Retail | New brand initiatives disrupt the O2O divide
Major brands position to play hard across channels
It was the year of trading places. As usual, Amazon devised more ways to disrupt retail. And, as usual, traditional retailers fretted about the importance of coordinating online to offline (O2O). The tension intensified, however, as Amazon and Alibaba prepared to move into brick-and-mortar stores and Walmart doubled down on e-commerce.
With a value increase of 14 percent, following an 8 percent rise a year ago, retail led all the categories in value appreciation in the BrandZ™ Top 100 Most Valuable Global Brands 2017. Amazon and Alibaba increased most sharply, 41 percent and 20 percent, respectively.
Amazon, the consummate disruptor, planned to open physical grocery stores that removed friction from retail’s most abrasive experience—checking out. In the first stores, a convenience format called Amazon Go, all transactions will happen with an app. Shoppers will pick their items from shelves and walk out without waiting on a checkout line, the sale transacted seamlessly on their smartphone.
Alibaba, China’s e-commerce leader, and No. 2 after Amazon in the BrandZ™ Retail Top 20, entered a partnership with the Bailian Group, which operates almost 5,000 grocery and specialty stores in China. The arrangement expands the Alibaba ecosystem, enabling Alibaba to link its Alipay payment function and its online e-commerce platforms, Tmall and Taobao, with Bailian.”
Meanwhile, having primarily focused on maximizing the productivity of over 11,000 physical locations in 28 countries, Walmart shifted attention to the virtual world, acquiring Jet.com, a strong e-commerce challenger to Amazon in certain categories. The purchase builds on Walmart’s existing e-commerce business, estimated at around $12 billion in annual sales, according to Kantar Retail.
Because Jet.com shoppers are younger and more urban than the average Walmart shopper, the acquisition potentially broadens Walmart’s reach, according to Kantar Retail. Walmart also acquired several small e-commerce niche apparel retailers with urban appeal, and planned to integrate e-commerce more closely into its operation. Walmart rose slightly in brand value after a steep decline a year ago.
New initiatives build loyalty
Walmart also has a partnership with JD.com, China’s second-largest e-commerce brand and No. 10 on the BrandZ™ Retail Top 20. JD.com owns its own logistics network and invests significantly in related technology, including drones. These acquisitions combine the mentalities and capabilities of technology start-ups with those of a traditional big-box retailer. The acquisition of Jet.com also brings a level of “gamification” of retail that should help Walmart appeal to younger shoppers. Jet.com notifies shoppers of the savings they are accruing and the potential savings that could be earned with additional purchases.
In addition, Walmart is developing drive-through locations. This convenience phenomenon, well-developed in Europe, particularly in France, enables shoppers to purchase without entering a physical store. They buy online and pick up their orders at a drive-through location, often along their work commute.
Amazon initiatives like Amazon Prime Pantry and Amazon Prime Now also aimed to make shopping faster and more convenient with easy online ordering and rapid delivery. Amazon Dash replenished certain household commodities automatically. Amazon also added benefits for members of Amazon Prime, to strengthen loyalty and keep customers satisfied within an ecosystem filled with products and services delivered seamlessly.
One of the new benefits, Prime Reading, provided free access to a changing selection of 1,000 e-books and magazine articles. As the bundle of Prime benefits enlarges, it seems more valuable, and the value of each component becomes more difficult to compute. Almost one-third of American households were Prime members as of December 2015, according to Kantar Retail.
Alibaba sustains loyalty with a comprehensive ecosystem that moves customers through various shopping sites to transactions on Alipay. The Ali Express site provides access to products from China. It enables owners of certain businesses to source directly, lower costs, and increase profit. Alibaba is the leading automotive seller in Russia, according to Kantar Retail, and it is investigating the establishment of a logistics center in Sophia, Bulgaria, and a distribution center in Zagar, Croatia.
Mass merchants and grocery
E-commerce and changing shopping habits affected brands across retail. The German-based food deep discounters, ALDI and Lidl, felt pressure in their home market from rival Rewe, which offered a payback card that enabled members to spend loyalty points flexibly at other retailers or entertainment centers.
In an unprecedented step, the ALDI brand, which operates as two autonomous companies, ALDI North and ALDI South, conducted joint marketing. Lidl planned to enter the US, with 20 to 30 stores expected to open this summer in the east coast states of Virginia and the Carolinas.
Meanwhile, Costco, a membership warehouse with around 600 of its approximately 720 stores in North America, planned to open in its first store in France. The chain also expected to add more private label, expand its focus on organic food, and open more business centers. Regulations had slowed expansion in Europe, but the chain continued to do well in Asia, according to Kantar Retail. The chain raised its membership fee to boost profits.
To stimulate its lagging like-for-like store sales growth, Target implemented a store remodeling program. The new store format provides two main entrances that correspond to the purpose of the shopping trip. One entrance is for a more extensive experience that the chain calls inspirational browsing. The other entrance accommodates convenience trips, including grocery shopping and order pick-up. The chain also added more own-label items to differentiate and build margins.
With over 6,300 stores worldwide, Tesco focused on its UK home market. The chain simplified its product range and attempted to make shopping easier, while deemphasizing its loyalty card. Tesco also prepared for the acquisition of Booker, a wholesaler that would add convenience locations and entry into a new business for Tesco—food service. In the US, the grocery chain Kroger also emphasized its own-label products, while adding new store elements, such as medical clinics, that drive traffic and extend in-store shopper time, according to Kantar Retail.
Carrefour continued to implement a strategic shift, reducing its presence in some international markets and deploying a portfolio of smaller convenience stores to complement its hypermarkets, which continued to feel pressure from e-commerce competitors and price discounting, especially in France, its home market. Competition and a slower economy impacted Carrefour sales in China.
The home improvement specialist The Home Depot increased 11 percent in value following a 32 percent increase a year ago. The company effectively invested in digital, leveraging the size and product range of its warehouse stores to offer customers several shopping convenience options, including click and collect.
For both The Home Depot and its rival Lowe’s, brand proposition remained a key strength. The brands promised informative service to help customers complete home improvement projects, a proposition that produces big-ticket sales and is difficult for product-focused retailers to imitate. The Home Depot and Lowe’s also gained significant business-to-business revenue from sales to contractors.
In several stores, Lowe’s introduced a virtual reality capability called “Holoroom How To.” It takes do-it-yourself training a step beyond books and videos, enabling customers to experience each step of a project while wearing an Oculus Rift visor. Lowe’s began using robots for sales assistance in its stores several years ago.
IKEA continued to open large out-of-town stores that perform well as destination locations where shoppers often leave with their planned purchase plus impulse items. Translating the unique IKEA physical store to an online experience proved difficult, but the blue and yellow brand colors remained distinctive assets, important for sustaining the brand.
US-based drug chains CVS and Walgreens were well positioned to meet healthcare needs in the US. Walgreen’s continued to work through regulatory issues in its plan to purchase Rite Aid, which would create a chain of about 13,000 drug stores in the US. Rival CVS operates around 7,800 stores in the US. With over 60,000 stores worldwide, 7-Eleven continued to fill the convenience store space, and planned to acquire an additional 1,110 locations from Sunoco, the oil and gas brand.
Brand-Building Action Points
1. Leverage the store
The physical store can be a great competitive advantage. It is the brand’s best billboard. And it keeps retail brands dynamic. With every visit to the store, customers refresh their impression of the brand.
2. Engage shoppers
Shoppers increasingly move through physical stores while holding a mobile device to check competitors or gain more product information. Turn this behavior into an advantage by providing product information and other relevant content in a compelling way that keeps the shopper in the store, both physically and mentally.
3. Be consistent
Sustain omni-channel consistency that supports and complements the brand experience across physical and virtual spaces without contradiction or disappointment.
4. Decrease friction
As the consumer journey becomes more convoluted, look for ways to simplify and accelerate it. Be responsive to customers whose journey will change with the occasion. It is not all about the commercial calendar.