As online retailing continues its explosive growth, many have sounded the death knell for category killers. They believe that such companies, which transformed retailing by delivering a compelling value proposition to consumers through expanded assortments, excellent service and aggressive pricing, are being beaten at their own game.

Indeed, whereas category killers had built large stores to offer the widest assortment possible, Internet retailers can offer an even broader selection. Prices online are often lower too; gone are the days when category killers can leverage their scale to offer the lowest available price. Even when they do, many customers assume they can get a better deal by buying online.

But even with these challenges, we think it’s premature to write off the category killers just yet. On the contrary, based on our work helping retailers adapt in order to best meet consumers’ evolving expectations, we believe category killers can turn the tables on online retailers. The key is to refocus on what made them successful in the first place, but in a way that co-opts the best of what can be done online.

Compelling Assortment

Category killers need to once again make themselves the consumer’s destination of choice, and that starts with what’s in the store. No longer can store assortments be comprised of a limited selection of available items; they must instead provide a curated selection of a retailer’s full inventory, one that is relevant to the target audience but localized to the customers who shop that particular location. Nor is the assortment enough in and of itself; the customer needs to engage with the product to have a compelling experience with that product, which can come only from visiting the store.

Sporting goods retailer Bass Pro Shops, for example, features not only outdoor equipment and supplies at its locations, but a themed restaurant, a giant aquarium and a bowling alley. Dick’s Sporting Goods has taken the experience concept a step further, converting one of its Philadelphia locations into a hunting-themed Field & Stream–branded store. With décor that includes two stuffed bears grappling with one another at the entrance, a fireplace and animal heads mounted along the walls, the 50,000-square-foot store features, among other things, a fly-fishing section and an archery room where customers can try their hand at shooting a fake deer.

In designing the store experience, retailers need to do three things:

  1. Enable customers to engage with the product
  2. Reflect the depth and breadth of the products and brands in the assortment, physically and virtually, while also tailoring it to customers who frequent that location
  3. Ensure that the customer can buy the product at the store, either immediately or later that day

The last point is especially important: Don’t forget about the instant gratification of a take-home purchase. By providing the convenience of buying and picking up products from the store, retailers can meet the needs of customers in a way no Internet retailer can match. And even if the product isn’t carried in that particular store, by leveraging a network of stores and what they carry, it’s still possible to provide same-day pickup or delivery. In doing so, the old hub-and-spoke model is transformed into a hybrid distribution network.

Retailers must also find ways to make the entirety of their assortment easily accessible to the customer when they are in the store. Traditionally, customers have either assumed that a retailer’s entire inventory was what they saw in the store, or they asked a store associate to look further. Technology now offers an easy fix. Nordstrom, for example, integrates its in-store inventory with its online inventory to show customers in real time where products are available and when they can get them. The upscale department store is also considering making such information available to its customers while they shop by putting iPads in its changing rooms. Staples, meanwhile, has begun installing in-store kiosks through which customers can both search and purchase more than 100,000 products, with free next-day delivery.

Retailers need to do a better job of exposing their expanded assortments in a more seamless manner. Interactive digital displays and applications on customers’ and associates’ mobile devices will be key tools for providing such information.

Competitive Pricing

No single trend is seen leading to the death of category killers more than showrooming, in which customers go into brick-and-mortar stores to examine merchandise but then go online to make their purchase. It’s a practice rooted in the belief that the lowest price will always be found online.

Category killers don’t necessarily have to always offer the lowest prices, but they do need to win the price perception battle. Different retailers will need to wage this battle differently depending on the category and the competition. The key is to be credible on price, but at the same time make price just one consideration in the larger customer experience.

Best Buy has tackled showrooming head-on by taking aggressive steps to address customers’ price perceptions. “Consumers need to feel they’re not paying any more than they need to,” Scott Durchslag, president of online and global e-commerce, was quoted as saying in an interview published last year. “Being competitive on price involves expanding value to include service and expertise, but flat-out price point is critical.” Best Buy will match (with some restrictions) the lowest price of a product found in a competitor’s store, another Best Buy store or at, but not that of a competitor’s online price.

There is also growing evidence that showrooming isn’t impacting retailers as negatively as first thought. Recent research by customer survey analytics provider Vision Critical, for example, found that of 3,000 social media users in North America and the United Kingdom, just 26% said they regularly engaged in showrooming. In fact, 41% said they did the opposite: browse online and then go to the store to make their purchase.

Still, price perception remains a challenge for retailers and, as such, it must be proactively managed. There are three components to managing price perceptions:

  1. Be clear and transparent in how a product is priced and communicated (e.g., minimize rebates, eliminate hidden shipping fees)
  2. Offer the lowest price when it matters, which means being scientific in how prices and promotions are set by using analytics
  3. Dynamically price products based on the real-time decisions of competitors
Winning Service

Internet retailers have irrevocably changed the consumer’s mindset on both price and assortment, and category killers have no choice but to adapt accordingly. Where category killers will win the war is through a flawless customer experience—something a website can never match. From the perspective of today’s consumer, a retailer gives her a flawless customer experience when it does three core things:

  • Knows me
  • Engages me
  • Supports me
Knows Me

The customer’s shopping experience now begins long before they arrive at the store, with their previous purchases, their search history, social media interactions and more. They subsequently expect retailers to use such information to create a seamless, personalized experience throughout the shopping lifecycle.

Whether through a customer’s mobile device or, in the future, with technologies like facial recognition, a retailer needs to connect with a customer when they enter the store, not just when the customer is checking out. The retailer then needs to use the knowledge it already has about that customer—what they like, what they’ve bought, what they’re looking for—to make the in-store experience more relevant and engaging. And the more personal, the better: Targeted promotions and discounts based on a shopper’s preferences, and sent directly to them via email or text, will help make them loyal customers.

Shopkick, for example, which is used by retailers including Target, Macy’s, Crate & Barrel, Old Navy and Best Buy, is a location-based mobile shopping and rewards app that awards customers with redeemable points, or “kicks,” when they walk into a store. In-store customers at Best Buy can also use the app from RedLaser (which eBay bought in 2010) to see special offers as well as discounted “open-stock” items. The app also allows shoppers to check product features, prices and inventory availability and arrange for in-store pickup or delivery.

Engages Me

Once in the store, retailers need to deliver a service experience that delights the customer and builds affinity with the brand. It starts with education, providing the customer with information about the product and showing them how to make an informed purchase decision. Much in the same way that online-only retailers offer customer product reviews and how-to guides, those with brick-and-mortar locations need to make available similar content on their websites and also in their stores.

The second component of the service experience is getting the customer to interact with the merchandise, either by showing them important aspects of the product or by letting them explore on their own. What’s critical is that the retailer makes clear to the customer the experiential advantages of buying in-store compared to making a purchase online.

Another aspect of the service experience at which to excel is helping the customer. Our research shows that, more often than not, retailers are leaving money on the table because they fail to engage with and assist customers in the store, resulting in subpar performance on key metrics like conversion and cross-selling. One retailer we recently studied generated sales up to eight times higher with customers who were fully engaged versus those who were left to wander the store unassisted.

Oftentimes the failure point is something as simple as not being able to find basic information about the product or not being able to find the item at all. For high-touch retailers, the answer might be to empower store associates to spend more time with customers. For retailers with a low-touch model, it might involve using a technology like interactive digital displays to meet the customer’s needs.

For category killers, we see the need for a revolution, not evolution, in the service experience. The solution isn’t as simple as more training or adding tablets; it requires a wholesale makeover as to how the customer is treated within the store.

A great example is PetSmart, which has transformed itself from a pet supply store to a pet service center with its in-store PetsHotel dog and cat boarding facilities, dog training, pet grooming, pet boarding, Doggie Day Camp, and veterinary hospitals. “We added customer service in a world where customer service didn’t exist,” recently departed CEO Robert Moran told the Wall Street Journal last fall. And it all starts with making it personal. As Moran put it: “We don’t say, ‘How can I help you?’ We say, ‘Tell me about your pet.’”

Supports Me

For retailers today, a successful customer relationship doesn’t end at the sale. Granted, not all customers want an ongoing relationship with a particular retailer, but they do want to be recognized for spending their hard-earned money. Imagine how impactful it would be if, after an associate helped a customer to buy a piece of technology in the store, he followed up a few days later with an SMS asking, “Everything go OK with the install?”

But while it’s important that the customer feel engaged and supported after the sale, any post-sale interaction must be done on their terms. Honoring customers’ communication preferences goes a long way toward establishing trust and, ultimately, solidifying brand loyalty.

How to Proceed

While the first point may seem obvious, failure to do the basics well—maybe as a result of competitive pressures or the need to hit an earnings number—is frequently at the heart of why customers defect from once-successful retailers. Whether it’s making sure a customer can find a sales associate when they need one or making sure that a promoted item is in stock, if a retailer isn’t meeting a customer’s basic expectations, then nothing else will matter. Any turnaround strategy, therefore, starts with ensuring that the retailer makes the changes necessary to deliver against such expectations, which can require not just process changes, but making changes to the core culture of the organization.

The retailer’s focus should then turn to delivering a store experience that will differentiate it from its online and offline competitors. Both Macy’s and Home Depot lost their way with customers and regained their footing by making in-store service excellence a key part of their turnaround strategies. It’s why every time you check out at Home Depot an associate will ask you to fill out a survey to tell them how well they’re doing—because the retailer knows that the customer’s in-store experience will determine whether they’ll shop there again.

Category killers are not being beaten at their own game. In fact, by leveraging the competitive advantage of their established brick-and-mortar presence in conjunction with the capabilities that technology affords them to deliver a truly unique customer experience, they will continue to win.

11 November 2013