How brick and mortar retailers can succeed in an era of convenience
In every market, no matter the technological gains or evolution of preferences, there are certain selling-points that hold true. For a very long-time convenience (defined as “we have a location as close to the customer as possible”) was key to any strong player in retail. Today, however, the landscape looks very different and convenience must be considered a given. In an age when operational efficiency is measured in hours rather than days, legacy retailers must find other ways to differentiate themselves.
With companies no longer able to claim convenience as their calling card, a company must deliver at least one of three core concepts:
- Product innovation – delivering new and original items to the marketplace
- Compelling assortment – combining related items and encouraging discovery
- Unparalleled customer service – associates catering to the shopper, not the store
These three elements deliver the brick and mortar advantage – a wonderful experience. Companies that rally around one of these concepts and adapt to the times, rather than bolstering the bottom line with on-trend solutions, will thrive through the current retail reformation.
To bring this idea to life, we highlight a company straying from their corporate vision and contrast it to a company evolving but sticking to what made it successful in the first place.
Innovative products: is champagne the big, new thing in luxury furniture?
RH (formally Restoration Hardware) has been in the news because of their positive performance in the last quarter of 2017. Their numbers are impressive (revenue +14% for fiscal 2017; adjusted gross profit+25.9% YoY), however, the question is where those numbers originate.
A key focus for the company has been their “hospitality” offering. In order to generate foot-traffic, RH offers a full service menu including truffle grilled cheese ($17), lobster rolls ($28) and even a bottle of Dom Pérignon ($314). The concept is generating interest, with the new restaurant in the West Palm Beach, Florida trending 35% higher than Chicago’s hospitality offering in its first-year. It’s now projected to attain $7M in revenue for 2018. While still a small portion of overall revenue, the hospitality offering is a strategic play for the company. Gary Friedman, the CEO, in commentary from the company’s earnings call, revealed that they will be doubling down on this approach:
“We will once again hold ourselves back from adding new businesses outside of our ongoing investments in RH Hospitality as we work to design an operating platform that aligns with and amplifies our luxury positioning”
The goal, as explained by Mr. Freidman, is to not only attract more foot traffic — while expanding their membership — but to get the right traffic into their stores.
However, the answer may be simpler than pushing into food service. It’s a solution which made RH great in the first place: excellent home product. The annual 10K, released in conjunction with the call, states in its introduction:
We have positioned RH as a lifestyle brand and design authority by offering dominant merchandise assortments. We are merchants of luxury home furnishings and our luxury products embody our design aesthetic and reflect inspiration from across the centuries and around the globe. We have developed a proprietary product development platform that is fully integrated from ideation to presentation.
Instead of venturing into rooftop bars, investments could be diverted to RH’s “proprietary product development platform”. With Millennials unquenchable thirst for technology, and as they become more dominant consumers of luxury goods (they will account for 45% of the market within 7 years), the Internet of Things (IoT) may be a good place to begin. High-end designers are moving in this direction and there’s more than enough room for a leader to emerge. By bringing innovative, design-forward back as the number one attraction, supported by great customer service (more on that in a minute), there is little doubt the right traffic will be driven to the store.
Mr. Freidman quotes Steve Jobs in his most recent open letter (featured on RH’s website) praising the legendary CEO’s “taste.” Mr. Jobs built Apple on a foundation of focused products inspired by simple, unparalleled design. As Mr. Jobs once said, “focusing is about saying no.”Perhaps the next iteration of RH’s strategy will embrace the same emphasis on product that allowed Apple to thrive in a fierce market.
Excellent customer service, now served digitally.
Since its inception in 1901, Nordstrom has centered on helping the customer find the products that make them look their best. A good deal of literature, including an entire book, has described how Nordstrom achieves this through key themes such as details matter, empower the store representative, and make shopping personal. This focus on service has been their trademark, makes them unique and 115+ years later, still successful. Little wonder, as research has shown that customer service can not only increase sales 10-15% but can also lower the cost to serve by 15-20%. When ecommerce first hit, and brick and mortar store were pronounced dead, the “new” model for excellent customer service became Zappos. In response, Nordstrom, did not abandon what made them great – in-store customer service – they chose to lean into it. The company took to the internet to highlight what made the brand different, through the most compelling marketing possible, customer stories.
Inevitably, the customer centric approach has bled into their ecommerce business as well. Examples abound of shoppers calling in with a destroyed order, late shipment or incorrect delivery and are promptly sent replacements with some even receiving a personal shopper at their door within 45 minutes.
Today, technology is paired with customer service to enhance the in-store experience. A little over two years ago, a 3D foot scanner was introduced to ensure shoppers received the right fit. Mobile checkout now eliminates time spent in line and the company is introducing augmented reality in stores to help shoppers find the right outfit.
By opening a brand new store in Manhattan, despite fears of the costly real estate, Nordstrom continues to help their customer find the look that suits them best. By mixing Nike with Valentino, they are catering to the fashion-forward, luxury shopper who lives in the area. On top of the personal shoppers that are essential to all Nordstrom shops, this location will be a hub for customer service in many different forms – same day delivery, 24/7 ecommerce pick-up, a Levi’s Tailor Shop, straight-razor shaves, augmented reality and even kiosks for express returns (scan receipt, dump the product, leave).
Nordstrom has stayed true to its roots and rather than chase other means to increase revenue, they are combining what they know best – customer service – with technology to provide an unrivaled experience. While no one can predict what the future of retail will hold, a safe bet is that Nordstrom will find it and it will greet the shopper with the smile of a personal shopper.
In sum, companies undergoing transformations should leverage their core strength and adapt to the times rather than surveying the industry and adopting an approach that works for others. With convenience no longer a mark of differentiation in brick-and-mortar retail, due to Amazon, the three main avenues are creating innovative products, designing a dynamic assortment and delivering unparalleled customer service. When combined with technology, any of these three attributes can help a company edge out the competition by creating a shopping experience that cannot be replicated online.