Are you selling to retailers?

Their world is changing.

Like so many other business sectors, retail is being disrupted by new technology and reinvented business models.

Traditional bricks and mortar stores are being remodeled in the image of online shopping platforms, challenging the traditional centuries old business model of retail stores.

If you are selling to retailers, it will be important to understand the challenges coming to their business, and help them understand how advertising solutions may be needed to help them navigate successfully through those changes.

The best selling happens when we become partners with our clients and help them solve their problems. Retailers are facing big disruptions just around the corner – what can we do to help them solve those looming problems?

Amazon disrupted the retail food chain when it moved into the bricks & mortar channel by purchasing Wholefoods in June this year resulting in an almost immediate slump in retail and manufacturer share prices.

This recent move is just one example of a growing trend among pure-play online retailers who are investing in bricks and mortar stores with a view to changing the way retail businesses are operated, according to Growth Mantra, a boutique strategy consultancy focused on growth, with expertise in both retail and media.

Alibaba, the world’s largest retailer and one of the world’s largest e-commerce platforms has also moved aggressively into bricks and mortar stores, investing about $8 billion to acquire stakes in local supermarket chains and Chinese luxury mall ‘Intime.’  The company is building a five-floor shopping mall in the Chinese city of Hangzhou, according to a report in the Growth Mantra newsletter.

Alibaba is using these stores to test the use of technology as part of the company’s “new retail” vision.

The Hema Xiansheng supermarket which describes itself as an “e-commerce experience store” is an example of the changes that these disruptive companies are bringing to retail. 

All products in the store are digitised allowing shoppers to scan barcodes with the app and pay using the Alipay e-wallet. Similar to the online experience “because you liked this, you might also like this..”, the app makes personal recommendations for further purchases.

Online orders are fulfilled and delivered within ½ an hour through the store, which acts as a fulfilment centre for the surrounding area. Bricks and mortar stores are not dying, but they are certainly transforming.

Growth Mantra’s predictions for retail are:

• Amazon and Alibaba’s move into physical stores is testament to the belief that bricks and mortar retail is far from dead. 
• Both companies have made moves to become hybrid-commerce companies – combining the best of e-commerce with the best of physical stores. 
• This new model is fast becoming the future face of retail and we already know neither of these global tech giants will remain in their respective geographical spheres. 
• Australian retailers are rightly worried about the entry of Amazon into the market but Alibaba may also be the sleeping giant to take them by surprise.   
• While many retailers around the world are investing in more experiential retail experiences, we believe Amazon and Alibaba’s play into bricks and mortar will see new retail innovations and developments that will really push the boundaries. 
• They are born innovators and disruptors, both led by ambitious founders who have built companies from the ground up purely based off the unyielding philosophy of serving the customer. 
• Customers have been crying out for more engaging retail experiences for years. We believe we are now on the cusp of an exciting era in retailing and expect to see some radical innovations play out in the next decade forged by the tech giants which will force traditional players to re-think their business model. 
• While Australia is ahead of the pack in food experiences, our offline retail experiences are sadly lacking.

While the reverse takeover of bricks and mortar stores begins, retailers are also facing competition from both branded and private label products that are selling direct to customers rather than through stores.

Shelf space is becoming even more precious, as many major big-box retailers migrate to smaller footprints in urban areas (e.g. Woolworths Metro) and are driving private label strategies (e.g. Woolworths own brand is the highest revenue FMCG brand in Australia).

While the Direct-to-Consumer (DTC) channel strategy is widely common among start-up brands who leverage e-commerce platforms due to their low barriers to entry, there are many examples of major brands who have cut out the middleman by leveraging their market power and superior customer insight. For example;

• Nescafe: pulled off a double coup with the Nespresso brand by re-positioning itself as a premium brand and creating an exclusive DTC physical store and online presence. In so doing, Nespresso took control of their eco-system from sourcing of beans, to production and sale of the packaged product plus partnerships with manufacturers of patented extraction and brewing units. 
• Dollar Shave Club: an online subscription service where members receive shaving blades in the mail monthly. Started in 2012, grew to 3m subscribers and bought by Unilever for $US1b in 2016. Gillette established a competitor club in response to the risk of impact to their market share. 
• Procter & Gamble are trying to move into this space with their “Tide” brand: The Tide Wash Club (trialled in Atlanta) gives users free shipping for packets of Tide Pods which are sent to their door on a subscription basis. Tide Spin (being trialled in Chicago) offers customers a smartphone app to order laundry pickup and delivery from Tide-branded services. 
• Nike is focusing on its DTC channel with plans to grow this part of its business by 250% in the next 5 years. In the company’s forecast, its DTC sales will reach $16 billion by 2020—a massive increase from the $6.6 billion this channel generated in 2015.

This analysis comes from the Growth Mantra newsletter (used with permission). Below is a promotional video from the AliBaba group, promoting its ‘new retail’ store in China.

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