How do I compete with online retailers?

Bookstore

Ten years ago, the writing was apparently on the wall for bricks and mortar retail stores. Online retailers had started to emerge and would supposedly wipe out the old guard. Yet, despite a harsh economy, which has seen a good number of retailers go to the wall, many still remain. Why is this, and what are the best of the best doing to compete with online retailers?

If you are a retailer, perhaps your mindset should shift from ‘or’ to ‘and’. People shop on the high street for certain things, in large grocery stores or shopping malls for other items and online for yet different things—and reasons. Not only that, different types of people enjoy different experiences. And that is the key word. As an example, if I need a new shirt I am more likely to go online and purchase one that I know will fit me (because the online store I use has my measurements and going off past experience, the shirts they send are perfect for me.) But many of my friends and colleagues would never do that and would prefer to trawl through several shops at a mall looking at every single shirt before buying the first one they saw!

As a bricks and mortar retailer, it is nigh on impossible to compete on price. If you asked a high school economics student how they would compete in such circumstances, many would recommend competing on service instead. But I do not see this strategy in action in too many places in physical retail stores. In fact, just the opposite—many retailers are cutting costs by retrenching people with a detrimental effect on service levels. It’s pretty hard to get great service when there is no one around to serve the customers.

To illustrate the point, here are some examples. First, some shockers:

  • My wife and I recently visited the premium retail store in one of Brisbane’s shopping malls. I estimate that at least half the Pay Here stands were unattended. My wife had to walk to another department to get some help finding her size of jeans.
  • On a recent trip to see my parents in the UK, I shopped at a leading grocery store—a huge shop selling everything you could think of, from food and wine to gardening equipment, clothing, computers, books, games, you name it. The store proudly proclaims that it will progressively open all of its tills (there are approximately 25 of them) so that customers do not have to wait in long lines. A noble thought, except half the tills stood unmanned as customers queued down the aisles waiting to be served.
  • That same store, along with all of its UK competitors, long ago abolished the idea of its till attendants helping customers pack their shopping into bags, presumably in some perverted quest for efficiency. You now face the ludicrous prospect of being bombarded with a shower of plastic bags which you must attempt to hurriedly organize before your shopping flies at you at a hundred miles an hour. I got so flustered that I left the store missing a bottle of wine—presumably hidden under a mound of plastic bags!
  • Shopping for paint at a local store, the assistant (who turned out to be the owner) found four reasons why my simple request for a specific type and quantity of paint was all too hard for him. No wonder his shop was empty.

Of course, it is not all bad. Take these cases, for example:

  • I live in a town of 5,000 people. It supports two butchers. How does this happen when both supermarkets in town sell meat at cheaper prices? Because whichever one you choose offers you a warm welcome. I keep going back to my favourite one because they always remember my name and my children’s names. Oh, and the meat is great too (but more expensive than the supermarket—interesting).
  • Over the road from my favourite butcher is a bookstore. How does it compete with Amazon? Purely on service. It hosts book readings for kids and meet-the-author sessions; it has friendly and knowledgeable assistants; nothing is too much trouble; it is tastefully decked out with quiet and comfortable areas where you are welcome to pluck a book off the shelf and read it; and it connects with its community via social media (just this morning I noticed a special event there to celebrate J K Rowling’s new book).
  • Nordstrom is my favourite store in the United States. It is considered high end but I think it is able to justify its slightly higher prices because of the service and experience it offers. For example, in its San Francisco store there are four restaurants (not fast food outlets) and an English Pub.

Nordstrom is a classic example of how it is sometimes easy to stand out in a tough market by taking a step forward whilst others are standing still or retreating. What I love about it is it constantly innovates. It recently upgraded its loyalty rewards program so that customers can pick their own Triple Rewards day. It offers free alterations on clothing. It has 2.6 million Fashion Rewards members, and that number is growing, as is the amount they spend. Sales at Nordstrom were up 13% last year—how’s that for a bad economy? And it has just opened up its first stores in Canada.

But it hasn’t stopped there. Rather than doggedly sticking with its bricks and mortar business, it has embraced the online world. Nordstrom.com offers free delivery and free returns, not just within the US, but around the world. What a great way to expand into new markets AND appeal to those shoppers who do not appreciate the experience of wandering around a store.

The online experience is fascinating. The first time I shopped online for groceries, I ended up with 1 kilo of zucchinis when I thought I had ordered one! And I did not like some of their choices for substitute products when what I had ordered was not available, so I didn’t do it again. I have concluded that I enjoy walking around my local grocery store where I always see someone I know. Different strokes for different folks—and different types of shopping experience.

Another development that is playing a major part in how people buy are customer reviews. I sense that in difficult economic times, people become distrustful (especially in the wake of what happened with the GFC—who would trust the banks after that?), and I think that lack of trust is extending into other areas.

People don’t believe you if you tell them your product is great. But they place great store in online reviews. Take eBay, for example. People sitting at home selling ‘stuff’ build enviable reputations as ‘great sellers’ because they do simple things like shipping in a timely manner, making sure things arrive undamaged and communicating during the process.

Instore, retailers are complaining about the showrooming phenomenon (where shoppers try out goods instore—in particular, electronic goods), then compare prices and often buy the same product online. Target responded to showrooming by refusing the stock the Kindle. Walmart, on the other hand, makes a big deal of how it can help customers avoid shipping costs and wait time for the item to be delivered by just taking it right home from the store today. My money’s on Walmart.

Finally, in an ironic twist, rumours have been rife throughout 2012 that Amazon is planning to open a bricks and mortar store in Seattle. Why would they do that? It could only be for the experience. If the rumours are true, they are clearly embracing ‘AND’ not ‘OR.’ I suggest you do too.

 

Colin Dunn | Director | Proactive Accountants Network Pty Ltd