Conversations & Insights March 16, 2015

The Death of Pure Play Retail, Impulse and the Candy Aisle

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At L2’s members-only “Clicks & Mortar” clinic, NYU Marketing Professor Scott Galloway makes predictions about the state of retail in 2015. Galloway says pure play retail - whether pure e-commerce or pure brick-and-mortar – is dying. Content and commerce will become more integrated and essential to converting browsers into buyers. Impulse purchases are on their way out and Apple will become luxury brand

1) The Death of Pure Play Retail

Despite charismatic founders and enticing offerings for consumers, none of the e-commerce stars of the early 2000s have met expectations. Net-a-porter is still not profitable. Fab.com went from a $1 billion valuation and raising $150 million of additional funding in 2013 to a $15 million fire sale in November 2014. Gilt raised $50 million of funding in February and disappointed investors waiting for an IPO in 2014.

Simply put, Amazon’s low-cost and fast delivery options have made it too expensive for any brand to compete with an online-only model. However, stores are where brands can and should compete. Smart e-tailers (Warby Parker, Birchbox, Rent the Runway, Bonobos) realized early on that their customers prefer to pick up or try on their items in-store at the own convenience rather than wait for (and often miss) delivery. The last-mile problem – or the yellow slip left at the door – is Amazon’s Achilles heel. Galloway predicts that Amazon will make a transformative acquisition to gain a retail footprint in 2015: a JC Penney, a gas station chain, the U.S. Postal Service or Radio Shack.

2) Integration of Content & Commerce

The death of e-tailers does not mean brands with limited online and mobile presence are safe. Commerce has reached a tipping point where more than half of all consumer purchases are influenced by online information. And consumers who go online (on a mobile device) while at the store experience a 27% lift in conversion, dispelling the myth that showrooming hurts stores. Consumers who research a purchase online prior to visiting a store and pull out their smartphone during the visit experience a 40% lift in conversion.

So how can brands make sure they are improving the likelihood that the consumer looking at their online and mobile site will make a purchase? And how can they increase cart sizes? Content. Savvy brands incorporate content on the path to purchase that helps shoppers make a decision. Scott Galloway presents three questions brands should ask themselves when placing content on their site:

1) Does your strongest content sit on somewhere other than your brand site – on a blog or microsite?

2) Are your most expensive pieces of content a commerce dead end? (e.g. tutorials without a link to purchase featured products.)

3) Are your hardest-working content publishers ignored? (Are you publishing reviews and featuring user-generated content on your desktop and mobile sites?)

4) Does your top sales associate provide better customer service than your digital channels?

Gap was the first brand to integrate content and commerce. Lacking the budget for billboards, the brand placed content in its stores and developed the branding with blonde wood floors, well-trained sales associates, and television-quality videos broadcast in store.

3) The Death of Impulse Purchases:

Foot traffic to malls and retail stores is declining, even though 90% of sales still happen in physical stores. The new shopper researches items online and picks them up at the store, marking the end of aimless browsing and impulse purchases at the mall. Similarly, as online grocery takes off, brands that rely the impulse purchases made at the aisle line – flowers, magazines, candy bars – will experience a decline.

For food and CPG brands, making it into the 50 million first online grocery baskets (predicted for 2015) of online consumers is critical. Online shoppers tend to repeat their purchases rather than browse aisle and be open to trying new items.

4) The Rise of Luxury Brands and Apple:

Luxury brands will intensify the competition for specialty retailers because of their high margins and consumers’ tendency to opt for high-value or low cost. Luxury brands can be characterized by the following: an iconic founder, an exceptional price point, craftsmanship, vertical distribution, global presence and recognition, and a self expressive benefit that extends beyond the item’s face value. Apple contains all of these characteristics and has completed its transformation to a luxury brand with the Apple Watch.

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