OPERATIONS

Report: Top 10 myths about multichannel retailing

BY Marianne Wilson

New York — Social media isn’t likely to become an important retail channel anytime soon, according to a new report by PwC. The study, “Demystifying the Online Shopper: 10 Myths of Multichannel Retailing,” found that in-store shopping is still center to the shopping experience.

“Our report finds that the physical store remains the centerpiece of the purchase journey, while devices are used significantly for product research and deals,” said Susan McPartlin, PwC’s U.S. retail & consumer sector leader.

The report addresses 10 myths about multichannel retailing and offers some ideas that companies can consider to keep up with their customers:

1. Social media will soon become an indispensable retail channel.
Social media isn’t likely to become an important retail channel anytime soon and currently is a driver for more shopping across all channels, not just online stores.

2. Stores will become mainly showrooms in the future.
For most companies, the physical store remains the centerpiece of the purchase journey. However, companies need to determine how to best drive purchase activity across all of their channels both physical and online. There still is a place for the store to be a showroom — as a supplement for online pure players, rather than a new model for brick-and-mortar retailers.

3. The tablet will overtake the PC as the preferred online shopping device.
Tablets and smart phones won’t catch up any time soon as these devices are used at the end of the purchase journey, particularly in-store, while shopping.

4. As the world gets smaller, global consumers are becoming more similar.
A wide range of local differences in consumer behavior exists, and retailers still need to cater to local trends.

5. China is the future model for online retail.
China is at the forefront of some key trends, but its multichannel and online model is unique to the culture, as shopping habits are dramatically different in China.

6. Domestic retailers will always enjoy a ‘home field’ advantage over global retailers.
Foreign retailers are making inroads into consumers’ lists of favorite multichannel retailers. However, retailers need to keep in mind that it’s not just the local base of domestic retailers they compete with, but with global players as well.

7. Global online pure players will always enjoy a scale advantage over domestic online pure players.
Many domestic online pure players are holding their own as they have better access to local market knowledge.

8. Retailers are inherently better positioned than brands, as they are closest to the customer.
Consumers are shopping directly from manufacturers and many no longer distinguish between retailers and their favorite brands. Retailers need to utilize core strengths including warranty programs and email promotions that drive traffic in-store.

9. Online retail is cannibalizing sales in other channels.
Consumers are actually spending more with their favorite multichannel retailers, not just shifting some purchases to a different channel.

10. Low price is the main driver of customer spend at favorite retailers.
Customers value quality, innovative brands over price when shopping at their favorite multichannel retailers.

In the study, 49% of survey participants said they use social media every day, but only 12% are using social platforms to shop. Instead, a significant 59% use social media to follow, discover and give feedback on brands and retailers. PwC found that social media is not a major traffic driver to online stores, as 45% of consumers continue to shop in a physical store daily or weekly.

To download a copy of "Demystifying the Online Shopper: 10 Myths of Multichannel Retailing," click here.

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OPERATIONS

Obama taps CEO of REI to head Interior Department

BY Marianne Wilson

Washington — President Obama has selected Sally Jewell, president and CEO of Recreational Equipment Inc., to lead the Interior Department, White House officials said Wednesday.

Jewell, a former banker and Mobile Oil Corp. executive, is an outdoors enthusiast and conservation advocate. She joined the board of REI in 1996, and was appointed COO in 2000. In 2005, she was named CEO. Under her leadership, REI increased sales from $1 billion to nearly $2 billion, added 71 stores, and greatly expanded its online business.

Jewell is the first woman to be asked to join Obama’s second-term Cabinet. If confirmed by the Senate, she will replace current Secretary Ken Salzar, who has led the department since the beginning of the Obama administration. Salazar, a Colorado Democrat, was elected to the Senate in 2004.

Jewell’s nomination was applauded by the Retail Industry Leaders Association (RILA), of which she is a board member.

“Sally is a well-respected retail executive, with a remarkable commitment to REI’s members, customers and employees. I have no doubt that she will guide the Department of the Interior with the same vision and leadership with which she led REI,” said RILA president Sandy Kennedy.

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CVS Caremark bullish on international opportunities

BY CSA STAFF

WOONSOCKET, R.I. — CVS Caremark executives expressed optimism Wednesday morning as the company posted record fourth-quarter results, raised its 2013 guidance and continues to work to leverage its distinctive business model to help people on their path to better health amid a rapidly changing healthcare environment.

“We are very pleased with the strong results we posted in the fourth quarter and full year 2012 with solid performance throughout the enterprise,” CVS Caremark president and CEO Larry Merlo told analysts during Wednesday morning’s conference call. … Our fourth-quarter results reflect strong performances at the high end of our expectations in both the [pharmacy benefit management] and retail segments.”

The quarter exceeded the high end of the company’s guidance by 3 cents per share.

Net revenues for the fourth quarter ended Dec. 31 increased 10.9%, to $31.4 billion, up from $28.3 billion in the three months ended in the year-ago period.

Income from continuing operations attributable to CVS Caremark for the quarter increased 2.7% to $1.13 billion, compared with $1.10 billion during the year-ago period.

During the call, CVS Caremark told analysts that late last week it closed on the acquisition of privately held Brazilian drug store chain Onofre. Merlo said the acquisition of the 44 stores is not financially material to CVS Caremark; however, it does mark CVS Caremark’s foray into the international drug store space.

“As you know, we have been exploring opportunities for possible international expansion, and we have said many times that our approach would be measured and we would exercise financial discipline,” Merlo said. “We believe this acquisition is a great example of that strategy and action.”

According to Merlo, Onofre has a strong reputation in the marketplace and is successful in tailoring its stores to market to different customer segments.

“We view Brazil as an attractive market given that health care and pharmacy are expected to grow double digits for the next decade, and while chains are prevalent, it is still a highly fragmented market. So, we see nice opportunities to grow the business over time,” Merlo said.

It has been reported in published reports that Onofre is the eighth-largest drug store chain in Brazil in terms of revenues, posting gross revenue of BR1.2 billion in 2011.

As for the retail business, Merlo said the company had “a very strong quarter” with same-store sales increasing 4%. Pharmacy same-store sales also increased 4% as front-end same-store sales increased 3.9%. Revenues in the retail pharmacy segment increased 5.1% to $16.3 billion during the fourth quarter.

Merlo noted that quarter benefited slightly from flu-related scripts, and flu shots increasing during December, as well as the retention of scripts gained during the Walgreens and Express Scripts impasse. As expected, CVS Caremark retained at least 60% of the scripts gained during the impasse, and it expects to continue to retain at least 60% of the scripts in 2013.

Eager to touch upon the company’s ExtraCare loyalty program, Merlo told analysts that the program continues to be a “key differentiator” with the scale of the program increasing dramatically in 2012 despite increased competitive activity in the loyalty program space.

“Increased engagement of our ExtraCare members is driving meaningful results. As an example, we have doubled our email program to more than 15 million active participants. Many have received over 60 million personalized email offers; that’s up 69% versus the prior year,” Merlo said. And its ExtraCare Beauty Club program now stands at about 11 million members.

Meanwhile, the chain announced Monday the launch of the ExtraCare Pharmacy & Health Rewards program, which allows members to earn larger and more frequent rewards when filling prescriptions or making healthy decisions, as well as providing another choice for members and giving them the ability to opt-in to parts of the program most relevant to their needs and preferences.

“While ExtraCare has been in the marketplace for 15 years, I think these [enhanced programs] are examples of how we are not sitting still,” Merlo said.

Given its solid results throughout the enterprise, the company raised its earnings guidance for the full year 2013 to reflect the anticipated 2 cents per share of EPS accretion related to the debt tender and refinancing that was executed during the fourth quarter of last year. The company currently expects to deliver adjusted EPS of $3.86 to $4 and GAAP diluted earnings per share from continuing operations of $3.61 to $3.75 per share in 2013. The company confirmed its 2013 free cash flow guidance of $4.8 billion to $5.1 billion, and its 2013 cash flow from operations guidance of $6.4 billion to $6.6 billion. These 2013 guidance estimates assume the completion of $4.0 billion in share repurchases.

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