Embrace the blur · Harmonized · Retail

Retail’s ‘halo effect’: New stores boost a brand’s website traffic by 37%, study finds

One of the recurring themes in my consulting, writing and speaking is that the distinction between online and physical shopping is increasingly a distinction without a difference. The key for most brands is to deploy a well harmonized, one brand, many channels strategy and to embrace the blur. Central to this notion is realizing that a physical store often serves as the hub of a brand’s ecosystem and that brick-and-mortar stores help drive e-commerce sales—and vice versa. While I’ve come to believe this through many years of direct experience, a just released study from the International Council of Shopping Centers sheds a lot more light on the subject.

One of the key findings in the report—which is based on a sample of more than 800 retailers and 4,000 consumers—is the so-called “halo effect.” It turns out that when a retailer opens a new store, on average, that brand’s website traffic increases by 37%, relative share of web traffic goes up by 27% and the retailer’s overall brand image is enhanced. This impact is even more pronounced for newer, digitally native vertical brands. Conversely, when a retailer closes a store, web traffic typically takes a big hit.

None of this is all that surprising. Established brands that started as mail order only but eventually expanded into their own stores—think Williams-Sonoma, REI, J. Crew—have recognized and benefitted from this insight for decades. For any retailer, but especially for direct-t0-consumer brands, a physical presence serves as marketing for the brand whether the customer ultimately chooses to transact physically or online. Brick-and-mortar stores also offer the opportunity for consumers to demo or try on products, talk to a salesperson and/or get a better sense for the price/value relationship, all of which improve conversion. Importantly, particularly for newer brands trying to profitably scale, customer acquisition costs can be lower in a physical store and product returns are typically lower—often dramatically.

While it’s taken the industry a while to understand the powerful symbiotic role that exists between a compelling physical and digital presence, the evidence keeps building. One clear sign is that digitally native brands, many of which have already opened dozens of stores, have plans to open more than 850 physical locations in the coming years. Warby Parker was one of the first disruptive retailers to understand the complementarity of digital and physical shopping. The pioneering eyewear brand will soon have more than 100 brick-and-mortar locations and already derives more than half its revenues from its physical stores.

We’re also seeing what some refer to as the “billboarding” of retail or, as retail futurist Doug Stephens refers to it, viewing stores as media. In these instances physical locations serve primarily to promote a brand rather than sell products in store. B8ta and Story are good examples of this. As this phenomenon expands, retail will require new metrics as traditional measures of sales productivity and same store sales become less relevant.

Understanding the critical relationship between a brand’s physical and digital presence is also essential to store closings and/or store downsizing decisions. Viewed from a channel-centric lens, many retailers will convince themselves that they need many fewer stores and that the stores they keep (or they intend to open) can be meaningfully smaller as more business moves online. Yet viewed from a holistic customer perspective it’s easy to see how this siloed thinking can backfire. Recognizing this, a number of retail CEOs have wisely resisted Wall Street’s pressure to close more stores because they understand how damaging such a move could be.

I’m hardly the first person to challenge the retail apocalypse narrative or to suggest that physical retail is definitely different, but far from dead. And the collapse of the middle continues to push retailers to become more intensely customer relevant. The move away from mediocre and boring requires making physical stores more unique and memorable. Yet without understanding the interplay between the customers’ digital and physical experience, how this gets executed can be quite different. The more a brand understands the overall customer journey and the role that all elements of the experience play—digital and analog—the better prepared they are to become remarkable.

Regardless, one thing is quite clear. The death of the physical store is greatly exaggerated.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

November 8th I’ll kick of the eRetailerSummit in Chicago. For more info on my speaking and workshops go here. 

Harmonized · Loyalty Marketing · Personal · Retail

Nordstrom ups the ante with new loyalty program

Last week Nordstrom, the U.S.-based fashion retailer, announced the launch of a new loyalty program. Despite its rather uninspired name, The Nordy Club is intended to broaden customer engagement while increasing earn rates by 50% for members paying with a Nordstrom credit card. The new program also offers more access to services and personalized offerings.

At first blush, Nordstrom seems to be emulating what brands as diverse as Neiman Marcus (Note: I worked on the InCircle redesign some 10 years ago), StarbucksUlta and others have long recognized. First, an engaging rewards program is a foundational element for gathering data and leveraging customer insight. Second, programs that have what amounts to a cash-back feature—as many do when they rely on gift cards as primary redemption vehicles—can often provide discounts more cost effectively than one-size-fits-all promotions. Third, reward points create a currency for highly targeted offers to drive specific desired outcomes for the retailer. Fourth, through the use of well designed tiers, the best loyalty programs provide “stretch” incentives that encourage customers to spend more to earn higher rewards and obtain access to unique services and experiences.

At their core, the best in breed reward programs focus on two components. First is transactional loyalty. Here the brand is simply providing a tangible value exchange for increased shopping behavior (and better access to customer data). Calling this “loyalty” is a bit misleading, as this is more akin to bribery. While this program feature incentivizes customers to increase their spending, many customers will respond because they are essentially leaving money on the table if they don’t. The more strategic program designs recognize that true loyalty is an emotion.  In this case leading programs typically use accelerated point accumulation and more experiential offerings to further engender a deeper connection to the brand. This typically includes preferential access to merchandise and events and special or enhanced services (free alterations, valet parking, etc). In this regard, Nordstrom isn’t breaking any new ground.

What does appear to be more on the leading edge, however, is how Nordstrom is leaning into at least 4 of what I call the “8 Essentials of Remarkable Retail.” And this provides the potential for meaningful competitive advantage if done right.

Harmonized. This is the idea that, regardless of how and where the customer chooses to shop, retailers must eliminate points of friction in the customer journey and deliver experiential elements that amplify relevance. In the press release, Nordstrom VP Dave Sims said “when thinking about this evolution, a guiding principle was to offer something for everyone, no matter…where they interact with us.”

Mobile. Many retailers have come to realize that customers no longer go online—they live online and their smart device is often a constant companion in the shopping journey. The new Nordy Club app looks set up to be a core component of how members will engage with the brand.

Personal. As I talk about in my current keynote, no customer wants to be average. More importantly, no customer has to be, given how the power has shifted to them. Making personalization a key aspect of the new rewards program is very responsive to what consumers want and what smart retailers need to do to be more relevant and unique.

Memorable. Today’s consumer is deluged with a tsunami of information and choices. To be the signal amidst all the noise, to truly command meaningful attention, all brands are challenged to become more unique, more relevant and more remarkable. A key way to do that is to create memorable experiences. It’s a bit difficult to ascertain at this point how truly unique some of the benefits will be for elite members (particularly since many of these will never be advertised), but I’m willing to bet that this program dimension will be dialed up substantially.

Of course it remains to be seen how well this new effort will work when fully deployed. Clearly Nordstrom is adding considerable cost to the program. Whether this turns out to generate a good ROI will take years to assess. Moreover, some aspects of what was just announced just bring the company to competitive parity and therefore can be viewed as largely defensive. Others may risk setting off a rewards point war. If that happens, that is a battle that customers win and investors lose.

More interesting for the long-term is how Nordstrom will evolve the harmonized, mobile, personal and memorable pieces of the program and how those will authentically resonate with the others aspects of the branded customer experience for which Nordstrom is justly well regarded. Here, much as they have done over the years staying on the leading edge of digital commerce and executing a well integrated “omnichannel” experience, Nordstrom does seem to be upping the ante and leading the way. How (or if) the competition responds will be the next thing to keep an eye on.

Note: For a far more comprehensive and insightful look at loyalty, I heartily recommend my fellow Forbes Contributor Bryan Pearson’s book The Loyalty Leap.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Over the next few weeks I’ll be in Austin, Chicago (twice!), Dallas, Toronto and San Antonio delivering an updated version of my keynote “A Really Bad Time To Be Boring.” For more info on my speaking and workshops go here. And stayed tuned for announcements on early 2019 speaking gigs and my new book.

Harmonized · Omni-channel · Retail

Many retailers still need a ‘Chief Silo-busting Officer’

For the last five years or so much of retail has been obsessed with becoming “omni-channel.” As I pointed out in Forbes piece last year, this ambition sounds good, but is often ill-defined and poorly focused. The point is not to be everywhere, but to eliminate friction and be remarkable and relevant in the places along the customer journey where it really matters. It’s why, as one of my 7 Steps to Remarkable Retail, I encourage brands to design and execute a “harmonized” shopping experience. Harmonized retail requires the important aspects of the customer’s journey to sing beautifully together, regardless of touchpoint or channel, completely devoid of discordant notes. It also requires that we let go of the dualistic notion of e-commerce and physical retail. In most cases, it’s all just commerce and the customer is ultimately the channel.

Beyond the semantics of “omni-channel,” “harmonized,” “unified” or “frictionless” commerce, it turns out that when brands garner deep customer insight around the shopping experience it’s not all that hard to figure out which pain points to eliminate and which product or experiential elements to amplify. Unfortunately many retailers have not even gotten all that far, as this recent eMarketer reportilluminates. That’s likely to end badly.

Yet even armed with this insight and a well articulated roadmap, many well intended “customer-centric” efforts fail. The primary culprit is usually the deeply ingrained silo-ed behavior endemic to many retailers’ operations. Most brick and mortar dominant retailers have developed intensely product-centric cultures where the merchandise (and merchant) is king. And if they had a catalog business it was run largely independently of the physical stores division. As e-commerce became a thing, it was typically bolted onto the existing mail order division (e.g. JC Penney, Neiman Marcus). For companies that needed to get into the direct-to-consumer world anew, the so-called dot-com business was often established as a completely separate entity, typically located away from the core business (in Sears’ case, for example, in a different part of its sprawling campus; in Walmart’s case, on the other side of the country). Either way, channel-centric silos were put in place or reinforced.

While there may have been initial merit to allowing the e-commerce business to get speed and traction absent the interference of the mother ship, over time the result is that executing against a well harmonized experience is fundamentally hindered by silos: silo-ed customer data. Silo-ed inventory. Silo-ed supply chains. Silo-ed metrics. Silo-ed incentives and compensation schemes.

As it turns out, most customer journeys that end up in a physical store transaction start in a digital channel. It turns out that some of the best enterprise customers get acquired in a physical store but then end up doing the bulk of their shopping online. In fact, it turns out that over the past 15 years, for every retailer where I have seen the actual data, customers that shop in multiple channels are the most profitable and loyal customers. And it turns out that customers don’t care about channels. Retailers that continue to organize, measure, pay and execute their operations as if this weren’t true are, unsurprisingly, falling further and further behind.

As others have pointed out, digitally-native brands that have moved into physical retail have largely avoided the silo issue, and therefore are often perceived as having an advantage over legacy retailers. Conceptually they do have an edge: partially because they did not have a culture to undo, partially because they had better customer data from the outset and partially because their technical infrastructure was built with a digital-first orientation. It’s also important that they decided to add stores because many now understand the amplification power of physical and digital convergence.

But let’s be clear. You don’t have to be some new disruptive brand like Warby Parker or Indochino to get this, act on it and perform well. Williams-Sonoma, Sur La Table, REI and a number of other decades-old retail brands never established the silos in the first place as they moved from direct-to-consumer into multi-channel. Nordstrom operated in a more silo-ed way in the early days of e-commerce. Yet more than a decade ago, they made the decision to break down the silos and began implementing process and technology changes necessary to lead in customer-centric, channel-agnostic, harmonized retail. As far as I can tell, they are the only multi-line mall-based retailer to gain meaningful share during the past decade. Coincidence? I don’t think so.

Now it’s true that plenty of retailers have put senior executives in charge of “omni-channel.” Others have named chief digital, chief customer or chief experience officers. Good for them. Necessary perhaps, but hardly sufficient if those executive don’t have the authority to break down the silos and drive the major cultural, process and technology changes that delivering on a harmonized retail experience demands.

The fact is that to survive, much less thrive, under-performing retailers need a “chief silo-busting officer.” And until the CEO sees that as his or her job, fully supported by the Board, all the talk about omni-channel, customer-centricity or a seamless shopping experience is really just that. Talk.

Silos belong on farms.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.