Friday, February 4, 2011

Retail Trends: Will You Survive Hyper-Channel Retail?

Ever since industrialism led to urbanization of Europe and US, retail has been developing from town markets, to mom and pop stores and further into supermarkets, big boxes and later on into online retailing. During this time span of over 100 years, government regulations, fashion trends, family sizes, eating habits, world wars, economic growth, recession, refugees, income development and technology has sparkled new retailers, store types and channels with one goal, to serve the customers better than the predecessors. With mobile technology the acceleration of the evolution of retail has started, and nowadays shopping without entering a store is a part of everyday life, as is shopping from another consumer via Ebay, or picking up a water bottle at the gym. The store itself or even turning to a retailer, is no longer a prerequisite for shopping.

The first generation of  retailing consisted of  small scale family owned business providing for the needs of the residents in close proximity of the store. In the mid 19th century the first department store opened in London. 
Paris, New York and the other hot spots of the modern world of these days soon followed and during the turn of the century, the format had a clear market position in all major cities around the world and its importance continued to grow to the degree that shop owners of New York demonstrated for the prohibition of department stores due to the tough competition for family owned small shops. 

The department stores later converted into chains and began to spread around the world. In the USA, department stores began to get competition from specialist stores during the 50s but where surpassed by big box operations for the first time in 2003. In Europe the format continued its growth up until the 70s or even the 80s.

Perishables however were often sold in specialized stores from the start. The supermarket, or self-service format saw its first light in any modern context during the 20s but exploded after WWII when deep freeze technology made it possible to store and transport fresh produce over extended distances.
During the 50s George Lazarus developed ToysRUs and Ingvar Kamprad did the same to IKEA and they became some of the first entrepreneurs to move the operations to to outskirts of the city, and instead of establishing business were people lived, they created concepts and assortments that customers where prepared to travel for. The family car was of course a necessity for this development, that ended up with a new format – the big box, that with even wider assortment and lower prices later were labeled “category killer” , implicating the death of smaller downtown merchants. This development also caused retail to impact traffic planning in order to facilitate customer flow to the new market places.
Modern discounting began along to lines of development, one consisting of the German hard discount right after WW II, when Karl and Theo Albrecht took over their mothers business and this was the embryo of what was going to be known as Aldi, short for Albrecht Discount. Here the idea was to sell a very limited number of private label in great volumes to a very low price. In 1962 when Wal-Mart, K-Mart and Target all opened its first locations, the phenomenon reached the US but in a softer version. The idea of selling volumes to low prices became a popular way to make business and as we know, despite their price positions in the market Sam Walton died as a wealthy man, and Forbes listed Karl Albrecht as number 10 on the 2010 world rich list, followed by Ingvar Kamprad.

As mentioned before, aside from mom and pop stores the super market, department stores and specialist stores competed over the money in the consumers wallets. Over the time they came to use different strategies to combat each other and the basic formats or store types distanced themselves from one another into different marketing positions, each providing a separate solution for the consumers.

•Need-retailers focused planned purchases in bulk and at regular intervals – hypermarkets, big box or category killers capable of creating their own customer flow.
•Situation oriented or want-concepts are service intensive establishments like 7-Eleven capitalizing on a customer flow that already exists and to help customers in a defined situation or context.
•Smart buy or discount retailers offer low prices, but often to the cost of offering only a selected assortment.
•Premium providers are their opposites, offering the best products on the market, at a high service level and a wide range
•Logistic oriented concept concentrates on product and price, only, making the store itself a less interesting place to visit, while
•Brand focused concepts are created to be a 3D- image of the brand promise, and sometimes makes the assortment in Itself less important.

There are, of course concepts that mixes certain elements of the above.

Then came the internet and everybody were planning to go online, or did. Then came the burst of the dotcom-bubble and everything went back to normal again, or did it? Not quite, as some of the online retailers that understood basic economy and also did what retailers have been doing for the last 200 years, providing value to their customer.  During the following years, book and music-retailing was shattered when more and more customers chose to shop online, and suddenly there were a large part of the population that got used to shop online.

From Multi-channel to Hyper-channel

Then came mobile internet, Iphones and the the online technology really took off a
nd during this time, some other behavior also started to flourish as a result of the new development:

-Mail, SMS and chat-software such as MSN Messenger changed communication the last years of the previous century and was a link to an online communication as non-voice conversation tools.
-C2C Consumer–to-consumer shopping – E-bay for example.
-People started to pay real money or virtual goods – on Farmville and other online communities.
-The rise of Facebook, LinkedIn, Flickr, Twitter and other platforms meant that Peer2Peer and network  conversation took off, and anyone could be a broadcaster and quickly spread news and views to the closest network, competing with the view of the advertisers and brand owners.

We also saw new use of “old” technology for branding and retailing such as vending machines utilized for new products.

Competition lead to new co-operations and shop-in-shop solutions, sometimes at locations previously not associated with shopping or retail, such as hotels gyms. 
Further on, banks, insurance companies and travel agencies are looking at retail  principles of influence and  sales making some banks looking just like a grocery store when it comes to easy shopping. And at the same time retailers are moving into service areas like providing insurance or banking services.

For temporary, outlet or branding purposes, the pop-up store has emerged and is now to be considered a channel among others.

(Click to enlarge)

Hyper-channel retail – The implications

Channel and concept development, online as well as offline, makes it hard to know what a store actually is in the future as shopping can happen almost anywhere a relevant product/service meets a potential customer. Channels will continue to compete and complement each other and every retailer will have to chose wisely which channels to use and what to use it for. Hyper-channel also means that the buying process of the consumer must be thoroughly studied, for example which one comes first, offline or online research? Are the products and categories of today stores relevant to sell in those channels tomorrow or is there a possibility that parts of the assortment will migrate away from the store and into another channel, much as music and books have done the last decade? Other implications include:

- Technology will be a key driver of development the decade to come, as it has been the last and we will se many ways to use spider technology in order to search channels for the best price, as well as new hot products.
- Retailers are likely to be able to operate on 4-5 dimensions in the hyper-channel world. Each with its own benefits and segmentation. The online and the offline world will blend and borrow expressions and navigations from each other.
- As virtual goods are consumed on a daily basis by more and more customers, the borders between virtual goods, physical goods and services will gradually disintegrate into a question of what gives more value for money.
- Do-it-yourself will have its opposite in Do-it-for-me segment of extreme service in order to motivate premium price.
-Vendors need to be channel experts and provide different products to different retailer and different segments. The mass production of branded items of the is history.
- Store location will be even more important in order to be precisely positioned against competitors and customer flow, as ROI will be even more important than today along with lower margins.