A Brave New World
Remember when retail gurus used to say that when it came down to it, retail strategy was all about location, location, location? Location still matters, but not as much as it used to. With the explosion of online retail, brick-and-mortar retail strategies are changing. But it’s not just location that has receded in importance. Price and selection don’t matter as much anymore either.
Strategic changes are rippling through the retail world today, driven by the interplay between brick-and-mortar and online retail.
What changes? Here are three:
- Traditional retail differentiators don’t work anymore.
- Brick-and-mortar retail stores are adopting strategies used by online stores.
- Online strategies and brick-and-mortar strategies are merging into focused, powerful retail strategies.
Retailers that don’t tailor business models and strategies to emerging realities will find themselves in a tailspin, according to a recent report from Deloitte Consulting LLP entitled, "A Race to the Bottom: How to survive in the new retail environment."
The study makes it clear that in today’s marketplace competitive attributes such as price, selection and location are being reconsidered as noted competitive differentiators. Translation: Price, selection and location are less important, today.
"Product and service have become the real differentiators," said Rod Sides, a Deloitte principal and co-author of the study.
Price used to be a key differentiator, but now many other retailers can match low prices.
"You don’t have to be the lowest price," Sides explained. "But you have to be competitively low. A consumer might reason that it’s worth a 5% premium on a $50 item to get it now, instead of waiting a day or so for an online shipment."
Competitive pricing remains important to making a sale, but it won’t differentiate a product or retailer like it used to.
Even vast selection doesn’t differentiate anymore either. The reality is products spanning entire aisles in big-box stores can’t compete with online’s endless aisles.
Then there is location.
"Location is important for brand building, but a customer can buy a product anywhere, anytime without a store," said Thomas F. Quinn, a principal with Deloitte and co-author of the study.
Today, successful retailers differentiate their brands with products and service. Consider Apple.
"Apple is driving the new normal in retail," Sides said. "If there is one concept today that a majority of our retail clients are trying to emulate, it is Apple."
For Apple, retail strategy is all about products and service. The Apple brand stands for innovative, distinctive products, from the iPod to the iPad. It also stands for service. Excellent service in Apple’s physical stores and digital stores drives sales in both venues. Premium products and premium service enable Apple to charge premium prices.
Upscale department stores have always combined high-end products with excellent service. Today, that excellent service includes filling online orders from stores near buyers. Shipping is less expensive and faster, two customer service benefits. Sometimes customers come to the store to pick items up, another customer service benefit that also holds down store costs.
"A number of upscale department stores now pull inventory from stores to fill online orders," Quinn said. "Many of our clients today are trying to duplicate that."
It’s more complicated than it looks. It adds complexity to buying decisions and the way products are allocated among stores and distribution centers. It also requires material handling crews in stores to receive, rack, pick orders and ship merchandise.
"Upscale department stores understand that customers want exclusive products and excellent customer service that includes getting products to online customers fast," Quinn added. "These stores are making that work. As a result, price isn’t as big a pressure point for them."
Most retailers don’t have exclusive products and the financial ability to pay for excellent service. But they can still find a strategic balance — and they should start searching for it now. According to the Deloitte report, brick-and-mortar retailers need to better leverage their operating base if they want to remain competitive.
"In a lower-cost operating model, a retailer must ensure that incremental dollars invested in labor or real estate have value," Sides says. "One strategy might be fewer, smaller stores and more distribution points."
That helps to rebalance real estate investments. Fewer, smaller stores cost less, as does distribution real estate. The stores would build the brand and drive online sales. Service comes from swift delivery of online orders.
"You can’t be in the middle," Sides said. "You can’t have a high-cost structure and an undifferentiated value proposition, because then you will be forced to cut prices to make sales. And that’s the race to the bottom."
Michael Fickes is a contributing editor to Chain Store Age.
The interplay between physical stores and online is driving strategic changes throughout retail.
Clicks & Bricks
Technology is revolutionizing the way consumers shop, both in stores and online. Here is how one retailer is working to bridge both worlds.
British retailer Marks & Spencer is taking a giant leap forward in its goal to becoming a multichannel leader and merging the worlds of physical and online shopping with the opening of its new concept store in Amsterdam.
The centerpiece of the 5,000-sq.-ft. space — which marks the company’s return to the Netherlands after a 10-year absence — is an "E-Boutique" dedicated to womenswear.
The shop features what the retailer calls "the world’s first virtual rail," a display that seamlessly integrates digital rails with physical rails of clothing. It is made up of three stacked 46-in. video screens and three physical rails, with each holding about 50 items of clothing. The display will showcase the latest trends and be updated every six weeks.
Shoppers can place orders for free delivery to the store through in-store order points (photo left) or with iPad-equipped associates. Or they can make purchases via their own mobile phones, using the store’s free Wi-Fi. Customers can also "shop to go," choosing from the edited selection of fashions that are available to buy in-store on any given day.
"The Netherlands has embraced online shopping — customers adore the ease and convenience of buying clothes this way, which is why we were determined to return with our very latest multichannel thinking," said Laura Wade-Gery, executive director e-commerce multichannel at Marks & Spencer. "The E-boutique … allows us to offer our latest fashion collections from a much smaller footprint."
The rest of the store is dedicated primarily to food and beverages, ranging from sandwiches, salads and wines to M&S’ signature prepared meals and groceries.
The Amsterdam concept shop is just the beginning of M&S’ push into the Netherlands. The company has also launched a new Dutch website, and plans to open a full-line store in The Hague in 2014, and a flagship in Amsterdam by spring 2015.
Peaking at the Right Time
Randy Dewitt,CEO, Front Burner Restaurants
Headquarters: Addison, Texas
Type of business: Casual-dining (Twin Peaks)
Number of units: 36 Twin Peaks restaurants in 16 states
Restaurant veteran Randy Dewitt has found his calling in the sports-bar segment of the casual dining industry. The former Brinker International executive founded Rockfish Seafood Grill in 1998, and served as CEO until 2008 when it was sold to a group of private equity firms. He is moving full speed ahead with a second brand, called Twin Peaks, which he and fellow restaurateur Scott Gordon launched in 2005.
Serving up comfort food and drinks (including an extensive selection of draft beer, poured ice cold at 29 degrees) in a mountain sports lodge-styled environment, Twin Peaks is equally well known for its cadre of young, attractive waitresses in revealing uniforms (think short shorts and equally brief red plaid tops). The brand has been rapidly garnering loyalty among the male set with its "Eats-Drinks-Scenic Views" mantra, and Dewitt and Gordon are busy expanding it under the parenting umbrella of Front Burner Restaurants.
With 36 locations and counting, Twin Peaks’ timing appears to be spot on. The chain was named Franchisee of the Year in 2011 by the International Franchise Association, and recently awarded a weighty franchise territory to GT Hospitality Restaurant LLC, which will build 16 units in Kentucky, Ohio and Virginia over a seven-year period. The company has mapped an expansion strategy that follows a 25%/75% company-owned/franchised ratio.
Chain Store Age senior editor Katherine Boccaccio talked with Dewitt about the Twin Peaks brand, its marketing tactics and what it will take to build a national presence.
How exactly did you come up with the Twin Peaks idea?
They say ‘necessity is the mother of invention’ and I needed to close a seafood restaurant that was underperforming. I knew a talented operator, Scott Gordon, who was willing to start up a new concept with me. The idea for Twin Peaks came from my curiosity about the success of Hooters. They dominated the category of sports bars with an all-female staff, and yet neither Scott nor I were fans. So I began to think about how to do it better. We knew there were others like us who would want a better atmosphere and higher-quality food. We thought, ‘What would a guy’s ideal man-cave be like?’
What was the next step?
We chose a hunting lodge theme, and everything fell into place around that. We went to work creating the systems and procedures to ensure Twin Peaks would have the most attractive Twin Peaks Girls, teeth-chattering cold beer, made-from-scratch food, and state-of-the-art audio/visual equipment. Oh, and the name Twin Peaks? That was my wife Michele’s idea.
Is your demographic entirely men, or are you having success with the ladies and families as well?
Although our target customer is a sports-minded male, the smart ladies know where to find them and come in all the time. We also see a lot of families with teenaged boys!
Describe your restaurant design and theme.
We carefully design each of our stores to have a signature mountain-lodge feel. We use unique stones and rustic timber to create a cabin environment complemented by fire pits on the patios, hunting gear and fishing equipment to adorn the walls.
We want our stores to be the ultimate man cave for our guests. It doesn’t matter if you’re in Olathe, Kan., or The Las Vegas Strip — all of our Twin Peaks stores are consistent and on brand.
How important is social media?
Our social media strategy is imperative to connecting with our consumer. Our guest is a beer-drinking male, and we know what those men like. We make the effort to tag a Twin Peaks photo with every post — whether it’s our hearty comfort food, 29-degree draft beer or our beautiful Twin Peaks Girls. That’s what sets us apart in our social media efforts. By understanding who our audience is, we know what to post in order to garner the most significant response and keep those individuals coming back, both online and in our restaurants. We have seen a huge growth in our customer loyalty and our overall success because of it.
What about your marketing events and promotions?
Because we’ve grown so rapidly, our marketing team is more important than ever to engage with our guests, keep our brand consistent and to create original promotional strategies. We host annual parties and events, from our national all-star bikini contest to holiday costume days and game-watching parties. The marketing team does whatever it takes to uphold our Twin Peaks DNA with the ultimate goal of pleasing the guest.
Will you continue to expand your retail offerings?
Our goal is to increase merchandise sales both in store and online, and to make this piece of our business a strong revenue driver. Our hope is to build brand fans who promote for us by wearing our awesome shirts and hats. Online and offline retail will be a focus in 2013-2014.
What are the chain’s expansion plans?
We are opening approximately two restaurants per month, so look for around 70 to 80 stores by the end of 2014. About 25% of those will be corporate-owned and 75% will be owned by franchisees.
What are your typical site selection criteria?
Our ideal site is a freestanding restaurant and large patio on a major freeway with a heavy mix of retail and office nearby. Other generators for us are upscale apartment complexes and sporting venues. The majority of our restaurants range in size from 5,500 sq. ft. to 10,000 sq. ft. Our prototype for ground-up construction is 6,800 sq. ft. with an 1,800-sq.-ft. patio.
What differentiates Twin Peaks from the competition?
I believe what sets us apart is the level of detail we put into making our overall experience the best. Everything in our kitchen is made from scratch and the kind of quality that you would expect in a polished casual-dining restaurant. Our draft beer is served so cold that ice crystals form at the top of the glass. The Twin Peaks Girls are not only beautiful, but are fun and talented, with long-term goals and ambitions. On top of that, Twin Peaks has a company culture that works hard, but takes time to have fun and celebrate our achievements. All of these elements are what set us apart from our competitors.
How would you describe your leadership style?
I find people who know what they’re doing and believe in the Twin Peaks brand DNA. After that, I stay out of their way and evaluate results. I try not to micromanage team members.
What do people generally say when you tell them what you do?
‘Can I trade jobs with you?’