media mall’s silver bullet, entertainment, will be needed in becomes the store. A one-click wallet in the cloud now is all spades to win the day. 14 you need.

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