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3 Lessons from the 2011 Top 100 US Retailers

Bryan Wargo - Thursday, July 07, 2011 recently released their annual report on the Top 100 retailers in the US and its a great reminder of the economic impact these organizations have on our economy and the incredible opportunity they represent to companies providing solutions in this vertical market.   It came as no real surprise to see Wal-Mart, Kroger and Target take the top overall spots based on combined sales of over $450B across the 10,000+ stores they operate in the US.  

As we analyze the list there are three very interesting trends that emerge:

1. Sales per store really matters - retailers are constantly trying to figure out how to drive more sales per store and the retail winners show their dominance in this category.  Just looking at the top 3 we see a huge disparity with Wal-Mart at $71M, Kroger at $22M and Target at $38M.  Not only does Wal-Mart dominate the retail category for overall revenue and number of physical stores, but they do an excellent job of sales per store.  The overall category leader for sales per store is Costco with over $143M in sales per astronomical number and speaks to the massive volume they are able to turn.  Along the same lines there is another trend of moving to smaller store formats, which is a bit counterintuitive to growing sales per store.  The article points out that less than 1/3 of all Best Buy stores are located in the US but account for over 72% of the total retail square footage for the entire company.  Best Buy, like many of the pure play electronic retailers before them, has come under pressure from their online competitors and is looking to smaller format stores to compliment their online presence.  As retailer focus more of multi-channel selling it seems that the store is becoming more of a compliment to the online channel and vice versa.

2.  Advanced use of customer data is driving results - retailers who take advantage of loyalty data and can personalize offers will be the winners.  From a vertical standpoint, Kroger's continues to show strong results despite other grocery stores lagging.  The article points out that their use of customer data is a key contributor and the ability for Kroger's to target offers and promotions that are tailored to the individual shopper may be the major differentiator.  As we see more traditional retailers incorporate traditional online tactics, like targeting, into their normal offline business processes we can expect to see similar gains.

3.  Online is growing REAL fast - Amazon entered into the top 20 this year and had amazing growth rate of 46%.  Online still represents a small fraction of all retail sales (less than 10%) but it the fastest growing channel for most retailers.  Retailers are acquiring pure play e-commerce companies, investing heavily in their on-line presence and even acquiring social media companies to help advance growth in this area.  As the investment grows in this sector the retailer is going to have to ensure a consistent customer experience across their different channels and figure out how to integrate the best of the online and offline worlds.

In aggregate these 100 retailers represent over $800B in annuals sales, 200,000 store locations, and millions of jobs in the US alone.  There are new trends amongst these top retailers like multi-channel shopping that will have lasting impacts on our economy as well as how people will shop in the coming years.

WiFi coming to a store near you

Bryan Wargo - Friday, June 24, 2011
Wireless LAN technology (aka WiFi) has had a tremendous run over the last decade.  What started out as a consumer technology, quickly invaded the enterprise and began popping up as the network access method of choice by users in universities, healthcare, and traditional corporate environments.  Interestingly enough, retail was one of the first vertical markets where WLAN had its first success.  These deployments were not nearly as glamorous as what we see today in a leading university because they were mostly used as part of a back office function - inventory tracking.

Now that WiFi has become mainstream, we are starting to see new applications of the technology that promise to make our ability to connect, at any time, that much easier.  Deloitte wrote their predictions for 2011 and one that I agree whole heartedly with is: 

"Deloitte predicts that in 2011, 25 percent of North American big box and anchor tenant retailers will begin offering free in-store Wi-Fi access to shoppers. In 2012, the proportion should continue to rise in North America and start to spread around the world"

Once again we will see retail take a leadership role in a new application of WiFi, this time it will be as an "amenity" feature.  Retailers understand that smartphones and online commerce are playing a bigger and bigger role in the in-store shopping experience and that this new trend ultimately makes purchasing easier.  At first most retailers feared that shoppers would use this new technology to price shop their products, but most have quickly realized that as long as their prices are somewhat close, the convenience, personal touch, and instant gratification that only they can offer will ultimately lead to more sales.  Again, from Deloitte:

"In-store Wi-Fi presents retailers with a number of minor challenges. Retailers will probably need to build more and better apps to enhance the in-store experience. They may also need to upgrade their Wi-Fi equipment and network connectivity to support additional connections. However, based on experiences from some early in-store deployments, the costs to address these challenges are not material to most large retailers."

The convergence of smartphones, free high-speed internet, and the "daily deal" phenomenon is fundamentally changing the buying experience.  For retailers there is an immediate need to embrace this new technology and provide an environment that enables the shopper every step along their buying process.  The retailers who get this - which already includes leaders like Nordstrom, Staples, and The Home Depot who have free WiFi access in their stores - will have a competitive advantage as the demand for online access while in the store continues to grow.

Mobile and its Impact on the In-Store Experience

Bryan Wargo - Wednesday, April 27, 2011
I often get asked if I believe consumers are willing to use their mobile device when shopping.  Some people tell me anecdotally that they never look at their phone when they are at the store - they are on a mission and the last thing they want to do is be interrupted by their personal device.  Other tell me that for people to adopt a shopping application, load it on their phone, and actually use it in the store requires a significant change of behavior - and these types of required changes can sink a new company.

My simple answer is: I do think people will use their phone in the store.  The fact is that this isn't a dramatic change of user behavior.  People have been using their personal "devices" during shopping for a long time (paper grocery list?).  Shoppers use their phones all the time in the store - if you don't believe me, look around the next time you are shopping.  People are chatting away talking with their spouses, answering emails while waiting in line, having their kids play games to keep them entertained, etc.  Now look a little will even notice that some people have begun to use their device to scan the barcode on an item to get more product information or check pricing.  They have even begun to create lists on their smartphone (I do this all the time).

If using the phone makes the shopping experience even better than it is today then people will adopt the technology.  It is not very hard to download an application or even connect to a WiFi network.  People do this millions of times a day.  To extend this to your favorite store is not a major leap of faith.  To back up my claims:
  • 50% of U.S. mobile phone owners use their devices to shop online or to assist while shopping in stores, finds a new report from Arc Worldwide
  • More than half of smartphone owners are using their devices to enhance their shopping experience by comparing prices, finding store locations and checking for discounts, including two-thirds of those under 35
  • Motorola Solutions’ annual holiday survey found that an overwhelming majority of retailers—87 percent—believe that shoppers can easily find a better deal using their mobile devices, so customer service aided by access to real-time information is “more important than ever.”
  • A research study found that more than 70% of iPhone owners report using applications or their smartphone’s web browser to help them while shopping in-store, and 41% are making purchases directly from their phones
  • Google claims that 79 percent of smartphone users in the United States have used their device to help with the shopping experience. A whopping 74 percent of shoppers that have used their devices as a shopping tool have made a purchase
  • 9 out of 10 mobile users have accessed mobile web while at a store and approximately 50% of in-store mobile web activity is related to shopping
There is obviously a lot of data from some not so disinterested parties pointing to the fact that shopper behavior as is relates to mobile devices in the store has already begun to change.  Shoppers are motivated by getting a better deal, getting better service, and getting what they want.  The mobile device is a great catalyst for all of this and our changing shopping patterns are a reflection of the narrowing gap between the offline and online worlds.

O2O Commerce

Bryan Wargo - Monday, April 04, 2011
I have a new favorite acronym, O2O commerce - online-to-offline.  I know I am a bit slow here as the folks at SV Angel have been on this since the beginning of the year and Trialpay actually coined the term last summer.  The premise that the online world is going to become an even bigger factor in our offline commerce makes a lot of sense.  We already see this in traditional retail where shoppers are using their smartphone to price compare, look up reviews, and even buy products online while they are in the aisles of the store.  Thanks to my friends at Glenbrook Partners for bringing me up to speed on this one.

Probably the biggest impact that O2O promises for traditional brick-and-mortar commerce is the ability to close the loop.  Being able to understand if a specific promotion to a specific user actually caused them to take an action.  In the world of shopper marketing, advertisers have only been able to draw simple conclusions from their efforts.  "We put up a new end-cap in the store, did overall sales go up or down?"  Kind of hard to really understand the ROI from that.  With O2O, we can now say "we sent a coupon to Sally, Sally bought the product".  Of course this already happens in the online world, but only about 5% of all commerce happens there.  We can think of e-commerce as the training ground for the brick-and-mortar world.

The new world of bricks and mortar

Bryan Wargo - Wednesday, March 16, 2011
Interesting post by Steen Andersson of 5th finger regarding the impact that mobile is going to have on the physical retail environment.  Much of the hype around location enabled mobile retail applications has been around how to get more people into the store.  There are many solutions that offer the ability to alert a consumer when they are near a particular store and maybe even send them a coupon to come on inside.  To be certain, driving foot traffic in a store is a major area of focus for retailers and is a problem worth solving.  However, until recently there hasn't been much attention paid to how to convert the shopper once they are actually in the store.  I have written a post about how the in-store marketing experience is changing and 5th finger's concept of m-enabled commerce is spot on.  The mobile device is going to be a major aid in the shopping experience, and retailers need to figure out how to increase conversions as well as the overall basket size.  All of this leads directly to more profit.

So what's going to be so different about what the retailer can offer within their m-enabled application than what their competitors can do (like Amazon)?  We think location is going to be the major differentiator.  Your location within the store tied to awareness of you (personalization) within the application is what can make a m-enabled shopping application sing.  Concepts like in-store directions which help you find the products you are most interested in.  Or advanced "concierge" assistance where you can push a button and signal your location to store staff so they can find YOU.  And maybe they can even send over a salesperson that is actually knowledgable about the products that you are interested in since they know which section of the store you are in!  And finally, the "holy-grail" of in-store marketing, the ability to send the shopper a promotion for a product that they are standing in front of, in the aisle (location=intent).  Truly influencing at the point of decision.

The Evolution of Digital Retail Marketing

Bryan Wargo - Thursday, March 03, 2011
Way back in the day, Google radically changed the online advertising market with their ability to demonstrate a clear ROI to marketers.  Their ability to charge on a "per click" (CPC) basis fundamentally changed the way the nascent online advertising world worked.  The CPC model let advertisers pay only when someone actually clicked on the advertisement, proving their desire to learn more.  Now advertisers only have to pay when there is true user intent.

But changing the business model was not Google's only trick.  They were able to take all of this user intent and connect people with all kinds of information.  As Google became the dominant search provider, all forms of product manufacturers and retailers had to optimise their online content and store fronts to be seen by Google and the search terms people could and would "google".  One of Google's mantras is to bring all of the world's information to people's fingertips.  With their online dominance they have accomplished this to a large part for merchandizing, bringing product information in all forms to those willing to go online and search for it.  As seen by their revenue growth, organizations are willing to pay a lot of money to have their items show up in those Google results and there is no end in sight as online advertising continues to grow.

But the world is a big place and advertisers aren't going to spend all of their money on the internet.  One group, local businesses still needed to find ways to attract local clientele.  For decades these people trusted the "yellow pages" or put promotions and coupons in their local papers.  They may have even signed up for those discount booklets your local kids baseball team would sell door to door.  Unfortunately this "market" is highly fragmented and dollars had been getting spread in all sorts of direction.  In came the internet and Groupon (plus others including Google) who brought the concept of daily deals to the internet world.  Groupon has effectively soaked up and centralized the local store marketing budget and leveraged the internet effect to show an ROI for the store owner.  Localize advertising on the internet is a growing market and players like Groupon have found a very interesting way to capture these local store marketing budget dollars.

Even more granular from a location perspective, some new players in the "mobile location based" applications space have popped up like Foursquare, Gowalla, and SCNVGR.   These services utilize a combination of the mobile device GPS and a users willingness to "check in" to a location.  Now local businesses can not only market to people in their local communities (aka Groupon), they can actually advertise to them when they are next to their store!  This is of course a monster opportunity as the value of an advertisement is inversely proportional to the distance the consumer is from the actual product (translation: the ad is worth more to the advertiser the closer you, the consumer, are to the product or service they are trying to get you to buy).  This is such a big deal that Facebook has come in with their "places" feature and look to become the dominant player in the location based local market.

The next logical step of course is to be able to advertise to the consumer when they are physically right next to the product being advertised.  You can imagine how valuable it would be for Procter & Gamble to be able to send you that coupon for Tide while you are in the laundry soap section of the aisle (remember the inverse proportional rule for advertising!).  Nearbuy Systems is developing the platform to make this all possible, to truly be able to target market based on the users intent in the store - where they are standing in the aisle.  This form of advertising of course has to be done in good taste and with the user's privacy in mind, but survey after survey suggests that if the store and brand manufacturer can offer a great deal for something you are actually interested in at the time you are ready to buy = BIG WIN!

Location advertising is getting more and more granular. The further refined the technology becomes, the more relevant, useful and powerful the advertising possibilities.

The Ever Changing Retail Landscape

Bryan Wargo - Friday, January 28, 2011
Interesting article today from Stores Magazine about Mashop - the retail version of the Mashup.  The basic premise is that shoppers now want all of the information that they get from the web at the same time they are physically shopping for an item.  I think this is a great name for something that is drastically changing human behavior; the way we shop.

Internet retailing brought new levels of personalization, loads of information, and price transparency to a process that for many was pretty complex.  The idea that a store could tailor its look-and-feel, product selection, and service based on you is pretty darn powerful.  After having that kind of experience who wants to walk into a WalMart?  Well, unfortunately its hard to try on a shirt online and there is just something special about taking that item home with you after passing through the check-out lane.  This idea - Mashop - that we can actually bridge these 2 worlds together, bring the best of online and offline shopping together, is pretty huge.

It is becoming pretty apparent that the mobile device (smartphone) is going to be the device that really ties these two experiences together.  The fact that these things are basically super-computers that fit into our hands, allows us easy access to all that online data while we are actually standing in the shopping aisles.  For anyone who has actually tried this the benefits are pretty great - access to product information, price comparison, etc.  The experience still has a way to go because it is not very integrated, and by that I mean that the apps that provide the most value today aren't tied into the store that I am in.  Or, if I use the store app, usually the experience of that app is like using their web site versus it knowing that I am actually in their store.  

Here is where I think location based services comes in.  To really take advantage of the offline and online experience, there needs to be a high degree of personalization.  I want the app to know its me and understand all of my preferences, and also to have it know where I am.  If I am in the store, have the app be part of that experience!  My point is that LBS needs to be part of the Mashop.

This is going to be great not only for the user, but the retailer and their manufacturing partners as well.  Just think how many store-personnel-hours will be saved by having shoppers find what they are looking for by consulting their smartphone versus having to ask someone.  Think of what a great experience it will be when you actually need a store sales person's help, and being able to push a button on  your phone rather than having to walk all over the store (and the store actually sending over someone who knows something about the department you are in!)  Won't it also be great when your device reminds you to pick up batteries for that new toy your buying as a gift (batteries not included).

So get ready to Mashop at a store near you in the not too distant future...

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