I’m the first guy to give credit where credit is due: Amazon has been killing it lately.
Amazon’s gain continues to mean pain for brick-and-mortar retailers. The struggles are not limited to dinosaurs like office supply stores, although many experts were predicting the demise of that category following the aborted merger attempt of Staples and Office Depot. In recent weeks, Macy’s and Nordstrom both reported dismal quarterly numbers and were handed their lunch by the Internet giant.
While the trend lines are clear, we should not get too carried away with dire predictions for the future of traditional retailing. Let’s start with a couple of indisputable facts:
1. Retail stores are not going away any time soon. True, e-commerce is growing steadily as more consumers research and buy products online. In the U.S., online sales are expected to reach $523 billion in the next five years, up 56% from $335 billion in 2015, according to Forrester Research. But that figure still represents only about 10-12% of projected total retail sales. In other words, brick-and-mortar stores drive roughly 90% of all sales—now and for the foreseeable future.
2. What brands do inside the store, particularly at the shelf, really matters. In past shopper marketing surveys, manufacturers and retailers have consistently reported a higher return on investment from in-store marketing activities, trade promotions and merchandising than from other aspects of their marketing mix.
Challenge the Status Quo
The above realities contain a valuable lesson: Rather than decry Amazon’s vice-like grip over the industry and throw our collective hands in the air, we should instead figure out how to bring retail merchandising out of its old-guard thinking and into the 21st Century. We do not need to re-invent the wheel, but we do need to improve oversight practices and compete better on this all-important front.
The status quo is simply not working. For example, out-of-stock rates remain at an average of eight percent, and often higher than 10 percent for promoted items, according to a 2015 report by the Grocery Manufacturer’s Association. Spotty compliance with shopper marketing programs is an even bigger problem: As much as 40 percent of promotions go unseen by the shopper because they are not executed, according to a 2015 POPAI study. That figure translates into promotional waste of $12-13 billion, or about one third of the $36 billion that companies spend annually on shopper programs. Unacceptable.
These issues are far more problematic for emerging brands. Economies of scale give larger CPG companies in particular enormous leverage through their dense sales and distribution networks, not to mention top priority placement at the shelf. The power of category leaders Coca-Cola and PepsiCo, for example, will only increase as the beverage industry continues to consolidate. In the meantime, the smaller guys can level the playing field in a couple of important ways.
Innovate, Then Modernize Your Approach
First, look to upstart brands for cues on how to boost creativity and innovation. Never underestimate the ability of a challenger brand to redefine marketing and merchandising in any given category. In the U.S., brand names like Perfect Bar, Back to the Roots and Everlane come to mind. In the UK, Thinx is doing for the feminine care category what Spanx has done for women’s apparel.
Next, companies can make dramatic improvements to their merchandising processes by updating their approach to the system. Here are three key steps:
- Adapt and change using data and mobile/digital technologies. Real-time, on-demand performance data is critical to understand retail conditions and improve sales. Make sure your merchandising audits and shelf resets have the highest data integrity and leverage the best tools that technology has to offer.
- Connect the dots between retail execution and ROI. Maintain a balance at all times between satisfying the needs of the retailer and connecting with the consumer. Ensure that products are displayed correctly but also look for growth opportunities in on-trend and forward-thinking categories.
- Empower the gig economy. Use crowdsourcing through social media networks to match employee experience with the right assessment or analytics job. A well-trained, highly-motivated, flexible workforce will build better client relationships with store managers and lead to stronger results.
By harnessing these powerful trends, we can give the antiquated broker merchandising industry a much-needed makeover—and create a triple-win in store aisles for brands, retailers and shoppers.