Canada: Setting The Stage Through Innovation - Retail Trends Report

Last Updated: July 24 2012
Article by Alain Michaud

Digital transformation and customer demand are top of mind for many retail companies. In the wake of depressed consumer spending and demand where retailers were extremely cautious with their investments, organizations are reassessing their strategic priorities and mobilizing to adapt and respond to the ongoing market changes. Going forward, retailers are cautiously shifting back into growth mode and are looking for ways to achieve sustainable competitive advantages, despite ongoing challenging economic conditions.

Success, however, won't be driven by reactive growth strategies. It will be created by innovative-thinking, adaptability and ability to transform. Looking at trends, retail growth will be realized by those who are ready to address and harness change – the drive for multichannel integration, mobile technology, enhanced customer brand loyalty, market expansion, and increased focus on personalized shopping experience and customization of products.

Importance of multi-channel integration

Retailers are adjusting to the number of retail channels available to customers. Customers are increasing pressure on the industry sectors to provide personalized and customized experiences and products. It's clear that customers are leading and shaping this trend with retailers following. So how can retailers close the gap? It requires agility, flexibility and a better understanding of customers. Companies that successfully develop and implement new means of tracking and analyzing customer behaviours will ultimately have a better understanding of which products customers will be most likely to buy and how to effectively drive traffic into stores to see what's new and fresh. Companies that will survive are those that support and revamp their organizations to meet consumers' ever-growing expectations.

So just what is "multi-channel" retailing? It's the ability to meet your customers shopping needs and wants in whichever platforms (or channels) each individual consumer prefers at any given point in time. Whether it's in-store, where the customer has a hands-on experience browsing through the latest trends and being able to touch the fabrics, or shopping from a merchandise catalogue that's specifically targeted to customers who prefer shopping from home in an offline manner (including inexpensive/free shipping and prompt delivery), it's about a personalized and customized experience. It's the ability to have a website recognize that the visitor is on a tablet or mobile device, and render content to adjust to the channel and to deliver a fast, seamless experience so the customer can complete their browsing or purchasing in the three minutes they have waiting in line for their morning coffee. It's also providing customers the opportunity to download an app for their mobile device, giving them more functionality – without using the browser – so they get the best experience while doing business (or preparing to do business) with you. Most importantly, it's doing all these things at once. If you're not, odds are your competitor across the street is, or soon will be.

Retailers know the importance of having a presence in every channel – online, in-store, on mobile devices, and through social media. Success, however, demands that customers feel the same brand in every channel, that the experience be equally engaging across all channels, demonstrates an understanding of the customer, and effectively tailors the experience to match the customer's individual needs and tastes. A seamless experience leads to painless transactions, repeat customers, increased loyalty, and growth in sales and profitability.

Enhance customer relationships and brand loyalty

Customer loyalty is one of the most important assets a company can develop. Loyal customers create repeat business, with typically higher (and more profitable) spending than that of new customers. Loyal customers are your most effective sales and marketing team, spreading the word about your business to everyone in their networks. Investing in rewards programs alone won't lead to loyalty. Investing in a positive customer service experience will be critical for retaining customers. So it's important that retailers understand their customers' wants and react accordingly.

On the rise Canadian companies are using crowdsourcing technologies to support market research initiatives. They're leveraging the intelligence, innovation and passion of their most loyal customers to better meet the needs and expectations of their broader customer base, and build their brand. Companies are using the social web to their strategic advantage. By listening to different groups of customers across various outlets, they can define (or even redefine) their product offerings and brand. This allows companies to better leverage point-of-sale data to drive advanced analytics for decision-making. As a result, retailers can identify both broad trends and narrow, focused nuances that drive differences in purchasing patterns. Feeding this insight back into the buying and planning cycle allows retailers to further refine and customize the retail experience – giving customers what they want – sometimes even before the shopper realizes she had a need.

Several US-based companies that are doing just that include ModCloth.com, Threadless.com, and Rent the Runway, which all focus on tailored products and/ or experiences. Increasingly, we're seeing a growing presence of crowdsource-based companies in Canada that are leveraging innovative-thinking and feedback from the community to build their own brands.

Buyosphere.com – Buyosphere connects people with the knowledge about "stuff," where to find great deals or interesting pieces, with people who don't know where to start. Buyosphere is based on four pillars: ask, answer, add and discover. Through these pillars members find a wealth of shared knowledge and collaboration – the website's success is based on the engagement of people and their contributions.

luboh.com is privately owned and based in Vancouver. Luboh offers customers the experience of helping socially aware shoppers share their own experiences with each other. The high powered search engine combines social media and crowdsourcing by allowing users to easily find a product or service that they want to share on Facebook. As a result, the users (or customers) advertise, market and sell the merchandise for the associated brand company. They become evangelists of the goods and services.

TrendHunter.com – with a tagline of "supercharge innovation", TrendHunter is based in Toronto and is the world's largest trend community. With daily features of micro-trends, viral news and pop culture, the most popular are then featured on Trend Hunter TV and grouped into Trend Reports for professional innovators and entrepreneurs. TrendHunter offers a venue for people to share ideas and get inspired.

GeniusCrowd – founded in 2010, Genius Crowd was created on the principles of collaboration and sharing. Used by students, moms, dads, DIY'ers and cooks, it's for everyday people who have a product idea but don't know how to bring it to market. Ideas are submitted to the site for free, then the community critiques and chooses their favourites. A panel of Genius Crowd employees, manufacturers and retailers then research the idea against market demand, its potential marketability and select the most successful inventions. Genius Crowd then helps in developing it into a commercial idea and market potential. Both the inventor and web tool share in the profits.

Building customer loyalty and a sense of community through collaboration and relationships is critical to the success of these websites. Customer involvement drives sales and helps avoid inventory overstock and markdowns. Seamless operations, customer value and targeted market focus increase the rate of repeat purchases. This process changes products from being commodities to an experience, community, commitment and loyalty-based service.

Sifting through the numbers – driving insight from data

When managed properly, the vast amounts of transactional data available to retailers can be used in powerful ways to change the customer experience, engage customers and be relevant. With the increased emphasis on technology and billions of mobile device subscriptions worldwide, people have more access and are interacting with more information than ever before.

Retail, perhaps more than any other industry, is creating exponentially more data at a lower level of granularity than it did several years ago. Every point of sale purchase, credit-card transaction, website visit, and banner ad click are creating mountains of data that can provide unimaginable insight into the behaviours of not just demographic groups of customers, but for each and every customer a retailer has uniquely identified. By drilling down to the individual customer level, it's now not only easy to identify which items typically sell (or don't sell) in the same transaction, leading retailers can identify specific patterns and trends, and recognize when individual customers deviate from those trends. Such deviations may be indicative of changes in a local market, causing a shift in buying behaviours and necessitating a change in marketing and pricing strategies, or they could represent an unforeseen opportunity for retailers.

Major shifts in well established buying patterns often indicate preparation for a major change or life event for a customer, such as moving into a new home, getting married (or divorced), or having a baby. Locking in a customer at that life event nearly guarantees a long, profitable future revenue stream. The trick is being able to identify what life event is associated with the change in pattern and market to them prior to the actual event. Care must be taken, however, to camouflage the intent. If a marketing department creates a customized mailer for shoppers believed to be preparing for a move that is comprised solely of new home products and packing materials, or a baby-focused catalogue for women predicted to be pregnant, they risk alienating the customer. Some retailers have avoided this by intentionally creating a mix of 50-60% highly relevant products with products which are recognized to be either only slightly relevant, or in some cases intentionally irrelevant to disguise the true intention of the promotional material.

So how can you identify and react to customers' purchase behaviour to provide appropriately targeted offers that are appreciated and successful, but not disconcerting to customers? Customers can be overburdened with special offers, coupons, promotions and products. Make sure information sent is appropriate, personal and that you're communicating effectively with your customers: frequently, but not so often as to overburden, and with a mix of products and offers that's relevant, but not creepy. Fall too far on either side of the extremes, and you run the risk of customers unsubscribing or losing them completely.

Leveraging mobile technology to connect with customers

While not yet omnipresent, mobile technology, whether it's a smartphone or tablet, is becoming more common and integrated into Canadian daily routines.

Such pervasiveness certainly has significant impact on retail. As retailers consider the influence of mobile devices on shopping, the risk to profit erosion from apps like: Coupon Sherpa" which allows customers to find and use coupons at checkout, RedLaser which enables customers to price compare products prior to purchasing or Amazon's app which allows customers to scan bar codes, price-check and instantly place an online order with ease, while the customer is shopping in the store, seem predominant. Yet today's customers are more focused on instant gratification, so perhaps the best defence against lower online prices is the in-stock availability of relevant goods and services that your customer can see, touch and have right now.

Another important defence against price competition is a focus on engagement. Between mobile and social technologies, retailers now possess the ability to truly interact, not just transact, with customers in real-time (or at least near-real-time). More customers are exhibiting what some call "digital narcissism" by posting or tweeting everything they're doing: where they're going, what store they just entered, what they're shopping for, and the in-store experience (good or bad) they just had. Customers now hold the power to make or break the reputation of a retailer. If a customer has a good or bad experience, within seconds they can use mobile technology to spread the word instantly.

This represents an opportunity for retailers to engage with customers or lose them to a competitor. Retailers can now reach customers at any time – through social media, email or their own mobile apps – and share ratings and reviews, alerts for online specials or sales, coupons and store information. It's an opportunity to not only drive traffic to the store, but to provide value through relevant information, reviews by both experts and fellow shoppers, accurate inventory visibility, targeted offers based on customers' locations, exhibited behaviours and declared interests. Customer care, in-stock position, and seamless operations have never been more important.

Opportunities and challenges in emerging markets

Emerging markets are an opportunity for retailers looking to capitalize on consumer growth and buying power in countries such as China and India. Together they'll account for two-thirds of the expansion. Cross-border expansions often fall short of expectations. One of the key reasons is a failure to recognize (or to recognize early enough) the gaps in internal capabilities, talent and an understanding of the cultural nuances of the target market. Taking the time upfront to conduct an unbiased assessment of one's own organization against the skill sets, capabilities, infrastructure required to engage and delight customers on a market by market basis is key to transforming potential failures into success.

Even with all the right resources in place, two areas of risk that are often overlooked are IT and legal. Dealing with multicurrency, multi-language and differing tax law issues can complicate the technology requirements from in store point-of-sale to web. Ensuring the proper country specific top-level domains is a requirement for maintaining your brand.

In the next five years, retailers are expecting to have more than 15% of sales coming from international markets. Sales are expected to come from countries where brand expansion is easier to manage.1

Never underestimate the importance of "retail basics"

While these trends will help set the stage for growth, high standards across key foundational components of retail must be maintained: having the right product, in stock at the right stores (whether brick and mortar or virtual), at the right time, and on a consistent basis. There needs to be a strong assortment of trendy products that present customers with options: colours, sizes, durability and accessibility. Advertising needs to be engaging. Merchandise must be well-presented in easy-to-shop stores that are conveniently located for your customers. Pricing needs to be compelling for customers and competitive with other local retailers. In-store associates must be knowledgeable and helpful, able to answer questions intelligently while making shoppers feel welcomed in the store. Without these basics in place with consistent application, undertaking a "digital transformation" will be fruitless.

Adapting to change for future success

Customer engagement has the potential to be one of the most valuable means for profitable growth. As the level at which consumers feel the need to always be connected continues to rise, retailers most consciously focus on meeting that need by connecting with consumers in ways that extend beyond traditional commerce.

As the retail and consumer industry continues to evolve, the rise of the digital transformation of society continues to intensify. Companies that successfully understand and adapt to their customers' changing expectations will be the ones who maintain a sustainable competitive advantage and growth in the next few years. Innovative thinking and adaptability, demonstrated by the ability to meet customers' evolving needs and expectations, will be the hallmark of this decade's retail leaders. Never has innovation through every level of an organization been more essential.

Footnote

1. PwC Canada. "Ringing the register: Key growth strategies for retail CEOs." p.6.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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