According to the rhetoric, “brick-and-mortar retail just can’t
compete in today’s digital-first economy.” It’s said that e-commerce
showrooming habits and hand-held digital devices have disrupted the existing
markets and value networks of brick-and-mortar retail. According to the United
States Census Bureau, e-commerce continues to see compound annual growth of
more than 10 percent, and analysts do not expect this trend to slow. In 2011,
U.S.-based retail and restaurant sales (including e-commerce) reached over $4
trillion. Overall, according to the United States Census Bureau,
brick-and-mortar sales are flat or declining while oftentimes untaxed or
under-taxed online retailers reach new heights. Retailers report “showrooming”
activities, the act of browsing at a store location only to then make an online
purchase, and question the ability to compete with Amazon’s quick shipping,
massive selection, and bottom-line pricing.
Why concentrate on speed, selection, and pricing when
e-commerce has it won? If retailers don’t like the new rules set by e-commerce,
why play the game?
I became interested in changing behaviors of retail shoppers a
few years ago after meeting a few Sears Holdings staff members. At the time, I
knew Sears was a shadow of its former glory as the world’s largest retailer in
the 1980s. In 2007, an article published in The Washington Post labeled Sears a
“hedge fund,” pulling funds out of store maintenance and improvements in favor
of investment opportunities. These changes sparked criticisms that company
leadership were intent upon moving away from retail. Critics laughingly
proclaimed Sears valuable solely for the company’s real estate, a joke in a
world increasingly interested in e-commerce. But wait a minute; I thought,
physical real estate is valuable!
When I was 15 years old I got my first job at Toys R Us. I was
under no illusion that this other 1980s giant retained its glorious luster. I
knew Toys R Us, no longer the “biggest toy store there is,” was facing stiff
competition from Walmart, Amazon, and Target. At minimum wage, good employees
never lasted long. Store shelves were sloppily strewn with boxed and pegged
items, rarely in the vicinity of a correct price tag. And the customers were
angry. Kids still loved it, at least until they realized they weren’t leaving
with every toy they wanted, at which time a tantrum would mount (turning down
an aisle to discover a tantrum was only marginally less irritating than
discovering a puddle of puke, poop, or pee, none of which were rare for a
customer service associate and certainly create negative experience for other
shoppers). Parents, fearing tantrums, were visibly angry to even have to enter
the store. Somehow Toys R Us had watched and participated in the de-evolution
of the toy shopping experience into a dreaded and unpleasantly memorable event.
Broadly, parents hated Toys R Us and kids didn’t usually leave the store happy.
I loved the job anyway and did my best to improve each shopper’s experience. I
knew from my own childhood the magic that Toys R Us makes possible. Every so
often a family would walk through the front doors and remind you of the magic –
the surprise and delight – that made Toys R Us what it was at its peak. Mouth
agape, a child rushing headlong into the store while tugging at his parent’s
hand, as if the toys might all disappear before he got to them. A parent with a
playful grin, sharing in her child’s joy. A bit of magic as they stepped
through the door’s threshold.
It’s a sometimes unspoken truth: manufacturers don’t just make
and market toys for children; the equally important audience consists of buyers
from Walmart, Target, Amazon, and Toys R Us. Perhaps even more than other
categories, the toy aisle runs a high risk of impact from showrooming and
digital trends. Tactile and ornate in nature, conventional wisdom indicates an
in-store visit, toy demonstration, and examination of the product can yield a
sale. But online retailers do not offer the same tactile shopping experience. Instead,
online retailers offer up customer reviews that lend added authenticity and
emotional resonance that is unavailable to a brick-and-mortar shopper (unless
the shopper happens to bring a carload of close friends with them). Pervasive
mobile gaming trends also negate the need (and disrupt value propositions) for
casual traditional gameplay – why visit the board game aisle if you can get a
game for $.99 on the App Store? Toy manufacturers should keep an eye on the
ways e-commerce is rapidly changing the way customers discover and purchase
Recently, Placed released an important showrooming study
characterizing specific dangers to retailers like Walmart, Target, Best Buy,
CostCo, Toys R Us, and Barnes & Noble. The study found correlation between
high Amazon and online retail spending and certain brick-and-mortar shopper
groups. The study detailed particular risks for warehouse stores and discount
department stores, where pricing and availability are key drivers. Thirty-five
percent of shoppers admit to showrooming behaviors. How do retailers respond?
Price matching programs! Walmart and others have started getting creative,
crowd-sourcing product shipping, blocking barcode labels, and geo-fencing
stores. There is no evidence that these efforts have provoked any changes in
customer behaviors, and certainly have not made a dent in the 12 percent growth
of e-commerce retail in 2012. The
statistics and insights presented in the Placed report indicate that continuing
to combat e-commerce via price and availability is a no win.
In the heat of recession, price tag could be regarded as a
customer’s highest priority. But according to data provided by NPD Group,
today’s primary motivators and inhibitors involve value and caution. Affordability
is tempered by the customer’s interest in convenience. Consider NPD Group’s
evidence suggesting impulse purchasing is trending downward and occasion-based
purchasing trending upward. Just a
few years ago, 68 percent of purchasing decisions were made in store. Today, 60
percent of toy shoppers had a specific requested product motivating them to
enter the store in the first place, and (more often than not) the shopper left
the store with the product he or she intended to purchase (The Family Room).
This distinct change in customer behavior indicates that sales
and promotions are losing favorability with customers. In 2012, Black Friday
resulted in slow business for brick and mortar retailers. Overall, in 2012,
sales and promotions from the toy business fell by 10 percent, indicating that
perhaps a continuous flurry of sales has left customers in a daze. But
occasion-based revenue is growing.
Searching for further insight into the changes occurring at
retail, I reached out to contacts at Toys R Us, BJ’s Wholesale Club, and
McDonald’s. It became apparent that showrooming and the disruption caused by
e-commerce are “phantom” or intangible challenges, remaining just out of reach
for today’s retail leaders. The problem is there, omnipresent and made visible
each time a customer pulls a smartphone out of his or her pocket. But how do
you win a game with rules favoring your competitor?
I gathered an assemblage of Manifest Digital’s top strategic
thinkers, creative solvers of business challenges and experts on user behaviors
and experiences. Bill Lome, former Vice President at Playboy and Groupon, had
the breakthrough: If you don’t like the rules, don’t play that game. Play a
different one. Easier said than done, but brick-and-mortar retail experiences
are very different than online shopping experiences. There are certain valuable
elements that might seem like hindrances when directly compared to e-commerce,
but were formerly prized assets when utilized appropriately.
Our founder Jim Jacoby chimed in with a historical case study
related to magical experience at retail. “Piggly Wiggly,” he said, referencing
the aged grocery chain, “People used to wait in line just to get through the
front door.” Before Piggly Wiggly, grocery shoppers handed lists of items to
sales clerks who then gathered the goods from store shelves. This practice
resulted in significant costs for the retailer and retarded any in-the-moment
choice by the customer (in other words, no in-store marketing). Founded in
1916, Piggly Wiggly disrupted the model deployed by all grocery stores at the
time. By providing baskets, carts, accessible shelving, checkout stands,
nationally advertised brands, branded packaging, and a uniquely attractive
self-service experience, Piggly Wiggly lead a revolutionary change that left
competitors in the dust. Today, you would be hard pressed to find a grocery
store that deviates from Piggly Wiggly’s example. Jim’s case study is
comparable to others regarding Marshall Fields, Macy’s, and of course Sears. In
each retailer’s heyday, customers found magic just by walking through a store’s
Clinging to the belief that providing customers a place to go
is an asset and not a hindrance, consider another example: movie theaters.
Prior to the introduction of television at the 1939 World Fair, cinemas were
abundant. Low-priced nickelodeons could be found in most neighborhoods and
viewers attended frequently for news, cartoons, and serialized adventure
cliffhangers. The advent of television threatened to dismantle the very
behaviors the film industry was based on. Experts predicted the demise of
theatrical cinema. But then, something interesting happened. First, those
“experts” had not anticipated the extensive content needs of early television
networks to fill programming. Movie studios, with their vaults filled with
decades of features, serials, cartoons, and more, suddenly had a secondary
revenue stream based on licensing dust-covered content from long-since finished
theatrical runs. Next, movie studios and exhibitors themselves began to change.
Studios ceased production on serials and newsreels and concentrated on feature
films. Studios embraced what they did best: provide spectacle and a memorable
experience (the earliest days of theatrical cinema were all about “spectacle,”
wowing audiences with moving pictures). Similarly, theater chains embraced the
audience’s changing habits. So what if viewers came to theaters once a month
instead of once per week? Increase screen sizes, sell popcorn, concentrate on
“spectacle” movies, charge higher prices, and make visiting the theater a
memorable experience. Going to the movies became an event. Theatrical cinema
didn’t die off. Industry leaders embraced the change and went back to key
differentiators that television content could not match.
The entertainment industry, like toys, was one of the first to
embrace what some call the Experience Economy. Based on Joseph Pine and James
Gilmore’s article “The Experience Economy,” the concept details noted
technology changes, increased competition, and changing expectations. The
theories are hard to argue with, especially in a world where “phone” really
means, “handheld device that does everything you can need, want or imagine.”
Briefly summing up the evolution toward the Experience Economy
Economy provides customers with undifferentiated products such as copper or
Economy transforms commodities into distinct and different products that can be
sold at varying prices to customers.
Economy charges for the performance of activities, often the process of product
Economy charges customers for emotions and engagement, including goods and
Starbucks provides perhaps the best example of selling
experience rather than products or services. Despite the widespread
availability of top quality coffee at $1, Starbucks prices a beverage at $5+.
How can Starbucks justify the price difference? Why are customers willing to
pay more for a mere cup o’ joe? The answer is that the Starbucks experience –
that cultivated atmosphere, carefully chosen offerings, wireless Internet,
smiley hipster barista, iconic green and white cup, and piped-in smell – is
worth far more to loyal customers than a cheap coffee elsewhere.
Inherently, the toy industry has always peddled play
experiences. Like the entertainment industry, toymakers are well positioned for
success in an experience-based economy, so long as toy manufacturers innovate
offerings deemed exciting by customers. Toy sellers have the opportunity to
incorporate new thinking to once-upon-a-time winning formulas.
Marbles The Brain Store (I try to mention Marbles in each and
every article) cultivates its own unique and emotional experience: premium mall
placement, a hand-picked selection of products, unique store layout, and
trained “brain coaches” demo-ing each and every product. The Marbles experience
justifies a higher-than-normal price structure but also makes easy converts of
anyone who walks through the doors. If a customer doesn’t make a purchase
during their first visit, you better believe Marbles will be remembered.
Customers never leave the store angry or crying.
Experience – the one factor that put online retailers cannot
best or duplicate. Over the next few years, brick and mortar retailers will
begin a transformation. Expect some of the major players to disappear. They
will blame consumers for their changing habits and e-commerce leaders for their
disruptive ways. But, really, the success or failure of brick and mortar retailers
will be based entirely on their ability to evolve side-by-side with shoppers,
to better harness the factors and qualities competitors cannot match, and to
embrace still emerging behaviors in the wake of digital-first users. Shopping
for toys isn’t a chore…it’s an experience.
In his roles as Digital Strategy Director of Consumer & Entertainment Brands at Manifest Digital, Co-Founder at toy invention studio Otherdoor Entertainment, and ChiTAG committee member, Brian Torney is an innovator in the play industries, kids entertainment, and product/brand initiatives. Refusing to grow up, Brian has been contributing to the play industries since the age of 15, when he worked at a Chicagoland Toys R Us store. Brian spearheads ground-breaking creative and interactive projects for industry-leading entertainment and toy companies including Cartoon Network, Fox, Nickelodeon, Step2, The Marketing Store, McDonald’s, THQ and Hasbro. He specializes in cross-platform brand storytelling. Brian also practices ancient Jedi techniques of mind control… These are not the droids you’re looking for.