Response Advisors Forum: Disruptive Forces

Is e-commerce sinking brick-and-mortar retail? Or should those traditional retailers take the brunt of the blame? Is there a middle ground where still burgeoning e-commerce can meet brick-and-mortar to provide consumers with the best of both options? And how does the lurking and massive presence of Amazon fit into all of this?

These are just a few of the questions that performance marketers at the intersection of media, technology, and commerce are asking — and answering — on a daily basis. The disruption of the retail paradigm remains in full flower, and where it ends up is anybody’s guess. 

“Everything is cyclical,” says Peter Koeppel, founder and president of Dallas-based media agency Koeppel Direct, about the challenges and possibilities facing physical storefronts. “Will Americans suddenly wake up one day and realize they long for the mom-and-pop hobby shop, vacuum retailer, or bookstore where they can curl up beside a potbelly stove? Or are our Main Streets going to be occupied exclusively by the likes of Gap, Banana Republic, and Sephora? The answer will likely lie in the ability of those small retailers to compete via product innovation that neutralizes shopping based upon price alone, and that entices shoppers eager to break away from sameness, with a willingness to pay a premium for it.”

At the other end of the spectrum, Richard Stacey, president and CEO of Toronto-based Northern Response Intl. Ltd., says a failure to grasp all that Amazon is today and may become tomorrow remains a massive challenge. “Traditional retailers have little understanding of Amazon,” he says. “They see the effects of what Amazon is doing to them but don’t truly understand how their competition works. There are many elements to the Amazon model and until retailers understand them, they are doomed to be consumed by them. I often ask retail executives if they have used Amazon Seller Central, and they don’t even know what it is.”

Koeppel and Stacey are two of six members of our Response Advisory Board who took the time to answer a brief set of questions that attempt to get at the challenges facing retailers — and the marketers that rely on them — today. Read on to find out what they have to say. 

For all the buzz about the rapid growth of e-commerce — its share of total retail sales has expanded by nearly 50 percent since the end of 2013, according to the Census Bureau — it still only accounts for about $1 of every $11 spent by American shoppers. What is causing this disconnect in buzz vs. reality among legacy retailers and product marketers?

Tony Besasie, Cannella Media: The figures as presented might suggest there is a disconnect, but the truth is the buzz is more real news than fake. The Census figures referred to above are a little misleading because the $11 spent at retail includes business categories that are not e-commerce conducive: furniture, building materials, supermarket, grocery, liquor stores, gas stations, jewelry, restaurant, and bars.

A further examination within key segments reveals the more dramatic shift we are seeing in the brick-and-mortar world. In categories like consumer electronics, clothing, toys, and health and beauty, more than a third of consumers prefer to order online (see Statista chart). This is significant.

Source: smarterHQ

According to several different surveys, the percent of ecommerce shopping among the millennial generation is as high as 50 percent (see smarterHQ chart). 

The consumer behavior is changing from shopping trips to brick-and-mortar to shopping from home. That’s not all bad news. As a DR media company, we should benefit from in home shopping.

Peter Feinstein, Higher Power Media: The trendline toward online retail purchases is clearly upward, with no real cap in sight — but online sales aren’t dominant … yet. The buzz these days, however, seems to be more about some people in online media/marketing being more intent on bending the truth than being of service, in order to persuade product marketers into believing that everything in retail sales is only happening online. Product marketers, for all their innate intelligence, are still relatively easy prey: they’re sales people, who love to be sold! They’re always seeking answers to the age-old question, “How do I sell more of my better mousetrap?” When an entire industry beats the same drum, even if that drum is out of tune and out of step, it sounds enough like the truth to be almost believable — almost. 

So, while the buzz may be that e-commerce is really the only retail sales environment that matters, it’s false. The numbers reveal the truth. And while the present 1:11 ratio will likely shrink, the truth today is that online retail sales are not the panacea and should not be treated as such. It’s important that the light of reality gets shined on the truth so that everyone involved has the opportunity to help maximize sales, and not act so myopically, driven by self-interest and greed.

The reason, I suspect, for the gap between actual dollars spent online vs brick-and-mortar, can be found in examining the kinds of goods purchased online. In order for the 1:11 ratio to be real, online purchases must be for much smaller ticket products, which even bought repetitively, don’t come close to equating to the dollar-spend of higher-ticket products like major appliances, artwork, cars, or even computers. In a fairly robust economy, such as we’re experiencing, this makes both logical and financial sense.

Peter Koeppel, Koeppel Direct: Despite these rather glaring comparative statistics, retail storefronts are closing by the thousands. It could be that the cost of rent in relation to dollars-per-square-foot at traditional retail is just grossly out-of-whack. The migration to e-commerce has been slow but steady in the context of the bigger picture, but I would liken it to cable television in the 1980s and 1990s. Audiences built slowly, but over time the collective audience for cable surpassed the big three networks. Now the same thing is happening with over-the-top (OTT) content providers such as Netflix. This is what is happening at retail — a growing preference for the selection, convenience, and pricing model that e-commerce provides.

Fern Lee, THOR Associates: The definition of e-commerce and the data offered by brick-and-mortar retailers may be causing a disconnect in buzz vs. reality among legacy retailers and product marketers. The definitions offered in this question by the Census Bureau may be accurate, but they also may not be in alignment with output of reporting.

According to Statista, “The number of paying Amazon Prime members in the United States as of September 2017 is estimated to be 90 million, up from 63 million in June during the previous year. On average, Amazon Prime members spent $1,300 on the e-retail platform per year. June 2017 data also states that non-Prime members only spent $700 annually, which is still an improvement over the average $500 of annual Amazon spend as of June 2016.”

According to One Click Retail data, Amazon was responsible for about 44 percent of all U.S. e-commerce sales in 2017, or about 4 percent of the country’s total retail sales figure. The discrepancy between this number and the question above in itself explains the difference in buzz vs. reality.

Bill McAlister, Top Dog Direct: Fake statistics. Overall retail percentages are misleading. Category numbers are relevant for marketers. If you are considering retail sales of gasoline, groceries, or books, it makes a difference.

Richard Stacey, Northern Response Intl. Ltd.: It’s important to look at the growth rate of the market, not just the absolute size. Amazon Prime just passed 100 million members after starting from zero not that long ago. This type of growth creates a lot of buzz and when you compare it to the growth of legacy retailers, you can see why the buzz is justified.

Store closures are receiving much media attention. How can marketers best wade through this cycle and conceptualize three key things that make for a successful in-store retail strategy for 2018 and beyond?

Besasie: The best retail strategies are rooted in the fundamentals. These three things are crucial.

First, minimize out-of-stocks. One of the biggest issues at brick-and-mortar retail is out-of-stock inventory at the point of purchase, resulting in a lost sale. The easy answer is to place more product at retail and obtain more shelf space, but retailers eschew back stock inventory-carrying costs and have limited shelf space and restocking manpower. To combat this, marketers should ensure alternative methods of ordering through the retailer’s website are prominently featured at the point of purchase, offering free shipping to store or to home options.

Next, deliver goods to retail and ensure they are at shelf in time for key selling events and support retailer sales events. With all of the just-in-time manufacturing and logistics capabilities marketers have at their disposal, there are countless examples of marketers missing the selling season window by a few weeks. These are missed opportunities.

Finally, secure feature displays. End caps, side wings, and power aisle displays can increase sales by as much as 700 percent over inline shelf merchandising. Marketers should continue to work with retailers to create feature displays. 

Koeppel: Consumers want experiences that surprise and delight. Think about what it’s like going into an Apple store. Costco’s business model is predicated on the idea of the consumer coming in for staples and then discovering an item they had no intention of buying in the first place — a form of treasure hunt. Similarly, Amazon is opening bookstores that one could argue are a throwback to the days of yore when one would scan the shelves of their local bookstore and discover a gem of a book they did not know about before they walked through the doors. Similar to Amazon is Warby Parker, which began as an online seller of eyewear that allowed customers to try on frames with no obligation through the mail. Now they have branched out and opened boutiques that allow consumers to try the glasses on at a store, in addition to the original at-home model.

Distribution is another key consideration. Although the window between ordering and doorstep delivery keeps getting compressed, sometimes a consumer wants to get their hands on a product immediately, either because they have a near-term need, or they want to touch and feel the product. That means conventional retailers have to be constantly monitoring which products are in demand and making them available for in-store pick-up. Further, some online retailers are branching out. So, for example, Harry’s razors and shaving gels are now available at Target, in addition to being sold through their continuity program delivered direct-to-your-door. It’s really about giving the consumer options suited to their particular desires and whims.

Finally, service is key. In certain categories such as computers, smartphones, AI speakers, and the like, consumers want expertise and guidance. Again, think Apple. Its entire store is set up to consultatively help consumers make smart buying decisions, without any pressure or self-serving agenda.

Lee: In-store retail strategy for 2018 and beyond must include omnichannel marketing that includes social media. The K-mart “Give a Gift” Christmas video on YouTube has millions of viewers being served brand status for loyalty. The same can be said for TJ Maxx and its Mother’s Day Vignettes.

Another consideration: open the sales funnel earlier. Utilizing messaging earlier will bring consumers to purchase later. For example, Christmas in July may not provide immediate sales, although it opens the funnel for purchase during the holiday season. Offering promo codes allows for driving interest and tying back store sales with promos that will provide attribution for spend, as well as provide capture of segmentation and user data for retargeting and remarketing.

Finally, there’s customer service. This has already started with many online retail sites offering purchase and then “in-store” pick up. Customer service for future successful in-store retail strategy should include personal shoppers. These educated employees have been offered in high-end fashion departments for years. If they were offered in do-it-yourself (DIY) stores, certainly the average order value (AOV) of each customer would be increased. Also, return policies need to be “all inclusive,” which has already been instituted at stores like Bed Bath & Beyond and Home Depot. All stores should offer “return anytime for full refund or replacement.” Outbound telemarketing programs can also be beneficial for in-store loyalty by following up to purchase and sending invites to “special sales.” At the very least, customer feedback forms are paramount.

Stacey: Retail is a challenging environment and being successful requires doing lots of things right. This includes having good selling products. We test hundreds of products, but only a few pass the test of being a good seller. You then have to get past the buyer and onto the shelf. Many buyers have not seen the movie Moneyball and are still trying to guess what sells, rather than relying on big data. Once on the shelf, you have to have a system in place to drive sell-through with media support and carefully manage inventory levels, so you don’t ship in too many and get stuck — or ship in too few and run dry. Retail today has become more like flying a 747 than a single-engine Cessna. There’s a lot going on in the cockpit.

Still, e-commerce’s success is not overblown — look at Walmart and Target shifting online strategies to compete with Amazon. What three things do marketers need to take into account when pulling together an e-commerce strategy?

Besasie: Marketers today are facing an omnichannel opportunity and challenge. It’s important that marketers avoid the trap of building their channel strategies in silos. Of course, each retailer and channel have their own set of requirements and demands. Sales plans must need their specific needs, but sales management needs to take a step back and assess the sales plan at a more global perspective, while understanding the interconnections and conflicts between each sales channel and retailer sales plan.

Strategies to contemplate when considering e-commerce include the following: maintaining price parity for the same products across your site, e-commerce resellers, and brick-and-mortar channels; protecting your brand name, key product features, and unique characteristics from competitive threats in Google and Amazon search; and merchandising your product as well online as you would at brick-and-mortar. That means having high quality photos of your product from a variety of angles. Include all color options or other choices. Work with a professional copywriter to describe your product and don’t overlook the fundamentals, such as product dimensions, weight, material, and warranty. 

Koeppel: First of all, you have to be on Amazon. Why? Because more consumers turn to Amazon to begin their product research journey than Google. If you are not on Amazon, you risk having your prospect easily diverted to a competitor’s product.

Second, if you are on Amazon, you have to offer Prime. Prime membership has surpassed 100 million households domestically and is growing rapidly. If you don’t offer Prime, you risk having your prospect buy a competitor’s product who does offer it.

Third, a marketer has to mirror the best-in-class e-commerce sites in terms of quality of experience, ease of checkout, delivery turnaround, and customer service. The leading e-commerce companies have conditioned consumers to expect nothing less, and a marketer’s online reputation as a form of social proof is paramount to success.

Lee: No. 1, mobile allows for “instantaneous gratification” — ease of purchase and receipt of product. Mobile is and will continue to be the top effort of retail executives for sales and conversion, although attribution to mobile and across devices needs improvement.

Second, accurate data of organic vs. paid search results is key. Utilizing consumer search behavior can make both in-store and digital shopping an excellent and consistent experience.

Finally, cart abandonment strategies must be continuously tested for consumer engagement and purchase.

Stacey: For many product marketers, the primary focus of any e-commerce strategy should be on Amazon. The old days of www.mywidget.com are an uphill battle. Many marketers list on Amazon but actually have little understanding of how Amazon actually works — how to drive sales with click-funnels and other models and manage the metrics to win the buy box. Amazon is a very powerful platform when managed properly. Its Fulfillment by Amazon (FBA) program also removes a lot of the operational hassles.

With Amazon’s fingers in a bit of everything, what are the three key things marketers must consider when thinking about working with the e-commerce giant?

Besasie: Amazon has used the carrot-and-stick approach to persuade marketers to use its FBA services. FBA has some clear benefits, but it’s important that the marketer understand all of the costs associated with FBA. There are several P&L templates online that capture all of the cost implications of selling through Amazon’s marketplace and using its FBA services.

Amazon’s algorithms are designed to help improve the customer’s shopping experience and, as such, Amazon places greater value on positive reviews, FBA, conversion, sales velocity, and minimal returns. There are several hacks that can be used to boost a marketer’s value score and chances of appearing in Amazon’s organic search results. 

Koeppel: If you sell directly to Amazon you are, in effect, a wholesaler. The Amazon algorithm will keep lowering your price, which could impact your other channels of distribution, which are then rendered non-competitive. The result could be a loss of distribution in other channels and a lack of channel diversification. 

Consumers are looking for information to decide between competitive products, so having rich content in the form of images, videos, FAQs, and the like can help be a deciding factor between one brand versus another.

It is also imperative that you monitor Amazon on an ongoing, vigilant basis to ensure you are not being undercut by third-party sellers, gray marketers, or counterfeiters. 

Lee: Don’t give up on Amazon sales because they keep customer data. Utilizing the opportunity for product delivery into consumers’ hands is important. For example, if a brand utilizes a soft offer of a product by asking the shopper to pay for “shipping and tax” only as a lead-gen opportunity to acquire customers for future sales, and the product value is $59.95, it should sell the product on Amazon with collateral material that invites more offers if the purchaser signs up online.

Selling on Amazon can be a cash generator. For example, if consumer sales were noted at a hypothetical 32,000 pieces (in a given year) with payment only for shipping and tax as a lead-gen campaign CTA; and the value of the product is $59.95; and the product is sold on Amazon for that value of $59.95, revenue can be realized: 5 percent of 32,000 sales equals 1,600. That number multiplied by $59.95 is just short of $96,000.

Two other things to consider when working with Amazon: drop-ship options and customer service follow up via email support.

McAlister: Fees … fees, fees — and knockoffs.

Stacey: When working with Amazon, the first thing to consider is education. In my experience, few people know how to fully utilize Amazon to build sales. Attend conferences like Prosper Show or Sellers Summit — or even learn on YouTube. The information in this area is so new and changing so fast its’s hard to hire qualified staff unless they are self-trained. The second thing is understanding brand and price protection. Many people complain about counterfeits and price competition on Amazon, but this is mostly related to lack of education and how to properly set up your initial listings. The third thing is to know how to build reviews and win the Buy Box. This is a complex process and requires skilled personnel to be successful.

Where do you see the retail market in 3-to-5 years? 

Besasie: The retail shopping environment will continue to change and shift more toward online across many categories. Specialty brick-and-mortar stores will emerge with high-touch sales service (lower velocity, higher margin) — essentially a return to the old days. 

Shopping from home will continue scale and become more seamless with the Internet of Things (IOT), smart speakers, and mobile devices. The largest home builder in America just announced a partnership with Amazon to install Alexa as a base level feature in its homes. 

My longshot bets include that a national online sales tax will be imposed. The Department of Justice will look to break up Amazon. Facebook will acquire a third-party marketplace e-commerce platform. 

Koeppel: We are going to see a lot more outdated malls and other retail shutter. There is already a phenomenon called “ghost malls,” where half the storefronts are closed, and foot traffic is scant. It remains to be seen what will happen with all of this property, but it is obvious that traditional anchor stores, such as Sears, are rapidly becoming a thing of the past. In major categories, there is really only one major national retailer left – think Dick’s Sporting Goods – and in some categories a physical retail leader is disappearing altogether – think Toys R Us and Babies R Us.

This phenomenon is only likely to be exacerbated by the continued growth of e-commerce. Think of a set of scales where one side is slowly rising and the other is descending. That is what is happening with e-commerce relative to brick-and-mortar retail, and it is a trend that is clearly going to continue unabated in the coming years.

Lee: The sales of a store’s private label items (think 365 in Whole Foods) will help retail brick-and-mortar survive. At the same time, premium and grandiose product sales continue to provide customer purchases from brick-and-mortar establishments. Somewhere in between is the sweet spot where the customer will continue to visit their favorite brick-and-mortar outlets. This continued patronage, however, will not create a “thriving” environment during the next five years. Unfortunately, the future quite likely will continue to show slow sales growth in stores. E-commerce growth, on the other hand, should continue to flourish.

McAlister: E-commerce growth continues; retailers sad.

Stacey: I see e-commerce continuing to take market share from traditional retailers and growth rates continuing at double-digit percentages. This revolution is only beginning.