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"Retirement" looming? Ready to reduce hassles and worries, but not really ready for a rocking chair? Here’s a retail concept to consider.
We just heard about a new kind of “mixed-use development” (you know, retail shops on the ground floor, residences up above.) Some of the new townhouses being sold in a planned resort community come with a first-floor retail shop. The owner of the townhouse owns the shop space as well!
- The retail space and a powder room on the ground floor total 753 square feet.
- The two upper floors provide 1,935 square feet of living space (3 bedrooms, 2.5 baths).
- A carport in the back contains the stairway leading to the living space.
- A balcony on the second level overhangs the retail entrance on the street.
- The townhouse owner can then choose to operate a shop in “their” space, or, be a landlord, and rent it out to another retailer.
While a 3-bedroom condo might not be your idea of “downsizing”, the opportunity to also own the retail space offers some intriguing opportunities.
- Maybe you still want to run a small shop (perhaps a smaller version of what you’ve been doing for many years.)
- The internet could balance out the seasonality of being in a resort community.
- Or, you rent out the space to another retailer, and receive the rental income.
In any event, you still have a place to live, plus equity in the property, and could benefit from any appreciation in its value over time.
As we thought about it more, this may be a concept that already is happening in a variety of settings other than a resort community.
- Perhaps a college town?
- Or, in one of the “lifestyle centers” that are being built/redeveloped in suburban communities?
- Or, maybe in the town where you already live?
We think it's a fun new wrinkle on an issue facing many owners. All part of “making the business work for you!”
Might it be "an exit strategy" to look into?
A new consumer study by First Insight confirmed: “Today’s consumers expect discounts every time they shop.”
The documentation of this phenomenon – what we often refer to as “NPR: Never Pay Retail” – is sobering. Maybe not surprising to you, but nevertheless, quite sobering.
First Insight reported: "Percentage of consumers who expect discounts when shopping in these categories:"
- Electronics - 90%
- Appliances - 88%
- Furniture - 85%
- Smartphones - 83%
- Vehicles - 80%
(Note: These are the only categories reported on so far.)
Their study further revealed that Baby Boomers are the most resistant to paying full price. Three out of four Baby Boomers would “definitely not” or “probably not” buy at full price.
Among Millennials, however, purchase decisions seem to be driven by factors other than price. Only 35-40% would choose not to purchase at full price.
The Pricing Credibility Crisis
However, a strong caution. (Why do we need to be reminded of this?)
In the battle to deliver "what the customers want", there is one more thing: Discounts offered have to be real!
Yes, even if your name is Amazon!
A just-released study by the non-profit Consumer Watchdog reports that Amazon is posting “misleading list prices” on their site that significantly overstate the “discounts” Amazon shoppers receive.
From Consumer Watchdog's recap of their major findings (supporting the lawsuit they filed in California):
- “Amazon continues to include reference prices on more than a quarter of its stock”
- “About 40 percent of Amazon’s reference prices are greater than the highest price charged by any known competitor.”
- "On average, Amazon’s reference prices overstate the median market prices by $22, or about 20%.”
- "Amazon Marketplace vendors also post reference prices in excess of the prevailing market price, but they do so less frequently and to a lesser degree than Amazon itself.”
Ugh! What’s a retailer to do?
Is “pricing credibility” even possible? Especially when virtually every consumer expects a discount? Or, relies on Amazon for pricing information?
Our conclusion (we know; not all will agree): In this "crisis of credibility", independent retailers are very well-positioned to seize this opportunity!
Since the rise of Wal-Mart, then category killers, then Amazon, your competitive edge - your “value proposition” - likely has not been ”lowest price.”
- Instead, you offer better selection
- more specialized merchandise
- more knowledgeable sales staff
- more personal customer service
- or other benefits that do matter to your best customers.
That's what has enabled you to survive.
But to continue, you need to be even better. So, sharpen that "competitive edge" all the more!
If Baby Boomers predominate in your stores, an “every day low price” strategy is unlikely to be compelling.
- To retain Baby Boomer customers, your competitive edge must be attuned to offering "discounts".
- Just make sure that they work for you, too: a loyalty program perhaps (which also provides more customer data), or “special shopper” events, etc.
Focused on Millennials? Clarifying a total “value proposition” that matters to them is imperative.
Price always matters, of course.
But credibility and fairness can still be your competitive edge!
"Are retailers eating themselves alive?"
That was the provocative headline we recently saw. Then this followed: “Retailers' rising e-commerce sales are taking a big bite out of their brick-and-mortar revenues – a wide-ranging problem.” Other pundits we've seen call it “an untenable dynamic for these retailers.”
“Huh?”, we scoffed, as we read this about major retailers.
The definition of retailing is “selling to the ultimate consumer.” Why does it really matter whether they buy from you in-store or online?
Moreover, our rant continued, retailing also is having the right product at the right price at the right place at the right time for the right customer.
If that "right customer" wants to buy online instead of in-store, kudos to the retailers who figure that out!
But then we paused. Maybe there IS something to be considered here. Something about the focus on that “right customer.”
Easy – and free – fact-finding project
So, here’s a simple, free project to try. Choose a short period of time, like one month, to try it out. Just gather your sales data for that past month.
A. Make a simple tally sheet of two columns. One column is for In-Store sales, the other is for Online sales.
Then, for each sale, enter these bits of info into the appropriate column on your tally sheet:
- Total dollar amount of the sale
- What they bought (by major merchandise category)
B. Next, add it up. Get a total dollar amount for each column. And, maybe a total dollar amount for each merchandise category in each column.
C. Look for the patterns. And the surprises (yes, there WILL be surprises!)
D. Then, consider what that might mean. (This is a great time to involve your key staff people as well.)
For instance, it may confirm the purposefulness of your shoppers. Do they seem to have a clear idea of what to buy from you online, and what they prefer to buy in-store?
Or, maybe it will illustrate how you have two very different kinds of shoppers. One group likes to shop in-store; another likes to shop online.
Would that make any difference in your operation? Should it? For instance,
- Do they demand/deserve different merchandise mixes?
- What will it take to grow sales from each group?
- Should one group have priority over the other?
- Will you need other vendors?
- Different marketing programs?
- Or…? Or…?
Or, maybe it's telling you about your merchandise mix. Some might be better suited to online shopping. And how might the merchandise your customers seem to prefer to buy in-store be presented more effectively?
Fun, isn't it? We think this exercise will stimulate the merchant thinking for you and your people.
Is "cannibalizing" a concern?
So, should you be concerned about “cannibalizing” your business by offering products online? We doubt it, but you should find out for yourself!
- Quickly gather the data. (It's free, remember?)
- Serve it up as some great food for thought.
- And then feast on it!
We just learned of a study that quantified the effects of “free and easy” return policies.
- But first, some (reassuring) background: Apparently 48% of shoppers say that their top reason for choosing a retailer is a flexible returns policy. But, as is true in many instances, perception is everything! That is, according to a 2016 Holiday Shopping Trends survey from the National Retail Federation, “On average, two-thirds of consumers say that they didn’t return any of their gifts.”
So, how important is it to have - and brag about - a “free and easy” return policy?
- A Washington & Lee University study compared two similar online retailers; one offered free shipping on returns, and the other required the customer to pay shipping costs to return items.
- What happened? Over a two-year period, average spending per customer was four times greater ($2,500 versus $620) for the retailer offering “free and easy” returns!
Wow! That's impressive, isn't it?
Lessons for ALL Retailers
The lessons from this apply to brick-and-mortar retailers as well. What about your store's return policy? Does it seem “free and easy”, or is it restrictive?
- If you require that items must be returned within a very short window of time, or can only be returned for “store credit”, you may be protecting yourself from being “ripped off”.
- But you also may be assuring yourself of missing out on future sales.
- Bigger yet, customers that trust you as a retailer are very likely to shop with you more frequently, and tell others.
Are there costs? Of course. Some customers will abuse it. Some merchandise will not be able to be returned to your shelves. For that, consider Ebay or Amazon for liquidating it yourself, or use some of the so-called “return services” to recoup costs.
But consider the cost/benefit comparison. What does a “free and easy” return policy really do?
It builds confidence and trust with your customer. It keeps them coming back, and spending more! ($2,500 vs $620, remember?)
Hmm. Maybe it’s time to quit focusing on returned merchandise. Concentrate instead on those “returning customers”!
And do whatever it takes to have many happy customer returns!
Recent strategic changes by two global firms – McDonald's and 7-Eleven – provide good reminders for us all. Each business is making news by its focus on what they are known for.
For 7-Eleven, that would be convenience and low prices. Granted, it is still a habit for many to stop at the corner store on the way to and from work, school and play. But for 7-Eleven to remain relevant, it needed an updated definition of “convenience” for its best customers: Millennials.
Their research revealed that today, people are eating five and six times a day; over 40% of adults are eating alone and on-the-go. So 7-Eleven expanded its private label brands into portable, snack-sized “healthy and fresh foods”, geared especially to their Millennial shoppers.
- Their Go!Smart brand offers an array of fresh foods especially appealing to women shoppers (small portions of turkey chili and cornbread, kale and quinoa salads, hummus, all labeled with nutritional info).
- Their branded items also include gourmet nut and fruit snacks.
So far, it has been a winner! Sales of their private brands have grown smartly (30% in both 2015 and 2016). Since over 50% of their customers are Millennials – who now are old enough to buy beer and wine – the future looks bright as well.
7-Eleven: Updated, but back to its basic convenience premise.
Similarly, McDonald's is returning its focus to delivering what it’s known for. In their case, of course, it is burgers and fries. At low prices, from clean stores, and fast. (Oh yes, Egg McMuffins - how about all day long?)
Through their research, they discovered that fewer people were coming into their stores each year. Definitely not a recipe for success!
Their new goal: “A better McDonald’s, not a different McDonald’s.”
- They are simplifying the menu, to reduce the complexity of ordering and preparing (saving costs and time.)
- They still offer choices to the customer. But not of different items (wraps? salads?), but more choices about the burgers.
- Their focus is on what customers expect and want when they go to McDonald's. “You want fries with that?”
Ahh yes. Back to your roots. The value of going back to the basics of what you are primarily known for.
So, once upon a time...What were your stores known for?
- What about your stores do customers really know and love?
- Does that still matter to today’s customers?
- If yes, how do you make it even better for that customer?
- And then, Get cracking!
But – gulp! – there's a catch!
Despite the ease and convenience of online shopping, “the majority of American consumers still choose brick-and-mortar stores over e-commerce.”
Why? According to Retail Dive’s Consumer Survey* of 1,425 U.S. consumers, there are three main reasons:
- “To see, touch, feel and try out items” is the top reason
- Shoppers also want it now and want it fast; they want “to take items home immediately.”
- One in five consumers cites easy returns
Refreshing, isn't it? Shoppers want a shopping experience, in a real store. And it confirms that Amazon is nowhere close to being the only game in retailing. (If only everyone would quit hyperventilating.)
But, there is a far more sobering message here about today's very demanding shoppers. Retailers are expected to deliver on ALL fundamentals of retailing (the "right product", "right price", etc), ALL the time!
Assuring customers that "we can get that for you in just a couple days" won't satisfy. (After all, they have the web for that!) You must be in stock, with exactly what the customer is looking for, whenever she comes into your store.
And oh yes, be sure it is offered in a compelling shopping experience!
Yikes! Some may call these expectations crazy. Or call the shoppers entitled.
We call it the New Normal. And like it or not, relish the challenge – or close the doors.
- Time to be nimble and quick.
- Have much better inventory control.
- Raise turns.
- Be smart about markdowns.
- Make all your stores compelling places to be.
- And above all else, keep having fun!
However, who better to meet that challenge than independent retailers?
Retail Dive's Consumer Survey, sponsored by iQmetrix
Why it matters to know "Why?"
How to pick up the pace even more
Many retailers now are being buoyed by gradual upticks in sales.
If you are one of those, we encourage you to give some thought to "Why?" your business is experiencing sales increases.
You will find that it will be for one of these three fundamental reasons.
- More customers, or
- Higher prices, or
- More items-per-transaction
But, The ROI suggests that, when you analyze your results, you will quickly eliminate reasons 1 and 2.
"More customers"? That's a stretch.
Few places are experiencing growth in population. Plus, with the proliferation of online shopping, while your customers don't need to be geographically close, they also have many more choices when they are ready to buy. Your competition may be growing faster than the market of customers.
Higher prices? Just not in the cards these days.
This is not an environment where many margins are increasing.
Inflation likely will not be a major factor. Plus, not only are retailers expanding online, so are many vendors, so price pressures continue to be downward.
So, what IS driving sales increases? We think you will find that it is is all about transactions:
- more items-per-transaction; or,
- more transactions
Whether at the grocery store, gift shop, lawn and garden center, sporting goods store, or wherever they are shopping, many customers are giving themselves permission to buy more, or to replace ("Finally!") those things they've had for several seasons.
- Shoppers are feeling some more confidence, and have a decided case of "frugal fatigue". Enough already, they're saying. There are things we have not bought for a very long time.
- Shoppers are increasingly purposeful in their shopping. When they go to a store (or a website), they have an intent to purchase. The traffic you do receive should yield higher conversion rates.
And all that is very good news. These are shopper behaviors that you can focus on, and increase!
- Your sales staff can focus on add-on sales, to increase the items-per-transaction.
- Your buyers can bring in more "impulse items" and more complementary products that lend themselves to add-on sales.
- Your sales staff also can work on improving their conversion rate of "just looking" browsers to actual paying customers.
Of course, be grateful for sales increases. Who wouldn't be?
But by analyzing and discovering "WHY?" sales are increasing, you can make them even better. Jump on this chance; it's unique!
"Competing" and "winning" in business and trade has been much in the news as the Trump administration begins.
Meanwhile, at the NRF's BIG Show 2017, where technology dominated (510 retail tech exhibitors!) it was reported that in 2016, "Amazon spent more than $15 billion on innovation, which is more than the top 20 retailers (excluding Walmart) combined."
Yikes! How is an independent retailer to "compete" and "win" in that environment?
Well, consider this perspective:
- A lion and a gazelle wake up on the Serengeti. The gazelle knows that to outrun the lion, it need not be the fastest gazelle. It only has to be the second slowest.
The good news for many retailers is that you don't need to outinvest or even beat Amazon. (Whew!) You just need to outperform your weakest competitor!
- Amazon is unquestionably a relentless competitor and growth machine. So too was Wal-Mart. And before that, the "category killers" like Barnes & Noble, Office Depot and Toys 'R Us. And before that, regional malls. Department stores. And on and on.
- The Big Guys will come and go. There always will be another one emerging.
Through all that, independent retailers who stay focused on their own survival – keeping their own competitive edge, knowing their real competitors – those retailers have continued to have a place in the community. And that is truly a win!
In mid-January, the Wall Street Journal reported that a real estate investment trust that runs class B and C malls across the country "is allocating a portion of space in its portfolio of about 70 million square feet to pop-up stores". These pop-up stores offer 60- to 90-day leases. The REIT is "targeting new merchants, including those that started their business online."
- Crocker Galleria, in downtown San Francisco, has a 1,700 square foot Storenvy Popup that began in 2013 as a venue for new merchants. They cite one example of a women's clothing retailer that "started out in a 'fashion truck' in a parking lot, moved to the pop-up space, and now occupies a retail storefront in the three-story mall."
However, we see a great opportunity for an established retailer – like you, perhaps? The mall business is very tough right now, and few landlords are in a position of strength. That means that more of them are open to considering new ideas.
As an independent retailer, maybe you can be very nimble in setting up and operating a 90-day pop-up shop.
Plus, as an established retailer, versus a new merchant, you could draw in foot traffic, coveted by mall landlords.
- Maybe you want to experiment with a new concept.
- Or, close out of a category of goods.
- Or, reach out to a new market segment.
- Or...?
Few landlords have retailers clamoring for long-term leases. For them, the opportunity to get some revenue – and its accompanying foot traffic to their property – could have a great deal of appeal.
Even better, it's a fine way for you to be able to experiment, innovate, and maybe even re-energize your operation.
Might a grim situation for some landlords be a golden opportunity for you? Something to consider.
