the future of shopping

the future of shopping

Back in 2012, I wrote a piece titled, “Five Trends Driving Traditional Retail Towards Extinction.” Looking back, I’m generally happy to see that the trends I examined are still valid, though “extinction” might be a little strong.

Living in New York provides a firsthand view into the petri dish that many of these companies use to experiment. So almost two years later, I’ve revisited the space to focus on three more trends that are changing the way we shop. (I’m leaving out an exploration of mobile for the moment, since it’s probably worth its own post.)

The Macro View

First, a brief look at the bigger picture. Last month marked Amazon’s (AMZN) 20th anniversary, which is kind of amazing to think about since e-commerce seems both very new and indispensable at the same time. Either way, the world has had plenty of time to digest the trend.

It makes some sense then that the pace of e-commerce growth appears to be decelerating in both the developed and developing worlds. I should note that a deceleration in the developing world means going from say, 94 percent year-over-year growth in China in 2012, to 64 percent in 2014. Those are still monster numbers, and there’s still plenty of land to grab, but the peak growth rates appear to be in the rearview.

In the U.S., the pace of growth is a more stately 14 percent. The sector attracts a healthy sum of sum of venture money — nearly $1 billion in Q1 of 2014, according the National Venture Capital Association. But all of that strength doesn’t mean that the future of shopping is as simple as buying everything online. Consider our first trend:

Location-Based Technology for Stores

For online retailers, it’s always been relatively easy to gather data about customers. If you run a Web company you can track all kinds of information about shoppers who visit your site — where they’re located, how they reached your page, what they look at and where they get held up during the shopping process. This helps e-commerce companies adjust tactics quickly to maximize sales.

For brick-and-mortar stores, that kind of granular data has been harder to come by. Location-based technologies promise to bridge that data gap. Apple (AAPL) recently introduced iBeacon, a set of small sensors that can be placed around stores to track and communicate with customers’ iPhones. Startups like Estimote, Nomi and inMarket sell similar technology to retailers.

What does this look like? Let’s say these beacons track a spike in foot traffic near a rack of bathing suits in a high-end department store. But that foot traffic isn’t prompting a comparable increase in sales. Are customers intrigued by the style, but put off by the price tag? If that’s the hypothesis, the store can ping each shopper who approaches the section with a 10 percent discount on the bathing suits. If the hypothesis was correct, customers now buy more bathing suits and the company can subsequently reduce the bathing suits’ price to increase sales.

This kind of technology helps brick-and-mortar retailers to optimize their store layouts, pricing, and improve ad campaigns. It also figures heavily into the next trend.

Omni-Channel Retail

Since e-commerce first started gaining traction in the late ’90s, nearly every brick-and-mortar brand in the country has developed an online sales strategy. But traditionally, it hasn’t worked in reverse. Amazon, eBay (EBAY), Blue Nile and other online pioneers never opened up physical shops for customers to browse items.

That’s starting to change as more and more e-commerce companies warm to the benefits of brick-and-mortar. Warby Parker, a sunglasses brand that started out online in 2010, has set up six stores since opening its first in Manhattan’s SoHo neighborhood last year.

Customers buy way more stuff if they can see, feel and try on items. Andy Dunn of Bonobos, a men’s clothing brand that started out as an e-commerce company in 2007, told Bloomberg that only 5 percent of visitors to the company’s website make a purchase. In its 10 stores, that number is 83 percent.

Other online companies like Etsy, Everlane, Birchbox and Harry’s have also dabbled in setting up physical stores, often experimenting with temporary locations or popup shops.

Meanwhile, traditional brick-and-mortar brands are getting smarter about integrating online efforts with their physical outlets. Nordstrom (JWN) sets the pace among department stores. It bought HauteLook, a flash sales site, for $180 million in 2011 and invested $16 million in Bonobos. Web sales at the company grew 33 percent last quarter, and it’s using brick-and-mortar locations as distribution centers for fast shipping.

Other retailers are following, at the least integrating online and store inventories. The latest crop of tablet-ready POS systems — like Lightspeed, Revel and Tulip Retail — help streamline the process.

Top Brands Now Start Online

For years, one name has struck fear into hearts of young e-commerce entrepreneurs: Amazon. The online retail giant has a reputation for ruthlessly competing against upstarts, undercutting them on price and diverting millions of marketing dollars to drive them out of business.

So how do you build an Amazon-proof online retail business? In short, make your own stuff. (Bessemer’s Jeremy Levine pointed this out in an interview last year.) More and more, online brands emerge that control every aspect of their businesses, from design and manufacturing to technology and distribution.

So instead of taking clothes from, say, Calvin Klein and selling them over the Web, companies are now making their own clothes and creating their own brands. This control allows them to match traditional competitors on quality while undercutting them on price. There’s Warby Parker for sunglasses, Chloe & Isabel for jewelry, Chubbies for shorts, even MeUndies for underwear and Tuft and Needle for beds. The biggest retail brands of the next decade are being built online, right now.

Barneys shoppers

Barneys shoppers

Barneys has agreed to pay $525,000 to resolve allegations that minorities were singled out as suspected shoplifters at its flagship store, part of a spate of racial profiling complaints against major retailers last year.

Barneys shoppers and ex-employees complained that detectives followed minority customers around — even after staffers identified them as frequent patrons — and disproportionately investigated their credit-card use, so much so that some salespeople even avoided serving minority shoppers so as to avoid getting calls from store investigators, state Attorney General Eric Schneiderman said Monday in announcing the settlement.

Besides the $525,000 in fines and expenses, Barneys will hire an “anti-profiling consultant” for two years, update its policy and record-keeping on detaining customers suspected of theft, and improve training of security and sales personnel.

“I feel very vindicated today. … Finally, Barneys appears to have conceded that they unreasonably followed, stopped and detained people who look just like me in their stores,” shopper Kayla Phillips said in a statement released by her lawyer, Kareem R. Vessup.

Phillips, who is black, came forward last fall to say she was surrounded by police officers upon leaving the store after buying a $2,500 handbag in February 2013 with a temporary debit card. Police ultimately let her go.

Barneys CEO Mark Lee said in a statement that the company was pleased with the settlement, first reported by the Daily News.

Barneys New York has prided itself on providing an unparalleled customer experience to every person that comes into contact with our brand — open and welcoming to one and all,” Lee said.

Schneiderman’s investigation came after public complaints last fall from Phillips and another Barneys shopper, Trayon Christian, who also is black. Both sued the store and the city.

Christian’s lawyer noted that a review last fall — commissioned by Barneys — had found the store didn’t have a written or unwritten policy to profile customers.

“We are pleased that Barney’s has acknowledged their responsibility,” said Christian’s lawyer, Michael B. Palillo. “We are hopeful that this offensive and discriminatory conduct will finally come to an end.”

Civil rights activist the Rev. Al Sharpton met with Lee to discuss the issue, and the furor spurred an online petition asking rapper Jay-Z to drop his collaboration with the luxury retailer on a holiday collection. Jay-Z ultimately decided to move forward with the project, which raised money for his charitable foundation, under the condition that he helped lead the store’s review of its policies.

Sharpton said in a statement Monday that Barneys’ agreement with the attorney general was a “move in the right direction,” but continued vigilance is needed.

Meanwhile, minority shoppers — including actor Rob Brown — made similar complaints last year against other New York stores including Macy’s (M), which had paid a $600,000 fine and promised changes in 2005 after the then-attorney general made similar claims. Macy’s and the “Treme” actor reached a settlement in principle last month in his federal civil rights suit over the matter, both sides said, declining to detail the terms.

In December, Barney’s, Macy’s and several other major retailers agreed to create and publicize a customer bill of rights. Sharpton’s National Action Network plans to send people into stores to spot-check compliance, he said Monday.

 

the Wright Brothers brand

the Wright Brothers brand

Entrepreneurs in the Wright Brothers’ Ohio hometown are counting on the names of the aviation pioneers to help generate profits — and raise money to help support local historical sites.

Last year, Wright Brothers USA of Dayton became the first business to license retail goods in the name of the Wright Brothers. That started with the blessing of Amanda Wright-Lane, great-grandniece of the Wright brothers, and her brother Stephen Wright.

The company is now using an international website to sell American-made bicycles, aviation jackets, sunglasses and more, according to the Dayton Daily News. American-made bikes and watches under the brand were offered by Michigan’s Shinola last year. Those quickly sold out.

Now the company is seeking investors to start an e-commerce site and start manufacturing products in Dayton, Florida, California and elsewhere.

The company seeks $750,000 to start the site and another $350,000 to refurbish the Wright Cycle shop, preparing it for bicycle production and hoped-for tourism. They also want to build a park next to the shop commemorating the famous brothers.

The licensing strategy is more than a business move. Revenue from the business also supports the Hawthorn Hill mansion in Oakwood, the former home of Orville Wright, and historical aviation sites around Dayton. The Wright Family Foundation will receive 40 percent of royalties from products sold under the Wright Brothers brand.

Scan & Go

Scan & Go

Walmart thought shoppers would jump at the opportunity to use a smartphone app to scan items they want to buy as they walk through store aisles. In theory, they could speed through self-checkout.

But customers had trouble using the “Scan & Go” app during tests in 200 stores, so Walmart nixed it.

Instead of looking at the app as a failure, though, Walmart took what it learned from “Scan & Go” to create another service: It found that customers like being able to track their spending, an insight that became the impetus for a program that enables shoppers to store electronic receipts.

The story behind “Scan & Go” illustrates how traditional retailers increasingly are using the nimbler approach to innovating that Silicon Valley startups are known for. Rather than perfecting a program before rolling it out — as most retailers do — they’re doing more testing and refining as they go along. If the tests work, they’re rolled out nationally. If they don’t, retailers shutter them and incorporate what they learn into other projects.

The test-and-learn approach comes as retailers face intense competition for U.S. shoppers, many of who are still struggling financially. Walmart, for instance, has had sales declines at its established U.S. discount stores for over a year. The industry also is fighting to keep pace with rapidly changing technology and online retailers like Amazon.com that lure customers with low prices and beefed up services.

“Retailers need to fail often and learn quickly and adapt and then adopt,” said Lori Schafer, executive adviser at SAS Institute, which creates software for retailers.

Here’s a look at some Walmart tests and what it’s learning from them:

Delivery

The Details: Walmart is testing same-day delivery of groceries, fresh produce and other products in San Jose and San Francisco in California and Denver. Shoppers select a time slot and their items are delivered on the same day if ordered by 8 a.m. Delivery fees range from $3 to $10.

It’s also testing same-day delivery of only general merchandise like toys and TVs in Northern Virginia, Philadelphia and Minneapolis if ordered by noon. Customers pay $10 for an unlimited number of items.

In January, Walmart began offering customers the option to order online and pick up their items in stores in Denver.

What Happened: Walmart Stores (WMT), which is based in Bentonville, Arkansas, said that same-day delivery has been well received. But in Denver, the pickup option is growing faster than home delivery. Executives reason that shoppers don’t want to be holed up at home waiting for deliveries. It doesn’t have any plans to roll it out nationally yet.

Lessons Learned: Ravi Jariwala, a Walmart spokesman, said the retailer is encouraged by the results of the tests. “We’re trying to understand how we can provide convenient options for customers to shop online for groceries,” he said.

Subscription Service

The Details: In late 2012, Walmart launched Goodies.co, a mail snack subscription service that lets shoppers taste five different surprise snacks that weren’t sold on the discounter’s shelves for a monthly fee of $7. Walmart then solicited feedback from customers in the site’s social community so that it could use the responses to spot food trends.

What Happened: Goodies.co closed down a year after it was launched even as the subscription business has been a hot area as companies test shoppers’ appetites to have everything from socks to razors to beauty products delivered on a regular basis. For some services, the exact products remain a mystery until they’re shipped.

Walmart declined to elaborate, but analysts say Walmart customers weren’t interested in paying for surprise items.

“I think any subscription service Walmart puts forth has to be aimed at the sweet spot of their shopper — straight up groceries and toiletries,” said Scott Shamberg, a managing director at Chicago-based TPN, a retail marketing agency.

Lessons Learned: Walmart said it learned how to interact with customers in soliciting feedback on new products and launched an invitation-only review program for the winter holidays to get input on a curated list of products. It’s working on another iteration of product reviews.

3-D Printing

The Details: Last November, Walmart’s U.K. operation, ASDA, began testing 3-D printing technology that allows shoppers to get 8-inch figurines themselves. The cost: 60 pounds, or $100. The service moved around from various stores, but in June, was officially launched at one in Manchester.

What Happened: ASDA spokesman Russell Craig said the test has been so popular that the retailer is considering rolling it out to other stores. “It’s become the new family portrait,” he said.

Some of Walmart’s Sam’s Club stores also are testing 3-D programs. Last month, at the newly opened Sam’s Clubs in Montgomery, Illinois, and another outside Fort Worth, Tex., 3-D printers scanned shoppers’ faces and then they had resin printouts of their heads placed on action figure-sized bodies of one of three Marvel characters.

Lessons Learned: Walmart says the tests are the beginning of customization. Walmart’s CEO Doug McMillon told shareholders in June that he can imagine a day when the retailer can print small household items or replacement parts in a store or a distribution center.

Email Marketing

Email Marketing

You are a cosmetics wholesaler dealing in variety of personal care items for women. You do not have a store since you do not sell to retail customers but have an office where retailers can visit to pick up goods or sign contracts. Your advantage lies in the extremely low rates you are able to offer due to your business model of mass sales with low margins. However, your biggest disadvantage is that you are located in a relatively small town where the number of cosmetic retailers is not too many and hence you find it hard to grow your business year on year.

This strategy will help you realize new markets for your product and help you grow your bottom line exponentially.

Who is your customer?

Typically your current customer profile is the small or mid-sized retailer who deals in cosmetic and personal care items either exclusively or as a part of a supplementary convenience store business. Since you are located in a small town, it is unlikely that there will be an organic growth in demand for your line of products. Therefore you must look beyond physical boundaries by finding online retailers of your products.

What is the best thing you can do for that customer?

Running an online business is far more cost effective than setting up a conventional store. However, the online entrepreneur is often inexperienced in matters such as logistics. To make it easier for them, you can offer a drop ship service directly to the end consumer from your wholesale facility, at a slightly extra cost. Also highlight your high margins in all your marketing literature.

How are you going to do it?

Design a seamless backed process on your website which allows smaller online retailers to become “members” of your site. They can then choose from your inventory of products and market them in their own way, through their own websites. Ensure that the backed is robust and well defined with regard to order taking and delivery as well.

Create a database of all your existing customers as well as online retailers dealing in your range of products. Invite them to sign up for your weekly newsletter in order to receive tips and news from the wholesale drop shipping industry. The newsletter should also run regular sections on special discounts on selected products of the week, etc.

Don’t forget to say thank you

Every registrant for the newsletter gets a thank you email that also has a few basic survey questions:

What is the average number of sales made per month?

What is the average monthly turnover for the past 12 months?

What categories of products sell the most on their website?

What do they perceive to be the biggest obstacle to the growth of their business?

When to communicate with your members

Periodical newsletters (weekly / monthly / fortnightly) will help retain your spot as top of mind wholesaler within your industry. Ensure that your newsletter content is interesting and informative. If you are offering any special products or prices before festive seasons like Christmas, you must include notices about these at least a month in advance.

How do you measure success?

Conduct quarterly surveys of your existing customer database to judge their level of satisfaction on various B2B and B2C service parameters. Incentive survey completion with an entry to a lucky draw that can win entrants a lucrative prize.

Build Build Build, Measure new as well as lapsed retail partners on a monthly basis and compare numbers and turnover with like periods across the past few years. The more people that sign up for your drop ship service, the more business youll be doing!

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