While the new feature does not let consumers buy directly from YouTube, retailers can list products alongside video ads so viewers can easily purchase ...
Retail chains have a big, costly and tough job ahead if they are to survive the threat from online shopping.
Nearly 30,000 retail executives and vendors gathered in January at the National Retail Federation's annual conference to talk shop and strategize. The 800-pound gorilla in the exhibit hall—only occasionally acknowledged—was the effect e-commerce is having on the store-based retailers that make up the core of the NRF's membership.
The e-commerce question is clearly worrying many retail chains, as reflected in the standing-room-only attendance at Forrester Research Inc. vice president and principal analyst Sucharita Mulpuru's session that examined e-commerce's 2014 outlook. Other speakers acknowledged the threat e-commerce poses to stores, including Nordstrom Inc. president Blake Nordstrom and real estate developer Rick Caruso, who spoke during the show's opening keynote session.
Every speaker seemed to have an answer. But none came cheap, or were proven to work.
Among those confidently putting forward solutions was Caruso, the CEO of Caruso Affiliated Holdings LLC, the development firm behind such high-end shopping centers as The Grove at Farmers Market in Los Angeles, which Caruso said generates sales per square foot at five times the national average. He did not give figures, but several industry sources estimate the national average for shopping malls' sales per square foot at $340 to $350.
Retailers that operate stores, he said, must approach retailing as if they are in the hospitality business. "The customer bypasses other stores and online because of the experience," he said, noting "when [consumers] feel good, they spend more." He predicted traditional suburban shopping malls will be dead within 10 to 15 years unless they are completely reinvented, because they no longer meet shoppers' needs.
Blake Nordstrom, who later shared the stage with Caruso, said the Nordstrom store at The Grove, which reopened in December after an extensive remodeling, is among the chain's top revenue generators. But, he said, Caruso's approach isn't cheap. "We had to write a pretty big check to pull that off," Nordstrom said. He said it was tough for Nordstrom to find the money for that project, and the cost may be more than some retail chains can afford.
Even for Nordstrom, which is more profitable than many retail chains, that kind of investment is not something the department store chain can put into all its store locations. "Sales at our full-line stores have been flat or down slightly," he said. "No one's business increases when you are flat or down slightly. ...It's [about] finding the balance for online and stores."
Forrester's Mulpuru delivered a wake-up call—in the form of frank advice—on what store retailers have to do to remain competitive in areas like pricing, services and fulfillment.
"There are not a lot of solutions [available] to retailers except to introduce dynamic pricing in stores," she said, by way of addressing the issue of price transparency and consumers' increasing use of mobile devices in stores to compare prices. She displayed Forrester data that suggests that the premium consumers are willing to pay to store retailers to get a product right away isn't large. When a price in store is 1% to 5% more than what a consumer could buy the same product for elsewhere, 52% of consumers in Forrester's North American Customer Life Cycle Survey said they'd buy it there. That percentage drops to 18% when the price is 6% to 10% more.
Today, she said, "everyday low pricing dies because the web always has a lower price." As evidence, Mulpuru pointed to data price-monitoring vendor 360pi gathered during the holiday season that showed Amazon.com Inc.'s prices were an average of 15.4% lowerÊthan the online prices of leading retail chains in select product categories. "This is why [Amazon] gained an advantage," she said. "As a retailer you are going to have to change."
One of Mulpuru's suggestions for store retailers in 2014 is to invest in mobile capabilities to serve the dual purpose of lowering store operational costs and improving customer service. Mobile-armed clerks will be able to help shoppers more efficiently, she said, which means stores will need fewer of them. That's particularly important because store costs might go up thanks to political pressure to raise the minimum wage. Mobile can also be a loyalty tool, she said, suggesting retailers can personalize product pricing on a customer-to-customer basis and deliver highly targeted offers to consumers based on their shopping activities.
Bob Moncrieff, a principal in the management consulting group at PricewaterhouseCoopers LLP, said that retail chains see building loyalty as a primary way to ensure consumers continue to prefer their physical stores or web stores when they shop. "Retailers are coming to understand that the transaction will happen, but that it can happen at any point and [in any channel]," he said in a conversation with Internet Retailer.
Another key initiative for retail chains is to get a firm hold of their data and to get it working together so they can deliver on consumers' expectations that they can shop anywhere, at any time, any way they please. "Information will be the basis of your competitive advantage," said Ginni Rometty, IBM Corp. chairwoman and CEO, in her keynote presentation.
Retailers that make good use of their data can please shoppers in new ways. She described a Kohl's Corp. test in five stores where consumers who opt in receive offers on their mobile phones while they shop in stores based on what they viewed online at Kohls.com but didn't buy. Rometty said Kohl's couldn't do that unless its back-end systems worked together. She did not disclose sales results of that program.