A white paper on the retail industry,
                  prepared by Leo Burnett and Arc Worldwide

One of the...
Our overarching observation:
            Writing the obituary for the retail store is very premature.
     However, a new ...
Key Finding:
               A defining feature of the recession is that while price is focal,
Key Finding:
                                   Physical retail stores are still very relevant
Key Finding:
                  Shoppers are largely unimpressed with in-store service.
         It’s not just the delivery...
Key Finding:
       Shoppers organize stores in terms of the experiences they want to have,
                    not just t...
Key Finding:
                     The way that shoppers cluster stores is very different
Key Finding:
                     There are 2 clear ways to win in store-based retailing:
                     excel withi...
Key Finding:
                    Shoppers are promiscuous. They shop around
      and their loyalty has to be earned, not ...
Key Finding:
               Cutting edge technology is a low order priority for shoppers.
             Furthermore, techno...
Key Finding:
                  Physical stores need to be made relevant with the Internet.
                      It’s not ...
Key Finding:
               Shoppers look to stores to deliver what the web cannot.
         When they disappoint, they ar...
In Summary: The 9 key themes for physical stores

1   Price competitiveness gets you an invitation to the party, but
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For more information about this study and Leo Burnett and Arc Worldwide’s perspective on and capabilit...
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Leo burnett the changing face of retail

  1. 1. A white paper on the retail industry, prepared by Leo Burnett and Arc Worldwide Introduction One of the most important questions facing the retail industry in a multi-channel, Internet enabled world is what – if any – is the role of the physical retail store in a landscape where they are no longer needed for shoppers to make purchases and retailers to sell products and services. At Leo Burnett, we felt that this heartland issue merited serious attention. Moreover, we wanted in particular to hear the shoppers’ perspectives. And so we asked them. Specifically, we asked 2,200 adults across the United States. We asked them for their perspectives on the following key questions: What do retailers need to do to keep their stores interesting, relevant and inviting? What roles does the physical store play for them in the overall shopping process? How synergistic does the store need to be with other shopping channels? What stores do shoppers like to visit and why? What are their expectations for personal service in store and how well are retailers delivering on their expectations? How do they feel about the role that technology is playing in their experiences of physical stores? Do they categorize stores into the same functionally-led groupings that the retail industry uses? How important is price in their choice criteria? We included in our study 40 of the most important retail brands in America. 7-Eleven CVS Local Grocery Store Target Abercrombie & Fitch Dollar General Lowe’s Tiffany’s Apple Favorite Movie Theater McDonald’s Trader Joe’s AutoZone Foot Locker Neighborhood Markets by Walmart Vacation Hotel Barnes & Noble Gap Nike Stores Verizon Bass Pro Hallmark Nordstrom Victoria’s Secret Bed Bath & Beyond Health Club Pottery Barn Walgreens Best Buy Home Depot Sears Walmart Chase Bank IKEA Sports Park or Venue Whole Foods Costco Kohl’s TJ Maxx Williams Sonoma We are very pleased to present in this white paper the key findings from our research and our perspectives on their implications for the retail industry.
  2. 2. Our overarching observation: Writing the obituary for the retail store is very premature. However, a new shopper calculus requires retailers to have a new mindset. Many have argued that technology has chipped away at the this new calculus often demands hands-on experience so need for physical retail stores. Websites provide shoppers they can be very certain about their choices. This means with increasingly rich information about products and that technology, rather than existing as a force in its own employ increasingly sophisticated technology to bring right, enables shoppers to arrive at the store armed with virtual shopping to life in ways that would appear to rival a information. Some may have already decided (or think they bricks and mortar experience. This has driven a steady flow have decided) what they are going to buy – the store is of sales – some might say a torrent - away from the physical merely a final check or pick-up station. In other cases they store itself and onto the web. In this scenario, the old retail arrive at the store to check things out, but in a critical way store model is characterized as irretrievably broken. and often on their own terms. They are informed and in charge and often focused on efficient mission-completion. Yet when we set out to more deeply explore, from a shopper’s perspective, this emerging paradigm, we did not For these reasons -- more so than the allure of find that this holds true. Even with the plethora of online technology on its own -- the paradigm has shifted from options, most shoppers feel that the physical retail store is the store being in the position of managing shoppers to still an essential part of their shopping experience. shoppers managing the store. While it varies by product category, most agree that there is Importantly, the retailer still has opportunities to powerfully really no substitute for the store itself. It may not always be influence the evaluation and selection process. But they are perfect, it may not be loved, but it is needed. In many cases, different than in the past when the only goals that the shoppers feel that there is simply no substitute for seeing, shopper had and that the retailer needed to deliver against touching and experiencing a product. The web, while often were about having the right product in the right location and used, is not preferred. at the right price. The new shift is all about “right process,” meaning the way shoppers are moved through the shopping In addition, there is much in our research findings to suggest experience from the time they get on a retailer’s website to that while the migration from stores to online isn’t the time they arrive in that same retailer’s store. Many completely over, it is slowing. Furthermore, there may be a things that retailers have not previously considered loom natural bottom beyond which stores will not fall. Reported large in this apparently beguilingly simple process. spending data from our respondents suggests a leveling off of the exodus to online. Also, for many shoppers for much We identify 10 dynamics, detailed in this white paper, that of the time, the store experience is still rated substantially we believe are critical for retailers to understand and higher than the web experience – despite the growing embrace if they are to succeed in this new environment. sophistication of web technology. In the context of these findings, we think it especially Implication: important to re-think the nature of the paradigm shift that is Learn the new rules. taking place in the retail sector. While we believe that there is a shift taking place, it is perhaps not quite the one that has Understanding the changed role of the been predicted. physical retail store in a multi-channel Internet enabled world is crucial for all As a result, we propose a slightly different narrative: retailers. The new retail reality is that “If you Technology on its own – online, in-store and mobile – is build it, they won’t necessarily come.” certainly appealing to some shoppers. And for those specific Furthermore, it is shoppers, not retailers, who shoppers, these enabling technologies have clearly are in control of the buying journey and these diminished the role of the retail store. But what’s more important and often overlooked, is that for most shoppers, shoppers have very clear views of what they technology on its own is not the solution – its appeal is too want the physical store experience to deliver. limited. What we believe is really going on is that the recession coupled with shoppers’ access to technology has driven the shift. Shoppers have used it to seize power. In difficult economic times, they are engaging in a more complicated calculus in which price, quality, convenience and personal relevance are more carefully weighed. Unless it is a product or brand they are already quite familiar with,
  3. 3. Key Finding: A defining feature of the recession is that while price is focal, shoppers want everything else too. It is important to first of all have a current perspective on how shoppers feel that retailers are performing on the so- called retail basics of right product, right place (location), right price. Among these basics, it is inevitably price that % Agree Top 3 Box on 10-Point Scale has gained much attention lately. It’s worth putting in the effort to find real Given the recession and its lackluster recovery, it’s not bargains when shopping surprising that price is focal among today’s shoppers and 2009 2010 that they are willing to invest substantial time to find bargains as well as substantial time re-thinking exactly what 53% 52% is right for them. There is no indication in our research that price sensitivity is lessening as the economic recovery Price is the most important consideration in proceeds – it is still pervasive, and our data shows there has choosing a brand been no significant change in the importance shoppers 2009 2010 attach to price by comparison with a year ago. Fully 81% of 36% 36% shoppers strongly agree that it’s worth the effort to find real bargains and 70% strongly agree that price is the most I often switch between buying a couple of important consideration in choosing a retail brand. A different brands depending on price majority also report switching from one retailer to another based on price. 2009 2010 36% 36% Despite this, quality of products and quality of store experience are still important. Nearly two-thirds of shoppers still strongly agree that quality is the most important consideration when shopping and three quarters strongly agree that high quality and excellent service are Implication: important also. Conversely, less than a third say that they Price competitiveness gets you an would be willing to sacrifice quality of experience for lower invitation to the party, but price alone price. won’t get you a dance. Recession impacted shoppers have become % Agree Top 3 Box on 10-Point Scale extremely demanding shoppers. They are no longer prepared to accept the old trade-offs The most important thing when shopping is to of low price or a quality experience and find high quality products quality merchandise. In America in 2010, they 61% want it all and they are very intolerant of retailers who do not deliver on their When it comes to stores, It’s important to me expectations. Furthermore, retailers must to go to those that have high quality products understand that they are not just competing and excellent service against other retailers; they are also 75% competing against the shopper’s option to defer their purchase or not to spend at all. I’m willing to sacrifice the quality of the This recession has shown us just how able shopping experience for lower price shoppers are to exercise their ‘no spend’ option if they feel they need to or if retailers 31% do not give them sufficient reason to make a purchase.
  4. 4. Key Finding: Physical retail stores are still very relevant for many shoppers and many types of purchases, but the experience certainly isn’t optimized. Our research tells us in clear terms that shoppers are often In fact, 55% of shoppers agree strongly that the 10 items still disappointed in and frustrated by the inability of identified in the survey overall as most important are retailers to deliver on the ‘Retail 101’ basics of offering the indeed extremely important to them personally., However, right products in convenient locations at competitive prices. only 43% believe that retailers are doing a good job in To this, the shoppers we surveyed add a fourth ‘retail basic’ delivering on those attributes. Thus there is a substantial – a reasonable returns policy. gap between importance and delivery just on the store basics. When asked to rank 76 store attributes in order of the importance that they attach to them, it is these 4 constructs, This highlights the fact that there are clear opportunities for no matter how expressed, that dominate the top of the retailers to raise their game on the basics. Those who rankings. By contrast, web and technology items fall much consistently deliver on the fundamentals will have a clear farther down the list. competitive advantage over the majority who can’t. This may sound like low hanging fruit, but it is a constant However, our data also shows that retailers are still not challenge for retailers and, as our research shows, a getting the basics right – even in the eyes of shoppers who frustration for shoppers that they are still not able to get it prefer to shop their stores. When we compare what’s mostly right most of the time. important to shoppers to how retailers are delivering on these attributes, there is substantial under-delivery. We found that price suffers most from perceptions of under- delivery by retailers. In terms of having the right brands and products, the biggest under-delivery is on having things Importance of top 10 items 55% in stock. Convenience of store location could also be better. And stores could also do rather better on their return Delivery of top 10 items 43% policies, particularly in terms of the timeframe that they will allow returns. GAP -12% Top 10 Store Attributes as Rated by Rating Rank Shoppers A store I can trust 7.7 1 Has a great selection of products 7.7 2 Implication: Has a location that’s really convenient for 7.6 3 It may not be sexy, but there’s work to me do – and profit to be made – from They always have the items I want in stock 7.5 4 making the basics better. Has good value for the money compared 7.5 5 to other stores of its type Retailers are often still struggling to get the basics right. Shoppers are noticing and are Makes shopping quick and easy 7.4 6 expressing their frustrations. It may still be Has the right mix of products 7.4 7 ‘Retail 101’ but there are clear wins to be had Has a good range of prices on the items I 7.4 8 by improving customer appeal and retention – shop for there and therefore profitability. Has prompt service-I don’t have to go 7.3 9 searching for someone if I have a question Keeps prices lower than the competition 7.3 10 Has consistent return policy, whether I’ve 7.3 10 shopped online or in the store Mean Score on Importance (scale 1-10) and importance rank out of 76 items
  5. 5. Key Finding: Shoppers are largely unimpressed with in-store service. It’s not just the delivery that’s weak – it’s the service proposition itself. For many shoppers, good service used to mean a smiling This means that staff need to be more attuned to a shopper staff member. Shoppers’ expectations, however, have who arrives at the store already armed with information. changed and service now means much more than staff who They need to know their merchandise to a level of detail are just being friendly but doing little else. that adds to the shopper’s (often very high) knowledge when they enter the store. They need also to understand Our research shows that many retailers are still caught up in when to interact with the shopper and when they want to be the old definition of service and too often believe that left alone to explore and move through the store or the service means a person in store who acknowledges the merchandise category at their own pace and without customer’s presence. Shoppers are clear that they want interruption. much more than this. They’re looking for real help to make better informed decisions. They’re seeking a lot of Importantly, effective service doesn’t necessarily have to information about products in the store as well as include a person. Effective service can also include salespeople who are in tune with when they’re needed and informative displays, signage, or interactive technology in when they aren’t. store. However, as we highlight later on in this paper, technology that empowers shoppers to get help completely For American shoppers today, In-store service has been re- on their own also has the potential to create a division cast to be much more about real effectiveness than about between shoppers and the retail store. acknowledgement. Implication: Store Attributes as Rated by Shoppers Rating Rank Reframe service from staff ‘just being Has prompt service-I don’t have to go 7.3 9 there’ to service being truly effective searching for someone if I have a and delivered by both staff and the question store environment. Has sales people who really know the 7.0 16 merchandise Shoppers regard service as of key importance Make it easy to get the information I need 7.0 18 in their choice of retailer. However, ‘good’ or about a product right there in the store ‘high quality’ service is a very nuanced and Has figured out at which points in the 6.7 22 multi-faceted attribute in the minds of the store experience the quality of service shopper. Few retailers understand this and matters the most fewer still are able to satisfactorily deliver it. Has figured out how much or how little 6.7 24 There is great competitive advantage to be interaction I want to have with the sales staff, and has gotten it just right secured by those who do. Mean Score on Importance (scale 1-10) and importance rank out of 76 items
  6. 6. Key Finding: Shoppers organize stores in terms of the experiences they want to have, not just the merchandise they want to buy. In order to understand shoppers’ perceptions of retail stores, “Strong Value,” and “Right Brands and Products” – all we asked them to rate the 40 retailers included in our factors that are about getting there, finding what you want, research on a variety of attributes. hopefully at a good price, and getting it done. By contrast, items anchoring the browsing end of this scale are from the We were then able to map the attributes and the 40 retail factor “Experiential Environment,” and to some extent from brands into a two-dimensional space based on shoppers’ the factor “Engaging Ideas” – both factors that are more perceptions as expressed through the data. As such, this about immersing yourself in the store, being entertained and analysis reflects how consumers mentally organize the retail engaged, browsing, and ideating. world. We call the second dimension “Self Directed vs. Retailer When placed into the correspondence analysis map, the Guided.” It reflects the degree to which shoppers are items (shown summarized by their overall factor locations) handling the shopping process more or less on their own, in reveal that today’s shoppers organize the retail space in a self-directed manner versus letting the store, its display of which they operate very differently than the way that products and its employees play a role in guiding the retailers do. Whereas retailers tend to focus more on the purchase process. Again, as can be seen from the map, the types of products being sold, the shoppers’ world is defined items at the self-directed side are from the various by two dimensions that are largely to do with how they technology factors – “rEtail Integration,” “Cell Phone shop, and less to do with what they are shopping for. Friendly,” Reasonable Returns,” and “Technology Empowered” – all factors that are about using the web site The first dimension is one we call “Buying vs. Browsing.” or other technologies to do research, order, search in-store, In other words, are shoppers in the store primarily to “close all without the help of service personal. By contrast, the the sale” or are they there to look around, gather ideas, items at the retailer guided side of the map are anchored by immerse in a theme, and maybe purchase something? As can be seen from the map, the items at the buying end are factors that are all about needing the store itself and its personnel – “Physical Over Virtual,” and “Effective from the factors “Convenience,” Service.” Implication: Knowing what’s important is the essential first step to knowing where to improve. Shoppers don’t view the retail world through the same lens as retailers. Shoppers organize their stores of interest according to the experience they want to have as well as the merchandise they want to purchase. A shopper-centric perspective is required for retailers to better deliver on the experiences desired by their shoppers.
  7. 7. Key Finding: The way that shoppers cluster stores is very different from the way that retailers do. In addition to running the data through correspondence analysis to understand how the attributes and stores defined the space, we cluster analyzed stores on their attribute profiles. Stores with similar profiles to one another, but different from other stores, clustered together. Six clusters of stores emerged, each representing a different store archetype, as perceived by shoppers. These clusters are quite different from how the retail industry groups stores. Price Led Stores All About Ease Best Buy For Price Led stores, low prices are All About Ease stores offer convenient 7-Eleven central and self-service options can locations, where it’s all about getting Walmart McDonald’s be a means to that end. These products you need in a timely manner. It CVS stores are also perceived as offering Dollar General may include self-service check-out. convenience and good return They don’t tend to have good return Neighborhood Local Grocery policies. However, the store policies or offer inspirational ideas or Markets by environment tends to lack inspiration Store displays, but it doesn’t really matter. Walmart and the service can be lackluster. They have high average store Chase Bank Sears For these stores, the in-store penetration and the highest shopping experience doesn’t offer much that frequency. Web penetration is low and TJ Maxx consumers can’t find online. these stores are primarily encountered Target physically and frequently. All About Atmosphere Ideas Led Stores in the All About Atmosphere Compared to All About Atmosphere, Tiffany’s Whole Foods group have created an extraordinary stores in Ideas Led haven’t created the Williams Sonoma in-store experience, often with a Hallmark/Gold same sort of experiential environment. Barnes & Noble special theme, where consumers are Crown However, they tend to have a greater more likely to think it’s fun to go selection of products that are displayed Pottery Barn Trader Joe’s even if they don’t buy anything. in a highly appealing way. They also Bass Pro These stores don’t tend to sell a wide offer fresh ideas of products to buy— array of products and their prices are often these are unique products for that Nordstrom generally thought to be high. particular store. Abercrombie & Fitch Price Plus Efficient Errands Stores in Price Plus offer a good Efficient Errands stores offer convenient Kohl’s Lowe’s value on items they sell and are an locations to get products you need with Bed Bath & interesting place to shop, but not as Gap decent service. Sales people have Beyond exciting or inspiring as Ideas Led or Walgreens reasonable merchandise knowledge and All About Atmosphere. They these stores make it fairly easy to get Costco Footlocker frequently add new merchandise and product information. However, they Nike Stores are stores where consumers like to Home Depot don’t offer an interesting or exciting take their time and look around. environment or inspirational ideas. They They tend to offer a more seamless AutoZone are seen mainly as places go pick up shopping and returning experience Verizon things you already know you want. between online and in-store. Implication: Understand which retailers you’re really being judged against. Truly customer-centric retailing demands that retailers look at their own bricks and mortar stores and those of their competitors through the eyes of the shopper. The conventional retailer-derived sub-segments are not relevant in a shopper-centric model.
  8. 8. Key Finding: There are 2 clear ways to win in store-based retailing: excel within your archetype or break with conventions and create something truly new. Path #1: Delivering better on shoppers’ expectations Path #2: Break out of the norms of the store archetype within the store archetype in which you operate Several notably successful retailers have moved Each of our shopper-defined store type clusters (or deliberately, decisively and very successfully beyond the ‘archetypes’) has a set of attributes that distinguishes it from concept of playing to type and have effectively created the others in terms of what shoppers perceive the archetype fusions of store archetypes that lead to unique retail to be centrally about. Some of these definitional attributes offerings. Thus, launching a relevant fusion physical store are also highly important for the store to deliver on. format can also be a path by which retailers can achieve great differentiation and relevance. Depending on the archetype, delivery on these important, definitional attributes is often perceived by the shopper to In our survey of 40 retail businesses, three in particular be sub-par. By improving delivery specifically on stand out as having decisively broken out of the conventions important, definitional attributes, a store can more of their categories: IKEA, Apple and Victoria’s Secret. effectively compete and deliver what shoppers seek from a particular archetype. Moreover, retailers can also avoid • Victoria’s Secret combines elements from three over-investing in attributes that are perceived by shoppers as store archetypes: Efficient Errands, Ideas Led, and low-order or largely unimportant and, accordingly, will not All About Atmosphere. So even in convenient, deliver either a satisfactory return on investment or “errand-running” mall locations, Victoria’s meaningful competitive advantage. Secret’s colorful environment inspires shoppers via its unique atmosphere and its delivery of For example, keeping prices low, being convenient, and interesting and stimulating ideas. having reasonable return policies are what cause Price Led stores to group together. Additionally, these attributes are • IKEA, like Victoria’s Secret, combines elements also of high order importance to shoppers of these types of from Ideas Led and All About Atmosphere with stores. However, all three are under-delivered on by the Price Plus. It delivers good value yet at the same Price Led group of stores included in our research. Clearly, time avoids the “price only” trap by offering this is a very significant problem given that it is precisely inspirational displays in a fun and engaging for these attributes that shoppers choose to visit these types environment. of stores. Furthermore, in our survey we are able to construct highly nuanced and detailed pictures of the exact • Apple also combines elements from Ideas Led and dimensions on which stores are perceived to be under- All About Atmosphere, but this time combines performing on attributes of high importance to their target them with a variety of Technology strengths. Thus, they sell and leverage complex technology, audiences. with engaging displays and a creative atmosphere. Implication: If you’re not winning by the rules, make sure you’re breaking them. We have identified already that many (arguably most) retailers still have considerable ‘headroom’ to more effectively engage their target shoppers by delivering better on the norms for their store cluster type. Doing so is likely to deliver substantial competitive advantage through deeper customer engagement. The more radical path to greatness in store-based retailing is to create entirely new formats that break out of category conventions and deliver unique hybrid experiences.
  9. 9. Key Finding: Shoppers are promiscuous. They shop around and their loyalty has to be earned, not bought with a card in their wallets. The current recession-defined landscape for shoppers and This underscores the need for stores to not just tend to their retailers has clearly exerted a considerable influence on the loyalty rewards programs, but also to identify the loyalty that shoppers have to retail brands. dimensions on which they are most vulnerable to competitors. We have already highlighted the need for More specifically, one of the very clear findings from our retailers to work harder to deliver on the ‘Retail 101’ basics, research is that loyalty to retail brands is, for the most part, and we have also noted that all of the store archetypes are notably weak. As their price sensitivity has increased and under-delivering on at least some of their key definitional as their dissatisfaction remains relatively high with the features. It is clear then that, for all retailers, a good place experiences that they often get from retailers, so their to start in the difficult task of building higher levels of loyalty to retail brands has weakened. shopper loyalty is to examine the degree to which the business and indeed the individual stores in the business are Furthermore, loyalty to individual stores is often weak also. delivering – or not – on the expectations that shoppers have The shoppers that we surveyed showed generally only limited levels of store preference. When asked if they for these types of stores. prefer to go to a store or venue they currently shop versus a competing one, only half of shoppers indicated a preference for the store they already shop – in other words, loyalty is limited even among a store’s current shoppers. Implication: Understand and work on How much do you feel you need to go to that the real drivers of shopper loyalty. particular store or venue versus a competing The deep and long recession and the great store or venue? fragility of consumer confidence has fundamentally and permanently changed Definitely prefer to go to this store or a shoppers’ perceptions of and expectations of competing store retail businesses. Loyalty has to be truly 52% earned by understanding in detail the expectations of shoppers and delivering at Don’t have a strong preference least to those expectations every time that 48% they engage with the business. A loyalty card alone will not buy loyalty in today’s climate.
  10. 10. Key Finding: Cutting edge technology is a low order priority for shoppers. Furthermore, technology is too often undermining, not enhancing the relationship of shoppers with retail stores. Technology -- whether web or in-store -- is growing in While there are some shopper segments for whom in-store scope and influence, but is not universally embraced. It is technology is more important, there are others for whom still the basics – right product, right price, right location that technological innovation will do little or nothing to attract matter most to shoppers. Most tellingly, half of the them to or keep them in the store environment. Thus, shoppers we surveyed agree strongly that cutting edge technology has more of a segmented rather than a mass technology is not as important as the core aspects of the appeal. In-store technology tends to play to the “tech store. crowd” as opposed to the average shopper. This means that stores cannot abandon other core competencies, thinking that technology will be a substitute. It must be in addition % Agree Top 3 Box on 10-Point Scale to, or applied in ways that enhance these other competencies. Having cutting edge technology in a store isn’t as important to me as the store having great Finally and very importantly in this area, technology has the products, great services and a great store power to both enhance and undermine a shopper’s environment relationship with the store. Our research suggests that it is currently undermining more than it is enhancing by 48% reducing the emotional engagement that shoppers have with retailers. Technologies appear often to be putting more distance between the shopper and the retailer by Furthermore, shoppers have mixed feelings about encouraging shoppers to work completely independently of technology in store. In general, of all of the attributes that retailers. This appears to be an unanticipated – and we measured items relating to technology fall towards the unwelcome – result of the investments that retailers have bottom of the list in terms of perceived importance. This been making in in-store technologies, with the general means that stores cannot abandon or give short shrift to objective of delivering better and more consistent service other core competencies, in the belief that technological with fewer staff. Thus, much of the technology stores are innovation will be a substitute – customers simply do not putting in place today further undermines the need for the see it this way. Additionally, when we asked respondents store rather than necessarily enhancing it. for their attitudes about nine emerging technologies that stores might offer, all were regarded as of low importance – at best ‘nice to have’ rather than ‘important to have’. Also Implication: and tellingly, all of the technology items we measured and Use technologies in store and in the hands ran through our correspondence analysis fell towards the of shoppers to enhance the relationship “Self Directed” side of the map. By contrast, items relating between retailer and shopper, not to having satisfying retail store experiences all mapped on undermine it. the opposite, “Retailer Guided” side of the map. Technology has profoundly reshaped retail. In-store technologies have very often been seen as the holy grail for retailers to both lower their operating costs and deliver better and more consistent service to customers. The ‘average’ shopper’s perspective is somewhat different and the unintended consequence of many of the in-store applications of technology has been to create distance between the shopper and the retailer. This will need to be addressed as a priority if physical retail stores are to remain, even increase, their relevance in a multi-channel landscape.
  11. 11. Key Finding: Physical stores need to be made relevant with the Internet. It’s not stores or Internet, it’s stores and Internet. One question we raised at the outset was how does a store as to what the retailer is all about as well as to provide “win” versus the Internet. But our research suggests that, in information about its particular offerings. The store should fact, the question should be reframed to how does a bricks view itself as more of the second act, a middle and end point and mortar store win with the Internet? To leverage real in the shopping process. Shoppers will enter already armed power in the new environment, retailers need to think of with information about products. Thus it is the store’s job themselves as collaborating with the Internet rather than to refine and further illuminate, to make products come competing against it. This is certainly what shoppers want. more to life, and to make this process smooth and effective. One of the more highly agreed to statements in the study is that shoppers want a seamless experience between the One of the great challenges for retailers is to work out not website and the store, with over 40% agreeing strongly that just how to co-exist with their and their competitors’ it’s very important to have this type of experience. When websites, but rather, how to create a synergistic experience we look at all agreement (5+ on a ten point scale), the figure that serves the needs of today’s varied shoppers and jumps to 75%. simultaneously builds loyalty for their brand. For shoppers, there’s an important interplay between online and in-store. It’s not either/or. % Agree Top 3 Box on 10-Point Scale It’s very important to me that a retailer provide % Agree Top 3 Box on 10-Point Scale a consistent experience across all of its channels – the store itself, the website, the For most of the products that I buy, I do most catalog, its coupons and promotions, etc. of the information gathering online and then only go to the store at the end to make the 44% retail purchase It’s also clear from much of the data that we’ve already 34% discussed that while the Internet plays a powerful role in shopping, it is no substitute for the store. Rather, there’s an For most products that I buy, I do little or important interplay between online and in-store. It’s not none of the information gathering online. I either/or. Most shoppers have dual strategies, shifting back rely more heavily on just going to stores and forth between the web and the store depending on the 16% product, or task, their own time constraints, interests, and pocketbooks. More than anything, the Internet is a place where people can Implication: gather initial information and get ideas about products, but it Shoppers want seamless integration is not such a good place to actually make their final between the physical and the virtual. decisions. (Our recent research into the behaviors and attitudes of the so-called Multi-Channel Shopper discusses Internal silos cause disconnects and this in far greater detail). Conversely stores are viewed as a disconnects cause extreme shopper convenient and timely way to obtain products, as well as frustration. places to check them out more thoroughly and in person. Quite reasonably, shoppers expect seamless When asked where they do their information gathering, integration between a retailer’s online and shoppers were twice as likely to agree strongly that they offline worlds. Equally understandably, they started online as they were to agree that they started in are highly intolerant of retailers who are the store. unable or unwilling to deliver the seamless experience that they expect. Merely talking This means that the Internet is really the front door to the about ‘seamless integration’ is simply not store. It is the place where shoppers will do their initial searching and narrowing down. In this role, it’s not enough enough in an environment where shoppers live to just show shoppers what the store has, at what prices, etc. it every day. Customer-centric retailing It needs to present the store beautifully and to create a demands channel neutrality. compelling first impression – to engage and excite shoppers
  12. 12. Key Finding: Shoppers look to stores to deliver what the web cannot. When they disappoint, they are relegated to just being pick-up points. As we’ve discussed already, many shoppers still want to The flip-side of the same coin is the considerable shop in physical retail stores, but the actual experience opportunity that this insight points to. As we have shown they’re getting often disappoints them. There’s a clear already, some of the best examples of high performing opportunity to make stores more interesting and engaging to stores have elements of stimulation and learning in their shoppers. Currently they’re often seen as primarily pick-up environments that is still far from easy to replicate on the and collection points. website. We gave shoppers a checklist containing a variety of retail attributes and asked them to check all those where they felt Implication: the store performed better than the website. Factor analysis Dial up the attributes where stores can of the list reveals six dimensions on which shoppers win over web – stimulation, evaluate a physical store versus the store’s website. Some of the benefits the physical store provides versus the website entertainment, experience and ideas. are functional, such as getting a product, returning it, saving Shoppers want it and will reward you money and saving time. Other benefits, such as learning for delivering it. about brands and products and stimulating and entertaining There is a clear opportunity for physical retail me are much more emotional. stores to play to one of their key strengths What becomes clear from this analysis is that stores excel at over the Internet and that is by creating more being pick-up points and time savers, but do relatively engaging, entertaining and ideas-orientated poorly on dimensions related to stimulation or learning. environments that will persuade the shopper This is a substantial problem for retailers: If stores really are to want to be in this type of environment and perceived as performing best at the largely functional tasks to want to make a purchase when they are of getting and returning merchandise and saving time, then there. they are essentially functioning as mini-warehouses – but unfortunately for the retailer with all of the costs associated with creating and running a retail store! % who checked that the Average physical store is better than store their website for . . . Getting it 51 Returning it 47 Saving time 42 Stimulating or entertaining me 32 Learning about brands or products 26 Saving money 25
  13. 13. In Summary: The 9 key themes for physical stores 1 Price competitiveness gets you an invitation to the party, but price alone won’t get you a dance. 2 It may not be sexy, but there’s work to do – and profit to be made – from making the basics better. 3 Reframe service from staff ‘just being there’ to service being truly effective and delivered by both staff and the store environment. 4 Knowing what’s important is the essential first step to knowing where to improve. 5 If you’re not winning by the rules, make sure you’re breaking them. 6 Understand and work on the real drivers of shopper loyalty. 7 Use technologies in store and in the hands of shoppers to enhance the relationship between retailer and shopper, not undermine it. 8 Shoppers want seamless integration between the physical and the virtual. Internal silos cause disconnects and disconnects cause extreme shopper frustration. 9 There is a clear opportunity for physical retail stores to play to one of their key strengths over the Internet and that is by creating more engaging, entertaining and ideas-orientated environments that will persuade the shopper to want to be in this type of environment and to want to make a purchase when they are there.
  14. 14. Contact Information For more information about this study and Leo Burnett and Arc Worldwide’s perspective on and capabilities in the retail sector, please contact: Dr Alan Treadgold Head of Retail Strategy Leo Burnett Group Phone – cell: +44 7958694045 Phone – landline: +44 20 7071 1140 Email: alan.treadgold@leoburnett.com