The Perfect Store
Imagine you are visiting your perfect store. Each item is carefully and thoughtfully selected for you. Everything from your favorite foods to clothing that fits your style, that fits your body and your budget. There are also things you need around the house, books, movies, technology all carefully and thoughtfully selected and displayed for your potential purchase. Maybe there would be a section of new items that an expert has suggested you’d enjoy. Customer service would be like an old friend saying hello.
Compare that vision with shopping today. The stores are vast and the portion that is “yours” is very small. We call it a “treasure hunt” as product is crammed in around narrow aisles and you are left searching through racks for your size. Customer service (if found) consists of “Can I help you find something” which speaks to the level of disorganization that even the staff recognizes you will need help finding what you want.
Why aren’t Bricks & Mortar stores like my perfect store?
The reason why physical stores aren’t perfect, is that narrow market segments (like an individual or family) don’t buy enough to justify the investment in inventory, real estate and staffing for a store. The store of today is not that much different than the market of 4,000 years ago. Retailers add value by buying in bulk, then ship it locally and sell the items in each’s. The merchant provides convenience, selection and a lower cost of freight.
Retailers have to appeal to a broad enough audience to achieve a certain level of gross margin dollars per square foot to pay the bills make a return on their investment. The executives may talk about the customer, but the reality is they buy thousands of the exact same thing in a range of sizes and colors. They are focused on a market segment. The retailer used to be able to add selection of add-ons with rich margins. E-commerce has ended that. Customers can comparison shop, order and pay before they leave the aisle in your store, faster and easier than standing in line at your store. E-commerce has the same dilemma if they don’t have unique products. Competition is only a click away.
The reality of physical retail is that in any single shopping trip the majority of merchandise in a store is irrelevant to you. I recently went to Home Depot for cabinet hinges. First, I was accosted by the solar guy (they must have some incentive plan) while passing by plumbing, light bulbs, paint, tools and hot water heaters. All of this selection was without value to me, I just needed hinges to hang my cabinet doors. It was worse when I was in the boating industry. The parts you need for a Hobie Getaway (my boat) are pretty different than a 32’ sailboat and are completely different than a fishing boat or a big cruising powerboat. Of the 20,000 sku’s we could cram into a store, we’d be lucky if 1,000 applied to a single customer. At least at Home Depot, I may need some of that stuff, sometime.
Physical retailers have an advantage; the customer is there in person. Here are a couple of ideas that retailers can use to better compete against the encroachment of e-commerce.
Sell Solutions, not Products.
Customers shop to solve a problem and retailers that solve problems rather than supply product will get more sales and win. Personal shoppers already do this. Selection can be a way to provide answers but this will require different selection strategies and different ways to display merchandise.
My favorite wine store in Pacific Grove was run by a former catering manager (now unfortunately retired) at a big Pebble Beach venue. He assorted his wine by the food it paired with – sections for fish, beef, chicken, deserts, cheeses. We don’t buy wine that way (anywhere) as we are focused on the the varietal, the age, the label. However, when we select wine to drink or serve we try to pair it with what we are serving. Wine stores rarely offer that advice. Someday I hope find wine that is sectioned by my real needs, like this for your brother in law, this for your book club, this for when the boss visits. Now that would be useful!
Ikea is a showroom where they solve the problem of living in a smaller space but staying organized and neat. Each vignette is designed around a hypothetical family. They are brilliant at flat packing their products and giving ideas on how to solve household problems. The furniture store in town has a sea of couches and chairs. Few are shown in a normal pattern you’d see in a home.
Focus on a Customer
Retailers who focus on product too much lose focus on the customer. Product focused firms think of buying and selling product before they thinking of serving a customer need. I think focusing on a customer segment is not as good as focusing on a single person with a problem. We are empathetic to individuals, not to classes of people.
Best Buy implemented a customer focus program called customer centricity by coming up with a series of archetype customers. Each store was then focused on one archetype (a married woman with two children who needs appliances, a college professor who likes high end stereo music, a 15 year old video game player). This was a huge step forward for Best Buy, but in the end it had to change, because to be successful they needed to address pretty much all of these segments in every store. The key point was they went from selling laptops and dishwashers to thinking about what customers needed and then rethought the store layout and service plan.
Auto parts retailers carry a lot of parts. But because of state licenses and registrations, they can buy registration information by area. They know which cars are located where, which autos are at the age where they break down, and what parts are most likely needed. Auto parts stores are focused on their customer – the owner of the 6+ year old car. When they stock parts, they stock based on the local need, and they stock all the parts for the job. They want you to leave with everything you need to get your vehicle working again.
Ikea’s hypothetical families focus their merchandise team on solving real world problems for real people. They are selling a way of living as a part of selling their furniture. They use names and have pictures of happy families (models?) supposedly living in these tiny apartments.
I think there is still life in physical retail. People like to touch, view, compare and try on goods, an experience that e-commerce can’t provide.
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Dr. John Zott is the CFO for Carlson Wireless Technologies, and Principal consultant at Bates Creek Consulting. John is the chair of the Careers Committee at FEI Silicon Valley, a senior adjunct professor at Golden Gate University and comments regularly on issues that affect consumer businesses. If you are a former student, colleague or would just like to connect – reach out.