It’s easy for brick-and-mortar retailers competing with online retailers to feel like they are pushing a boulder up a mountain in today’s web-driven economy.
Price-conscious, computer-savvy shoppers will almost always find an item cheaper on the Internet than in local stores. While emerging congressional legislation requiring online retailers to collect sales tax will help level the playing field, the Internet will likely continue to have competitive advantages over store retailers in the future, including low physical overhead, inventory and labor costs.
The good news is that not all consumers shop on price alone. According to a Deloitte survey, nearly a third of consumers want to see the actual product before purchasing it, which validates the role of the brick-and-mortar store. Another survey by Ipsos reports that 59 percent of U.S. shoppers prefer to make their purchase in-store as opposed to online or via a mobile device.
The critical components of consumer buying habits are price, customer service and experience. Every consumer weighs these considerations differently, but each store needs to stand out in at least one, and preferably two, of these areas to be competitive.
Use physical advantages
Much has been said about the price advantages of the Internet, but there are many other ways that brick-and-mortar stores hold the edge for consumers. A major advantage is visual and tactile: shoppers can see, touch, sample or try on items. For consumers who have been disappointed by merchandise that didn’t live up to its photos online, this assurance is important.
Customer service is more of a mixed bag. The Internet, with its virtual inventory, often offers a better selection and is less frequently “out” of an item. However, stores offer “real” people to answer questions and offer suggestions on the spot. Plus, exchanging or returning an item to a store doesn’t require repacking, paying for shipping or waiting for an exchanged item. While many retail stores can’t beat the Internet on price, they can definitely demonstrate the advantages of physical sites and in-person relationships.
Service technologies rival the Internet
Many traditional stores are beginning to embrace technology to rival—and even surpass—the advantage of online retailers. For example:
- Home Depot has outfitted each of its approximately 2,000 U.S. stores with First Phones. These Wi-Fi-enabled phones function as inventory trackers, walkie-talkies and cash registers.
- Walmart and Ahold are beginning to install scan-it-yourself technologies in their U.S. stores. Ahold has reported that scan-it shoppers spend an average of about 10 percent more than other customers.
- T-Mobile has installed eye-catching vertical highlight panels featuring monitors with touch screens for customers to get more information on products and try them out.
Besides easing the burden on store checkout personnel, technological devices are expected to boost business. According to Deloitte surveys, 36 percent of consumers would prefer to receive product information by scanning a bar code, while 14 percent would like to use a phone to pay for merchandise. Average retailer investment in mobile and tablet devices mushroomed by 276 percent in 2012 compared to 2011, and 43 percent of retailers cite them as a top digital initiative for 2013 – more than site redesign, multichannel efforts and international growth.
After implementing austere inventory policies during the recession, many brick-and-mortar stores are also expanding their selection in targeted fashions. For example, Family Dollar is in the process of installing freezers in thousands of their stores to better compete with traditional grocery stores and mega-merchants such as Walmart and Target. Early reports have shown that the addition of freezers is attracting Family Dollar customers who are spending more during each visit to the store.
Experiences the Internet can’t match
A store or entertainment venue’s big advantage is a physical presence that permits real—not virtual—interactions with customers. One of the best examples of offering what an online merchant can’t do is AMC Dine-In Theaters, which is reviving the popular “dinner and a movie” night out but rolling them into one venue. At 10 select U.S. locations, AMC is offering one or both of these concepts:
- Fork & Screen, a family tabletop dining experience with reserved upgraded seating and a full menu ranging from crab rangoon dip appetizers, to blackened salmon and chicken alfredo entrees, to New York cheesecake desserts, along with alcoholic beverage service.
- Cinema Suites, an adults-only experience that upgrades the experience further for adults with premium recliners and a 21-and-over age policy.
Rather than fight the convenience of ordering home movies, AMC believes that many moviegoers would like to make the movie experience into a night on the town instead of a night on the couch.
Many retail store merchants are using their physical space to enable product demonstrations and other events that online retailers can’t offer. For instance, Best Buy has launched an in-store interactive kiosk program with gaming headset company Turtle Beach. Many other retailers, including Publix, Whole Foods, Macy’s, Home Depot, Pottery Barn, Apple, Lowes, Verizon and Bass Pro Shops, offer in-store classes, seminars and other activities directly connected to their products.
Designing For success
In-store events may require conference rooms, technology ports and even kitchens that are not traditionally found in “box” stores. These need to be carefully designed to remain consistent with the store’s overall appearance and brand. Designing a retail portfolio to excel in customer service and experience is not only a smart competitive strategy, but it can be more sustainable than reducing prices. Rather than courting low-price customers who only shop at the stores with the best deal, retailers are building a loyal base of customers who are attracted to the retailer’s unique experience.
Consider Chick-fil-A, one of the most successful national restaurant chains in the country. Although Chick-fil-A has grown to become the second-largest quick-service chicken restaurant chain in the U.S., it is not the cheapest restaurant offering chicken sandwiches. Since its founding in the 1960s, the company has focused on innovation and customer service, beginning with the first shopping-mall quick-serve restaurant in 1967. Chick-fil-A facilities are not only attractive and clean, but six new restaurants have been designed for LEED certification.
Going the extra mile is not cheap, and Chick-fil-A menu prices reflect the upgrade in amenities and service. Still, the brand tied for the highest ranking among quick-service restaurants in a J.D. Power and Associates North America Restaurant Customer Satisfaction Study. It also tied with McDonald’s as the nation’s favorite quick-serve restaurant among a group of 300,000 mystery shoppers, although it has only one-tenth the number of restaurants as McDonald’s. And satisfaction has translated into revenue: Chick-fil-A 2012 sales were 14 percent higher than the previous year, with a same-store sales increase of 8 percent. Chick-fil-A’s retail real estate strategy demonstrates that it literally pays to differentiate.
Steve Jones is a managing director of Jones Lang LaSalle’s Project and Development Servicesretail team.