intern project 2013 - do big box retailers need to compete with a new kind of competitor?

7/30/2019 Intern Project 2013 - Do big box retailers need to compete with a new kind of competitor?

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Julie Capron | [email protected]

Intern Project Winter 2013:

Do big box retailers need to compete with anew kind of competitor?


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Today we plan to cover:

! What is the relationship between big box retailers andinnovative disruptors?! How do consumers feel about the big box retail, superstore

experience?

! How are disruptive innovations addressing current consumerconcerns?

! What are big brand competitors doing? What is the ROI?! How can big brands harness disruptive innovation and make it

actionable?


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Key Definitions

! Who are the Big Box Retailers were looking at?! Primarily superstores! Target, Meijer, Walmart! Membership warehouses like Costco, Sams Club

What is disruptive innovation?

! This is innovation that helps create a new market and value network, andeventually goes on to disrupt an existing market

and value network by displacing an earlier technology.

! This is used to describe innovations that improve aproduct or service in ways that the market does

not expect.

! Examples include: Subscription commerce,discovery commerce, delivery services, virtual stores,

scan codes, and show rooming.


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Key Insights / Executive Summary

! The traditional big box retailer capitalized on creating a convenient family experience of being theone place consumers shop every couple of weeks to get everything they need.

! Technological innovations and consumer purchasing behaviors are always changing. Traditional bigbox retailers are being undercut by innovative companies that are more quick to address consumer

needs for convenience, quality, and good value than the retailers.

! Big box retailers are mostly being undercut for big ticket items and small day to day items that arebeing purchased.

! Big box retailers can step up to address the need for personalized and intelligent one on oneattention with sales associates, because the human interaction can create a good shoppingexperience and convince consumers to buy: this is not easily replicated online.


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! Innovation is disrupting the traditional model of shopping by providing new ways for consumers touse e-commerce to discover products, receive personalized services, shop and receive items faster

and easier than ever before, and have constant access to a wide selection of good quality products.

! Consumer purchasing behaviors are changing. Drivers of this change include: Increased desire to be able to multitask while shopping Increased value-seeking behavior Increased technology that makes it easier to research products and find bargains Increased desire for healthy, good quality products

! Big box retailers must work to either keep up, out-shine and out-innovate, or fall behind.

! Popular game-changers like discovery commerce, e-grocery, and show rooming are capturing new,niche markets that are being taken away from traditional big box stores. Technologies like

augmented reality and faster, easier purchasing using RFID tags also outpace traditional marketing

tactics.


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! Innovative disrupters are most successful in creating new ways to address a growing market need: Successes like Birchbox figure out a way to give women the essential touch and feel aspect

missing in e-commerce by giving sample sizes.

Farmigo addresses the growing desire to shop local and support local farmers.! Big box retailers can capitalize on their resources to foster opportunities to experiment; taking

intelligent and strategic risks with a small probability of failure does appear to contribute to

successful strategies that big box retailers can pursue.


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Key Take-Aways

Innovation is a risky business that usually emerges from small teams with big ideas; big box retailers

are usually risk-adverse and unwilling to take massive strides that can fail.

There are multiple examples of big box retailers that value innovation and have already seen a

substantial ROI by using innovators as models and/or putting a new spin on innovative models.

Actionable steps include: providing a full integration of the physical and digital spheres, giving

consumers personalized and strategic recommendations on their preferred products, and addressing

consumer expectations of providing convenient and quick shopping experiences where they are.


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How do consumers feel about the big

box retail, superstore experience?


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Consumer technology usage is aiding in their shopping, but alsocomplicating their path to purchase.! Internet usage is becoming ubiquitous

in the US, with penetration rates over

75% for the overall population.

! 88.1% of US internet users havebrowsed, researched or compared

products online.

! 71.6% have purchased online.! In 2012, US B2C ecommerce

accounted for more than $340B in

sales.

! The path to purchase is becoming amulti channel experience.

Key Takeaway: Consumers are willing to skip big box retailers in favor of online shopping.


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Technology enables shoppers to easily shop elsewhere even when they are instores; disrupters have capitalized on value-seeking behavior as consumersincreasingly use a mix of online and offline shopping.

! Trends show at least 52% of shoppers use technology while they are shopping.! It isnt always just to save money: 20% research their products before buying, 19% makeshopping lists on their phones, and 13% look up recipes while in store.

! Like in other industries, technology makes value seeking in shopping easier sovalue seeking behaviors are likely to increase.

! A quarter of social mentions also were related to mixing physical and onlineshopping especially when they are on the hunt for a specific item at a bargain price.

Ge#ngwinter+resonwife'svantoday.

Rimshavebeeninmylivingroomsince

Tuesday.Costco,+resinstore,rimsonline.

Iwish@Targethadmorecrossoverbetweenin-

storeandonline.Sofrustra+ngtogetthelast

onesinstore&notabletobuymoreonline.

@rogXuetry@target?theywill

nowpricematch@amazonrightin

thestore


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In light of the economic conditions of the past few years, consumers in theU.S. have become more value conscious.! Coupon use has increased from 68% in 2007 to 73% in 2011.! 58% of consumers reported they are budgeting more than last year.! Consumers are engaging in conservative shopping strategies.

! 77% always look at sale items before non-sale.! 50% always look for the cheapest product possible.

! Consumers are spending more time and using more channels to look for deals.

68% 68%

70%

72%

73% 73%

January 2006-October 2006

January 2007-November 2007

October 2007-December 2008

November 2008-December 2009

October 2009-December 2010

October 2010-November 2011

Key Takeaway: Value conscious consumers will appreciate the low prices big box retailers offer butmay migrate to online retailers if they find a better price.

Households using of cents-off coupons


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In the post-recession economy, consumers values are changingto adapt to new realities.

In light of the 2008 recession, many consumers

changed their spending habits to seekdiscounts.

28% of consumers reported they began value-seekingafter the recession. Of those, only 17% do not plan to

revert back to original buying habits.

Consumers are more willing to live with less.

32% increase, 13% do not plan to revert back to oldhabits.

More consumers are becoming comfortable

choosing private label brands over store

brands.

27% increase, 14% do not plan to revert back to oldhabits.

Key Takeaway: Consumer shopping attitudes may be undergoing a long-term shift to valueconsciousness.


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Price is one opportunity area for traditional brick and mortar storesto compete with and offer the same value as an online competitor.

! 53% of consumers prefer shoppingonline because of lower prices after

delivery. (This suggests that some still

see shopping offline as cheaper

because of high shipping costs)

! 32% of consumers also like onlineshopping because it is easier to

compare prices, something

replicable offline

! 20% of social mentions involvedconsumers seeking the best price;they conveyed irritation with

inconsistency between physical and

digital store fronts.

[email protected]'t

matchmypricefromtheirwebsiteonacamerathat'soutorstockonline

that'sinstorefor$100more

@Walmartwon'thonoritsownonlinepricesforitemsitsaysithas

availableinstoreatthatprice.Whata

bunchofcrooks.

@TargetStoreinCliPonarkcharges

25%moreonsodastreamsyrupthan

theyquoteonline.Managercites

"shippingcost"shoppingelsewhere


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Wide selection and availability of new items are also an inherent advantageto e-commerce, which is a bigger challenge for physical storefronts toreplicate without an innovative way to stock items.

! 44% of consumers prefer to shop onlinebecause of a wider selection than what

they can find in store

! Stores may lack the quality and diversityof items that consumers are looking for

! 11% prefer shopping online because ofavailability of new items

! Over a quarter of social mentionspointed to product availability, often

items that are out of stock in-store and

pointing out frustrating inconsistencies

with availability online

@itsnobigEYoucouldeithergotoany

videostoreandfindacopy,targetmay

s+llsellit,andthenthere'salwaysthe

internet

@Malwi27WellWalmart,BestBuy,

futureshop,havejustihone5cases.

ButI'morderingabe^eroneonline.

ReallysickofgoingtoshopslikeTarget

andneverfindingbasicslikeironing

boardsstocked.Andtheywonderwhy

peopleshoponline

DammitWalmartyou'refailingme!

ThecurtainsIsawonlinearen'tin

store.Foundsomeinstoreondisplay,

soldout.W!!!


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Consumers are overwhelmed by the vast number of options availableand are turning to people they trust for help making decisions.

! As more and more products, services, and innovations are introducedinto the market consumer choice has increased drastically, while the

amount of time they have to shop has not.

! Consumers want help in their decision making, so they are turning toinfluencers friends, celebrities, thought leaders.! Consumers like the abundance of options, but dont like theinconvenience of searching through all of these options to find what

they want.

Key Takeaway: Consumers may find big box retailers overwhelming because of their large size andselection.


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Convenience is a huge advantage inherent to online shopping thatdrives consumers to shop online rather than visiting a store.

WalMartbrokeme.Hadeverythingon

thelist,butcheckoutlinewas2hrs

long.Goinghometowatchamovie&

shoponline.Effushopping.

IfyoushoponblackFridaybesmartandshoponlineinsteadofenteringa

Walmartwithpeoplepepperspraying

andtramplingeachother.

@kingsoflukeNottoworry...justonemorereasonformenottovisit

@Walmart.Manyalterna+vesonline

andlocal.Won'tmissthehassle.

! 57% of consumers prefershopping online because they

can shop at home

! 47% said because they like theconvenience of home delivery.

! This is also consistent withsocial insight, where 54% of

consumer mentions talked

about the convenience factor

especially during the holidayseason.


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Consumers still highly value the experience and sales associatesassistance while shopping in-store, so proper service training is crucial.

Key Points

! 48%: I research online a lot oftimes but often follow-up with a

store visit.

! 40%: A savvy store associate cansometimes impact my selectionmore than a website.

! 36%: My smartphone is a greattool when I am shopping at local

stores.

! 29%: At the end of the day thestore is more convenient and

offers me a better experience than

online.


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Despite having fewer resources, millennials place a great deal of valuestatus and success.! While millennials report spending less on

unnecessary items, they also report

purchasing luxury items they cant afford.

! Additionally, 29% of millennials surveyedreported they will sometimes buy luxury

items even if they cant afford them.

! 50% think personal success is the mostimportant thing in life.

! Special status membership programsappeal to 26% of this group . Source: Mintel

Base: 2,000 internet users aged 18+ including 664Millennials

Key Takeaway: Millennials may be less interested in big box stores that have a less luxuriousstigma. Conversely, stores that make status attainable may see big gains in this group.


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Consumers seem to feel that big box retailers dont have food that is as fresh andhealthy as local or natural markets, and are willing to break away from one-stop-shop convenience to seek higher quality products.! Consumers score online grocers, big box retailers, and national supermarket chains the lowest

in trusting that they will provide local food.! Nearly 30% of shoppers said they would shop elsewhere if their store doesnt carry localproduce.

! Interests in shopping local stem from the beliefs that it helps local economies (66%), it isfresher and with more variety (60%), and is healthier (45%).

! There is a growing interest: 95% of single urban households say they are willing to pay more forlocal food, and 68 to 67% of senior citizens and middle income families are willing to spend more.


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How are disruptive innovations addressing currentconsumer needs? How have big box retailers copiedthese innovators?


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Discovery commerce like Birchbox, Disrupting the Cosmetic Industry

! How it works: Consumers receive a small box of high-end beauty supply samples, aYoutube channel gives product demos, and the website gives tips & tutorials for

consumers to discover new favorite products. Clients are active on social media:

Tweeting or Instagramming photos of their new boxes.

! Why it Disrupts: Rather than buying full-size versions in-store and finding productsthrough trial and error, studies show that many women become interested in newproducts based on recommendations and borrowed samples from friends. Birchbox

gives its clients the essential touch and feel element and subscribers can relive this

discovery experience with small, inexpensive samples.

! Find a niche by addressing a gap in consumer wants. Co-founder coins the termDiscovery Commerce: It isnt subscription because it doesnt live and die by the box.

It isnt media because it makes money through the old fashioned selling of actualgoods. Its really good marketing with a seamless transition to buy. Birchbox has

figured out a way to get women to pay money to be marketed to.


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Competitors taking note: The discovery model is not just limited to the cosmeticmarket, and has been replicated by other brands in multiple different ways.! Walmart Goodies win customers by having the lowest priced box ($7/month for 6-7 organic,

local, or ethnic goodies) and offering exclusive items not yet on shelves. It simultaneously

combines the subscription model with market research by having its subscribers vote theirfavorite products onto shelves.

! STORY has been called the store version of Birchbox and capitalizes on the discovery model bychanging out all of its brand-sponsored merchandise, design, and fixtures to a different story-

based theme every 4-8 weeks. It reinvents the shopping as an experienceand customers keep

returning to discover new experiences.


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! How it works: Consumers can physically sample a product in-store before deciding onpurchasing the product wherever they can find the best price.

! Why it disrupts: Consumers are weary of purchasing certain products online at a goodprice without having an idea of what it will look like, particularly as an increasing

number of consumers show that they are skeptical of reviews.

Amazon Showrooming, disrupting the in-store purchasing process


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Amazon Showrooming, disrupting the in-store purchasing process

! Competitors taking note: Big box retailers price-matched online competitors startingwith the 2012 holiday season. While many retailers jumped on the price-cutting

bandwagon, Restoration Hardware decreased the number of stores and the remainderwere arranged as showrooms, catering to specific aesthetics.

! A Necessary Risk to Keep Up? The result of price matching is that both companies willhave slim profit margins, and this may be financially unsustainable in the long run.

Restoration Hardware has capitalized on the essential look and feel aspect of their

merchandise that is unlike electronics and harder to search using specifications,making showrooming an asset reporting double-digit sales growth for the past 10

quarters.

A t d R lit d f t h i d di t th d


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Augmented Reality, defeats showrooming and disrupts the needto visit a store entirely.

How it Works: Users can simulate realityby integrating where they are standing witha 3D image of a product. Many models are

still developing, but the most popular way is

to create an app users can download.

What is Disrupts: Some think this may completely revolutionize e-commerce. Once augmentedreality develops more realistic integration, consumers can conveniently access the information theyneed about products and how it looks without ever stepping into a store.

What it Provides: Consumers are looking for ways to have the most accurate information about aproduct that they can buy at their convenience.

Competitors taking note: Most AR has been used to create interactive marketing campaigns.Maybelline developed an app that lets users test 40 nail polish colors. Airwalk takes AR to stores:invisible pop up stores that is. Part of its campaign let consumers shop shoes by going to popularpublic spots and using the app to find shoes and shop.

C f h h l h f d F i l l f d


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Consumers want fresh, healthy food: Farmigo partners local farmers ande-commerce to make the farmers market easier and mainstream.

! How it Works: Communities order desired produce, meats, and dairy from several farmers in a 100-mile radius and receive fresh products within 48 hours. Different from community-supportedagriculture because it is not limited to just what is in season (choice a key component for shoppers).

! What it Disrupts: As consumers are more concerned about healthy eating and sustainable localcommunities they sacrifice convenience and for higher quality products found outside the one stopshop model but still more convenient than visiting multiple farmers.

! What it provides: Founder got the idea after research showed 20% of the population would shop atfarmers markets weekly if they were more convenient. The US Department of Agriculture said thatthe number of direct-sales markets has increased 9.8% just in the past year.

! Competitors Taking Note: Consumers are less trusting of big supermarket authentically offeringfresh produce. Walmart creates a new brand and local food section, and plans to double local foodoptions in all US stores by 2015.

St G i Vi t l P d d St &Sh dd i th i


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! Why it succeeds: Peapod co-founder says: The averagecustomer spends $160 per order on the Internet. Those who shopexclusively using a mobile device [including tablets] spend$165per order Given that Peapod shoppers order roughly every two

weeks, its a significant incremental bump in sales.

! Competitors taking note: Walmart and grocery stores likeDominicks have started their own trials.

Stores are Going Virtual: Peapod and Stop&Shop are addressing the growingexpectation of consumers to have access to what they want when they want it

! How it works: 2 models: 1) Scan QR codes of items on a billboardor digital board and set up a delivery date, 2) Stop & Shop stores

let customers scan, learn about, and purchase immediately

! Why it Disrupts: Building entire stores are no longer necessarywhen stocking is as simple as reserving a wall space to place a

billboard or digital storefront.

! Fills the gap: Improved convenience and opportunity for differentlocations that appeal to multitasking commuters. Digital

storefronts can stock new/popular items and hide unavailable

items immediately, and there is even the possibility for interactive

interfaces. May prompt more spontaneous shopping with no

physical exchange or items.

Bi b t il d ll b i h th i l d f th t


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Big box retailers and small businesses have their eyes peeled for the nextdisruptive innovation that will make shopping easier and faster than ever.

Hointer streamlines its small store by only having one of each style jean displayed, Expeditingthe in-store shopping processConsumers use an app to choose the size and color they want to try, and a robotic system

drops these pants into the dressing room. If they fit, consumers simply swipe their credit card

on the reader and bag their new jeans.

This allows consumers to choose the exact

item they want and shop without the hassle

of sorting through unwanted items.

Bi b t il d ll b i h th i l d f th t


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Big box retailers and small businesses have their eyes peeled for the nextdisruptive innovation that will make shopping easier and faster than ever.

The same technology found in passports has been rolling out into department stores like Macys and

JC Penny: RFID Tags instead of Barcodes.

The pragmatics of RFID tags is that it allows retailers to track every piece of inventory without

needing direct scanning contact, and it gives very valuable consumer insights.

By 2014 JC Penny hopes to have RFID storewide to

eliminate traditional check-out stations. Consumers

can shop quickly and easily by being able to check out

anywhere, anytime, including self-checkout.


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Thank You

intern project 2013 - do big box retailers need to compete with a new kind of competitor?

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