Readying for the post-vaccine era
As the world awaits a vaccine, retailers face a dual mandate. For now, consumer dwell time remains skewed toward digital channels. Product availability, value and convenience will continue to be the key drivers.
When the post-vaccine era arrives, however, experiential retail will take center stage as dwell time shifts to a healthy mix of digital and in-store sales. Some observers point out that part of curbside pickup’s popularity is consumers’ desire to drive to stores again. Once they get back inside stores, ensuring a wow factor will encourage them to stay.
The pandemic has shown the retail industry that it can get it done. It’s been fascinating to see retailers respond to coronavirus restrictions with both social responsibility and speed and scale. Best Buy is an instructive example. The consumer electronics chain shifted to curbside pickup in a matter of days in March as it temporarily shuttered its stores and in-home services amid the widespread business shutdown. The amazing execution story is reflected in the chain’s Q2 results: digital sales grew 242%, and despite appointment-only shopping for the first six weeks of Q2, same-store sales growth was the highest in two years.
How retailers can execute the dual mandate
Here are the strategic steps that will help retailers meet the dual mandate for success:
1 Double down on private-label efforts.
COVID-19 has shifted consumer demand to big brands and private labels. Forty percent of consumers report switching brands during the pandemic, according to McKinsey’s survey. As the direct-to-consumer (DTC) channel gained traction among stay-at-home consumers, category-leading brands like Nike experienced a massive lift in Q2 sales. This change could lead to a short-term supply squeeze for retailers as brands allocate more merchandise to their own channels. Making private labels a priority is key for retailers to ensure availability of products through peak demand periods. Private labels’ more affordable price points also help deliver on consumers’ value expectation. In the long run, a compelling private label strategy like Costco’s Kirkland can deliver more profitability and enhance customer loyalty. Similarly, Kohl’s announcement of a private-label athleisure brand to advance its agenda in the active and casual apparel segment shows the retailer is doubling down on private labels.
2 Get creative in offering value and convenience.
Staying on consumers’ digital radar means extending the value equation on an ongoing basis. Macy’s is leading the way with a slew of new options. Its partnership with Klarna puts a digital spin on layaway by letting online shoppers pay for purchases in installments. After launching curbside pickup, the department store chain readied for the holiday season by introducing same-day delivery in partnership with DoorDash. In the convenience sector, 7-Eleven is redefining how customers shop for food and snacks. In April, when much of the U.S. was in lockdown, the chain offered free contactless delivery with its 7Now delivery app. It recently promoted the delivery service with free pizza for anyone who ordered it through the app. The service is available in 1,300 cities and delivers orders in approximately 30 minutes.
3 Rethink how stores are used.
Best Buy is testing a ship-from-store hub model that turns a quarter of its nearly 1,000 stores into fulfillment hubs. The chain is betting the hub model will speed orders and improve efficiency. Walmart is converting four stores into laboratories that test ways to better combine physical and digital and also improve the customer experience. Given Amazon and Alibaba’s announced plans to open thousands of stores across formats, the converged channel has evolved into a long-term phenomenon that’s here to stay. For category-leading retailers, it also means rethinking the optimal store count, format and locations in the hyperconverged, post-pandemic phygital world.
4 Reimagine the in-store experience.
As in-store dwell times increase in the post-vaccine era, consumers’ expectations will be different: They’ll expect the same frictionless, curated, immersive and personalized experience that digital channels offer. Luxury shoemaker Salvatore Ferragamo is leveraging the power of mixed reality to allow consumers to choose and customize its shoe collection either in store or online. While retailers obsess about customer experience across channels, not many invest adequately in the store associate experience. Armed with digital solutions and insights for guided selling, store associates can be key enablers for experiential retail.
5 Transform merchandising.
Like real estate, merchandising is part of the bedrock of retail. To achieve true omnichannel capabilities, however, merchandising needs to operate as an integrated function across channels, and merchants, much like store associates, need to be quickly enabled with tools and insights. It’s a change we’re already seeing underway. After decades of siloed operations, Walmart announced earlier this year that it is merging its stores and online buying teams. While retailers have invested aggressively in building customer intelligence capabilities, most have under-invested in product intelligence. Because consumers will be looking for personalized cross-channel experiences as digital penetration remains high, analytics and AI-powered product intelligence will be a key differentiator for merchandising.
Long-term retail winners will be those that embrace the dual mandate and invest in building or acquiring capabilities to deliver experiential retail when consumers return to malls and stores post vaccine. Retailers may also need to rethink their partner ecosystem to successfully execute on this dual mandate.
This article was written by Anup Prasad, Market Leader and SBU Head in the Retail and Consumer Goods Practice at Cognizant.
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