What sets retailers up for success or failure in digital age? L2’s Digital IQ Index examines more than 200 retailers in the specialty retail, department store and big box categories. From these studies emerged a list of Do’s and Don’ts for retailers looking to thrive.
DO: Become an e-commerce expert.
In the Big Box category, the majority of L2’s top-ranked retailers now have 15-plus years of experience in e-commerce under their belt. A few latecomers have caught up to or surpassed the first movers — notably digital Genius Walmart — but those who wait will have difficulties closing the gap. Discounters and ultra-luxury brands are prominent laggards here; Marshalls, Albertsons, Big Lots and Ross Dress for Less are still not selling online, while the majority of brands in L2’s prestige Watches & Jewelry Index still do not support e-commerce.
DON’T: Rely on new stores for growth.
In the past, the key to growth for retailers was to open as many stores as possible around key demographics without cannibalizing sales from existing stores. That game is over. Today, the retailers investing the most in bricks-and-mortar are those that can’t tap into alternate sources of growth, including discounters T.J. Maxx, Burlington, and Ross Dress for Less — all low scorers in L2’s Digital IQ Index: Big Box. However, digital is not replacing brick-and-mortar. On the contrary, stores are increasingly important as omnichannel strategies win the day — bricks in tandem with clicks.
DO: Use digital tools to drive brick-and-mortar shopping.
Research suggests that more American consumers webroom (69%) than showroom (46%). Sales that start on a digital channel and conclude offline will account for 59 percent of U.S. retail sales by 2018 — four times the sales attributed to direct e-commerce. Given that impulse purchases are much more likely in stores than online, getting shoppers into stores will be a key metric for success. Nearly every top brand in L2’s Specialty Retailer IQ Index provides real-time inventory or in-store pickup, and most do both. Nordstrom, one of the first retailers to offer these functions, recently started testing curbside pickup.
DON’T: Favor e-commerce over omnichannel.
Some retailers are so focused on ecommerce that they neglect to build out omnichannel capabilities. The number of Specialty Retail brands offering online-purchase and in-store pickup remained stagnant in 2014, with only three brands in L2’s Index enabling shoppers to reserve online and pick up in store (Armani Exchange, Gap, and Banana Republic). Only a third of Specialty Retail brands let users check product availability in local stores. Gucci is one of the few Apparel & Luxury brands to offer real-time inventory information. E-commerce is essential, but today’s consumers expect a “buy-anywhere, fulfill-anywhere, return-anywhere” marketplace in which purchases originate in one channel, are completed in another, and tended to (by customer service) in a third.
DO: Build up Amazon immunity, aka “shark repellant.”
Amazon is the retail sector’s great white shark, sitting fearlessly atop the retail food chain. On track to become America’s second largest retailer behind Walmart by 2018, Amazon is a triple threat — offering low prices, wide selection and fast fulfillment. Meanwhile traditional retailers must charge a 15 percent premium over Amazon to cover fixed operational costs. Big box retailers are especially vulnerable as Amazon has accelerated dramatically in their core categories.
DON’T: Act like befuddled prey.
The savviest retailers are focused on narrowing the gap with Amazon, prioritizing investments in customer service while mimicking Amazon’s checkout efficiency. They are creating or improving loyalty programs, fine-tuning personalization and producing mobile apps for in-store shoppers. There’s no easy or cheap way around mastering fulfillment but doing so is essential, as speed has become a critical point of differentiation now that Amazon has trained consumers to expect two-day shipping as a default.
Macy’s is fighting back by turning many of its stores into mini-fulfillment centers and building a real-time system that correlates in-store and online inventory; for instance, if stores are overstocked on a given product, it can be shifted to online sales, and products are not listed as out of stock online if they can be found in stores. Macy’s also offers same-day delivery in some markets. Kate Spade offers an exemplary e-commerce experience that includes free shipping and returns. The brand site offers substantive discounts, designed largely as a way for the retailer to own customer data. Target is emulating Amazon’s Subscribe & Save program with its own version, and Walmart is planning a $50-a-year subscription shipping service similar to Amazon Prime.
DO: Add content to commerce.
Branded content is exploding, with successful retailers understanding that merging the two is a very powerful algorithm. There is a positive correlation between content score and conversion rate, most notably for content stars Sephora, Clarins and Estée Lauder. Sephora’s Beauty Board, launched in March 2014 on the brand site, is an explicitly commerce-oriented “social shopping platform” based around user-uploaded photos of their beauty looks.
DON’T: Waste resources by silo-ing content.
Content that’s not integrated with commerce is wasted. Numerous brands bifurcate branding efforts and the “dirty job” of selling — the Fabergé egg effect. Too many brands silo their strongest content within blogs and microsites, turning video, tutorials and other expensive content into e-commerce dead ends.
DO: Think globally.
Retail has traditionally been inherently local, but e-commerce opens significant new opportunities for growth. Deft retailers are leveraging digital to reach beyond their borders. Among department stores tracked by L2, 55 percent target global consumers on their brand sites. Nordstrom is now the No. 6 retailer online in Dubai. Among Specialty Retail brands, only 15 percent are fulfilling international orders from their U.S. sites, mostly by partnering with shipping solution Borderfree.
DON’T: Rely solely on brick-and-mortar to leverage global fans.
Some retailers have been doing a great job of luring in travelers, especially Chinese shoppers. Macy’s and Galeries Lafayette, for instance, have dedicated pages for flagship stores that include detailed visitor information. Printemps and Galeries Lafayette also offer multilingual mobile apps that help tourists navigate their Paris flagships. But both French department stores are overly reliant on foot traffic from Chinese shoppers and have not built out their e-commerce capabilities.