Updated: Jul 31, 2020
The pandemic has had a profound impact on US shopper behavior and retail success, but will it last? One thing will. “Essential” retailing, which has emerged as retail’s most important business driver.
Never before have we seen shoppers turn on a dime to stand in long lines 1.5 meter apart and wear masks day after day
Never before have we seen viral videos of shoppers melting down and ranting “I have a right to shop here” after they have been refused service for not complying with a mandatory mask rule.
Never before have we seen an extreme economic bifurcation of retail winners and losers. One group soars to new financial heights – grocers, mass merchants, dollar-type stores, home improvement, and some hobbies (sporting goods, crafts, bookstores).
While, simultaneously, one group sinks to new lows – department stores, apparel, accessories, and furniture. Recent bankruptcies in the latter group include Neiman Marcus, JCPenney, Brooks Brothers, JCrew and Pier 1.
“ESSENTIAL” IS THE GANGSTER MOVE
If you are familiar with Professor Scott Galloway, a marketing guru and NYU professor with street savvy, then you know the term “gangster move,” which means awesomely clever or bad-ass in urban slang.
Make no mistake about it, adopting an “essential” business model in retail is a gangster move. It was a gangster move prior to the pandemic and it will be even more important after the pandemic ends.
Let’s look at the ongoing success of Discount Retail Chain dollar-type stores, which focus on high value (discount prices) and convenience (small store footprint, limited product mix, and and nearby stores thanks to thousands of locations). The pandemic has boosted these dollar-type stores to record sales, profits and stock valuations, and not just because they focus on high value and convenience, which is important for all retailers.
There are many retailers similar to these dollar-type stores that offer deep discounts to shoppers, such as TJX, Ross Stores and Burlington Stores, but they have been battered during the pandemic because they were forced to close. Other Dollar-type stores, on the other hand, were allowed to stay open during the lockdown because they were deemed “essential,” largely because they carried food and household staples.
Food and staples were not always part of the dollar-type store formula. Dollar General, for example, began carrying milk, lunch meat and a few perishable food items in 2003. Today, it carries a broad range of food staples, canned goods and snacks. It is also on track to include fresh produce in 850 stores by the end of 2020.
Food for thought (pun intended): How much business do you think hyper-successful TJX and Burlington would have booked during the lockdown if they had been deemed “essential”?
6-STEPS FOR AN “ESSENTIAL” BUSINESS MODEL
“Essential” does not simply mean adding food to a retailer’s product mix. Here are six business model recommendations for retailers who want to become “essential” to shoppers.
Begin by adding food in formats that make sense. As noted, TJX, Burlington and Ross missed out on the biggest financial boost in a generation by not carrying food, beverages and staples. They are not likely to make the same mistake twice. They are large format stores and can easily accommodate aisles of fast-moving packaged goods. And, of course, JC Penney and Macy’s are no brainers, too. They have room for extensive product lines of packaged goods and more.
Add non-food staples in formats that make sense, such as home cleaning products, bathroom and kitchen products, and alcohol. Macy’s may not be the right place for shoppers looking for home cleaning products, but alcohol seems like an excellent fit. Most department stores, mass merchants and broadline stores would clearly benefit by adding food and non-food staples.
Focus on health and wellness. While many department stores and mass merchants carry some personal care products, few focus on such critical areas as health, wellness, diet, relaxation and sanitization. Many of these products have high profit margins and would clearly be an “essential” benefit to many non-drug store retailers.
Enrich home life. It may not help a store earn an official “essential” designation but enriching home life has become essential to shoppers. Sales have skyrocketed during the pandemic in such categories as sporting goods (bicycles, kettle bells, yoga pads, fitness equipment), board games and puzzles, electronic games, books and educational materials, and crafts. Many of these products would clearly be a big benefit to many department stores and mass merchants that do not already carry them.
Establish “essential” metrics that align new product lines with business objectives. Many “essential” product categories, such as food and household staples, are low-margin items so retailers will require robust analytic insight to constantly adjust and manage them. This will include advanced demand forecasting capabilities, price optimization, merchandise assortment planning and allocation optimization, lifecycle management, segment analytics, and personalization by product, location and customer.
“Essential” also applies to associates. Store associates have become heroes to shoppers because they are frontline workers that assist in helping them get needed products during a time of crisis. Retailers need to live up to the high standard set by these associates. This means providing meaningful training, personal protective equipment, sanitizing protocols, clear communications, extending medical benefits, and expanding contactless systems to accommodate designated pickup locations in stores, parking lots and curbside. It also means enabling all associates (not just managers) with digital tools to improve productivity, agility, safety and communication.
If Dollar General stuck to its original value-and-convenience formula it would not have become the “essential” retailer it is today with 16,000 stores and sales that will break the $30-billion mark in 2020. With due credit to Prof Galloway, becoming "essential" is clearly the gangster move today in retail.
By Joe Skorupa