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2014 – The Year of Disruption in Retail

BY Dan Berthiaume

Sooner or later, disruption occurs in almost every sphere of human activity. While the radical upending of long-established norms and conventions is not always a positive development, oftentimes disruptive forces enable a burst of creativity and innovation that move an industry toward new levels of success and achievement.

The Sex Pistols disrupted rock music in the 1970s with short and simplistic, yet powerful songs that focused on real emotions and social ills. Quentin Tarantino disrupted films in the 1990s with movies that disregarded traditional approaches to plot and dialogue. Both industries were thus opened to further innovation and insight that had previously been unobtainable.

Leading-edge technologies, such as social, mobile, video, location-sensing and Big Data analytics, hold promise to produce similar results in the retail industry. These technologies are simultaneously providing customers with a far greater level of control over their individual customer experience, while also providing retailers with insight into the personal preferences and habits of individual customers they could only have dreamed about a few short years ago.

The year 2014 is shaping up as the year of disruption in retail, and in this special section Chain Store Age takes a look at some of the unfolding trends and developments. From specialty retailer In the Pink, which is empowering store associates with real-time mobile data, to casual dining leader Applebee’s planned rollout of tablets at its tables nationwide, retailers are exploring new ways to engage customers and enhance the shopping experience, both online and in-store. And then there is ModCloth, which is using an innovative crowdsourcing model to create intimacy — and fuel its growth.

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Rakuten’s Global Ambitions

BY Barbara Thau

Most U.S. consumers, and many retailers for that matter, have probably never heard of Rakuten. But if Japan’s largest e-commerce marketplace has its way, that will soon change: The company has set its sights on becoming a household name in the United States. An even loftier goal: outpacing e-commerce giant Amazon.com.

Founded in 1997, the Tokyo-based retailer is banking on a new strategy that employs a business-to-business-to-consumer model (B2B2C) — rather than the direct-to-consumer model it initially employed — to conquer the American market.

Rakuten boasts $4.9 billion in global revenue, and bills itself as the third largest e-commerce marketplace worldwide, behind Amazon and eBay. It sells everything from computers and consumer electronics to fashion, health and beauty items, home furnishings, toys and sporting goods.

Strategic acquisitions of leading online marketplaces around the globe have fueled its growth. Currently, it offers e-commerce services in some 20 countries, including Taiwan, France, Germany and the United Kingdom.

In 2010, the retailer scooped up the U.S. site Buy.com (now billed as Rakuten.com Shopping) to gain a foothold in the American market. It is betting on its B2B2C model to shake up U.S. online retailing.

“The business models used by many major online marketplaces can be counterproductive to their merchants’ businesses,” said Bernard Luthi, chief marketing and operating officer, Rakuten. “The ubiquitous B2C model, for example, allows a merchant to set up a presence on the marketplace and sell to customers. If their products start to sell rapidly, however, the marketplace owner will often use their own stock to undercut the merchant they are supposedly partnering with.”

Rakuten sees things a bit differently. It believes that for online marketplaces to evolve and prosper, the merchants should be empowered to make the very most of the channel to build their brands and customer relationships. It’s for this reason, according to Luthi, the company shifted to its current model.

“With this model, Rakuten, as the online marketplace provider, has certain duties to its merchants,” he said. “Therefore, we’re striving to provide a more thorough and detailed marketplace service than has been seen before — one which elevates our merchants to the status of true partners and removes the fear that the marketplace will evolve into a competing retailer.”

Rakuten’s “omotenashi,” or “empowerment,” philosophy of supporting its merchant partners is integral to its strategy. The company offers training to its merchants via “Rakuten University” on how best to optimize the online channel for sales.

“This, combined with regular expos and insights provided by e-commerce consultants, gives merchants all the information and tools they need to stay at the forefront of e-commerce,” Luthi explained.

Unlike Amazon, Rakuten does not maintain its own inventory. As a result, third-party merchants selling on Rakuten need not worry that they will end up in a losing competitive battle with the marketplace, he added.

While Rakuten’s marketplace model is key to its goal of surpassing Amazon, the company also believes it has other advantages, including its loyalty program, called Rakuten Super Points, whereby shoppers earn at least 1% back on every purchase and can apply earned points as discounts on future purchases.

The company also strives to offer a reprieve from the dry, transactional experience that still defines many e-commerce sites by tapping into digital social shopping trends.

“The vending machine style of e-commerce is becoming antiquated,” Luthi said.

On the social front, the company has made a number of key investments, including in Pinterest. Recently, it signed an agreement to acquire global video streaming platform Viki.

“Rakuten’s focus is on entertaining ‘discovery’ shopping. The concept is based on making connections between people based on areas of interest, which means that individuals as well as merchants can become curators, influential to other interested parties,” Luthi explained.

Logistics expertise is critical to its success — and to competing with Amazon. In 2013, the company acquired Webgistix, a U.S.-based logistics and services company specializing in fulfillment technology for e-commerce retailers. It owns a strategic network of company-operated fulfillment centers that enable merchants to reach 98% of e-commerce customers in the United States within one to two business days via ground delivery.

In taking on the U.S. market, the Japanese online giant is all too aware that as a relative unknown to American shoppers, it has got its work cut out for it.

“Amazon, eBay and Wal-Mart are major competitors whose predominance and brand recognition in the market present a challenge for a newly re-branded company such as Rakuten. com Shopping,” Luthi said.

“But we are confident that by uniting and empowering independent retailers into one strong force, we can compete.”

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The Competitive Advantage of In-Store Experiences

BY CSA STAFF

By Steven Skinner and Karl Swensen

Major retailers have successfully faced down emerging e-tailers and their aggressive pricing tactics by upgrading their e-commerce platforms and readjusting their pricing to strengthen their hold on shoppers. To fully complete their turnaround, however, they must judiciously apply bricks and mortar to their competitive advantage.

According to Cognizant’s fourth annual survey, “2013 Shopper Experience Study: Rise of the Individual Shopper,” consumers still value the in-store experience, but have exceedingly higher expectations.

In addition, 83% of retail sales still originate from in-store purchases versus those made online. As a result, immense opportunities exist for brick-and-mortar retailers to use their physical world strengths by focusing on retailing fundamentals, providing informational consistency across all touchpoints throughout the shopper’s journey, and empowering associates to make the physical world experience as good as or better than the online one.

Focus on the Fundamentals

A brick-and-mortar store allows shoppers to interact with products in ways that can’t be matched by the capabilities of online retailers. The tangible, physical aspects bring value to the in-store experience but also means fundamental store operations must be highly functional and efficient to overcome any pricing advantage found online.

Shoppers rate price and product selection among the top influencers on purchases; their top dislike is out-of-stocks and unavailability to purchase. The stakes are incredibly high, given the myriad of alternatives shoppers have to purchase elsewhere.

When dissatisfied with the price or product availability, many either leave the store or purchase online. To mitigate this risk of the shopper leaving empty-handed, retailers should get the price right in the first place, offer a meaningful assortment that is almost curated to the shopper’s needs and desires, and keep adequate inventory in stock by using predictive modeling. These tactics can help reduce the odds of lost purchases.

Provide All Touchpoints Throughout Shopper’s Journey

Not all shoppers are created equal, nor are their respective journeys. Retailers need to realize that a shopper’s journey does not necessarily start when he or she walks into the store.

With the advent of smartphones and tablets, “showrooming” has reached epidemic proportions. We all know many shoppers browse at a brick-and-mortar store before purchasing online. Retailers can combat this by seeing the shopper’s journey as non-linear, and making themselves accessible and available at all touchpoints.

Most retail executives believe their omnichannel implementations lag the competition. This could not come at a worse time since most fully expect mobile shopping to double over the next year. Consequently, it’s important that retailers provide consistency across all channels. Shoppers want a seamless shopping experience — both in and out of store. Doing so can greatly influence their final purchase.

Empower Associates to Complete the Experience

Shoppers increasingly expect personalized in-store experiences. In fact, it was a top-rated feature/service among surveyed shoppers in Cognizant’s recent survey. Not surprisingly, 32% called for an improvement in in-store customer service skills.

Brick-and-mortar stores can turn this negative into an advantage by arming their store-level associates with greater product and service knowledge than can be gleaned online. Research has shown that retail sales increase by 25% to 50% when shoppers are helped by a knowledgeable associate.

Retailers should train and provide associates with the proper resources needed to fulfill shoppers’ immediate needs. This can be done, for example, with new tablets for associates, which provide them with access to information and insight to help convert browsers to buyers. When an associate has enough knowledge to either price match against a competitor, find a product in-stock without asking a manager, or leverage direct fulfillment capabilities to ship customer orders, the selling process becomes more efficient. In turn, it also provides a better in-store shopping experience, which increases loyalty.

In Summary

Providing the ideal customer experience in your stores is really an ongoing effort. Retailers must first take stock of how to delight the customer and then gradually build key omnichannel capabilities. This will allow them to carefully work through the retailing fundamentals needed to deliver a seamless omnichannel shopping experience that compares favorably with competitive retailers — whether online or not.

Steven Skinner is senior VP, retail and consumer goods consulting, Cognizant; Karl Swensen is assistant VP, retail consulting, Cognizant.

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