FOR INDEPENDENT RETAILERS

Transcription

1 4 WAYS TO WIN FOR INDEPENDENT RETAILERS MARCH 2014 The 2014 Independent Retail Report Joint Research from LoyaltyOne and the Retail Council of Canada

2 page 1 Facing down the competition means focusing less on price, and more on what independent retailers already do best. As an independent retailer, you may not have much time to think specifically about your competitors. Between the daily chores of ordering and inventory management, hiring and training, keeping the books and pushing sales, it s easy to think of the competition as a scapegoat that can be blamed for problems like dwindling traffic or customer push back on pricing. Independent retailers are more pressured than ever by large chains and online e-tailers. But the problem is that if you don t get specific about who the competition is and what they are doing, you may struggle with competing effectively. Most retailers know their most threatening competitors by name, but do they know how customers feel about those other retailers? Or why their most loyal customers choose an independent store over a convenient website? Even more important, what Independent retailers have significant opportunities to strengthen their position in an increasingly competitive environment. would make customers and prospective customers flock to an independent instead of a retail chain? To answer these questions for today s independent retailers, we turned to the data. With the Retail Council of Canada, LoyaltyOne surveyed both Canadian consumers and independent retailers to create the 2014 Independent Retail Study, identifying the strengths that independent retailers have compared to their competition. The study confirmed that shoppers have different expectations for independent retailers. To succeed against their larger competition, independents must shift away from focusing on price, and instead focus on amplifying what they already do well, and what shoppers seek. Ultimately, the data revealed several significant opportunities for independent retailers to strengthen their powerful advantages over the growing competition. This report examines consumer preferences and decision drivers, then highlights ways that independent retailers can leverage their existing strengths by doubling down on personalization, carefully curating inventory, investing in social media, and leveraging location.

3 page 2 Shopper Snapshot Consumers maintain a deep connection with independent retailers, and still spend a significant portion of their dollar in those stores despite growing competition. Where Shoppers Spend Although large retail chains command the majority of each shopper s dollar, independent retailers claim a significant portion of spend. Large e-commerce Retailers (e.g. Amazon, ebay) 8% Large Retail Chains (In-store and/or online) Independent Retailers (In-store and/or online) 27% 65% Source: 2014 Independent Retail Study Q: Thinking about your overall household purchases in the past 6 months, please estimate the percentage you have spent at each retailer type. n = 1,010 Large chains do command the majority of each dollar spent, but independent retailers still attract over three times the spend than that of online retailers. Frequency is another win for independent retailers, with 34% of consumers visiting an independent at least a few times a week. Shopper Frequency Independent retailers connect with customers frequently, with a significant percentage of shoppers visiting weekly. 34% 32% 17% 17% At least a few times a week Every 2-3 weeks Monthly Once every few months or less Source: 2014 Independent Retail Study Q: Within the past 6 months, how often have you shopped at independent retailers? n = 1,010

4 page 3 Shoppers report that they turn to retail chains and websites for certain purchases, including groceries, books, games, electronics, and clothing. They are likely searching for the best price for those items. But when it comes to certain specialty items including flowers, gifts and eyewear, consumers prefer to buy from independent retailers over their larger counterparts. While many big-box retailers and large grocery chains have floral and optical departments, consumers would rather seek out a more personalized experience at their local independent store. Top Categories by Type of Retailer Shoppers prefer different types of retailers for specific categories. The chart below illustrates where consumers prefer to shop, and how independent retailers stack up against their larger competitors. Source: 2014 Independent Retail Study Q: Thinking about shopping for yourself or your household, please indicate where you typically shop for each of the following categories. Please check all that apply for each category. Independent Retailer, n = 1,010; Large Retail Chains, n = 995; Large E-commerce Retailers, n = 497 Drilling down to the different customer experiences at each type of retailer reveals what consumers truly love about their favorite independent stores, and what they want to see more of. For example, when a customer walks into the door of her favorite independent retailer, she isn t looking for a better price. Instead, her top driver is that she has made a decision to support her local economy. A close second is that she likely lives in the neighborhood and so the store location is convenient. She is willing to pay more for a local, interesting and unique inventory selection, something more special than she will find online, or by driving to a distantly-located chain store.

5 page 4 Top Shopping Reasons by Type of Retailer Shoppers choose national retail chains and online sites for better prices, but they shop independents for convenience and the karmic value of supporting the local economy. Source: 2014 Independent Retail Study Q: What are the top 3 most important reasons why you shop at retailer over other stores? Independent Retailer, n = 1,010; Large Retail Chains, n = 995; Large E-commerce Retailers, n = 497 Shoppers seek out independent retailers not only for their one-of-a-kind product selection, but for smallscale, one-on-one service. Customers want a meaningful shopping experience: one full of recognition, personalization and the karma-rich payoff of supporting a fellow community member. By contrast, a purchase at a large retailer or website is usually based on cold, hard price including the financial benefits of a rewards program.

6 page 5 Key Performance by Retailer Type Percentage of Respondents Who Think One Retailer Type Outperforms the Others Source: 2014 Independent Retail Study Q: Below is a list of attributes that may or may not apply to different retailer types. For each attribute, please select one retailer type that you think does a better job than the other two. n = 1,010 These insights reveal key opportunities for independent retailers to grow. Fortunately, customer expectations align with the existing strengths that independents already have. Where Independents Can Excel Today s shoppers may be buying at large chains and online sites, but more than ever they are seeking something for which independent retailers have long excelled personalization. Large companies know this, and are striving to create that special boutique experience, often via a loyalty program or other

7 page 6 customer relationship management (CRM) strategy. But independent retailers have already won the battle over customer expectations in that arena. Independents are uniquely positioned to provide better customer service, differentiated products, more meaningful communications, and convenient locations. Not only are these an independent s strengths over the competition, but that overall experience is what customers want when they choose their local store over a chain or website. Below, we explore four ways to strengthen that competitive advantage. Prioritize personalization Independents often focus on price wars, with 33% of independent retailers in our study reporting that their biggest challenge is to keep prices competitive with large chains. Competing on price is still a key business strategy for most independents: 58% have everyday low prices; 38% run frequent promotions to drive traffic; and 13% offer price matching. Only 30% of consumers can recall independent retailers asking them for feedback. The truth is that independents simply can t compete on price against the scale of the Walmarts of the world. The good news is that they shouldn t even be trying. Competing on price is a mistake when that s not what customers are looking for at an independent 81% of consumers we surveyed do not expect independent stores to price-match large retail chains. Fully 68% would rather shop at a local store that offers personalized products and services even if the price is slightly higher. Instead of focusing on pricing, independents must embrace a personalization strategy, one based on the habits and preferences of their most-profitable customers. Know more customers: 45% of independent retailers claim they have asked customers for their feedback, but only 30% of consumers think retailers have done so. This is likely a simple coverage gap, with retailers failing to reach out to all of their most profitable customers for information and insights. 53% of customers surveyed want to be able to make product and service recommendations to retailers. Independents have the advantage of being able to connect with customers on a more personal level, and can leverage this by letting consumers communicate their ideas on what products or services the store can offer, or how to Independents have the advantage of being able to connect with customers on a more personal level. make the store layout more navigable. Provide incentives to those who are willing to give feedback. Retailers can also visit social networking and review sites to read what consumers are saying about their experiences.

8 page 7 Reward best customers. 46% of small businesses indicate that they delivered personalized service to their regulars (by surprising and delighting them with special rewards and perks, for example, or pre-ordering products and having them ready for pick-up when they arrive). But only 19% of customers think independent retailers send them special offers to bring them back after a visit. Retailers must find creative ways to make their customers feel special. For example, a clothing and accessory shop can record what styles and items their best customers have purchased, and contact them when similar products or matching pieces arrive. Empower employees: Store owners may recognize best customers, and instinctively know how to treat them, but associates sometimes fall flat. Customers are paying attention of those who make more than 50% of their purchases at independent stores (n=158), 56% believe that being treated like a valued customer is very important, and 54% think it is essential to have helpful and passionate store associates. But only 27% of independent retailers think they invest enough time and money on training and retention. Retailers can keep the personal touch consistent by relying on affordable and accessible technology. For example, online backup services (also called cloud backup services) securely store customer data on a remote server and automatically manage regular backups. They also allow store managers/associates to access customer data remotely. Then, equip the in-store associates with tablets that contain timely information about customers and products so they can identify regulars and make recommendations. Curate inventory Customers shopping at an independent retailer are seeking quality, not quantity - 42% of shoppers say they feel overwhelmed by the number of choices offered by online giants and large retailers. Retailers instinctively know this, with 72% of independent retailers indicating that in order to stay competitive they sell more unique and interesting products that are not available in other stores. But it s clear that independents aren t fully embracing the competitive strategy of inventory curation 42% of shoppers are overwhelmed by the selection offered by online giants and large retailers. Only 27% of independent retailers think they invest enough time and money on training and retention. the careful selection of specialized products or services designed to appeal to top customers. This is a missed opportunity for many independent retailers. Specializing in selective inventory and services

9 page 8 can help independents both appeal to the target customer base and also keep operation costs low. Independent retailers have the opportunity to showcase a more limited array of products that are hand-picked to appeal to high-value customers. For example, instead of competing with large chains on front-of-store pricing, a pharmacy could keep a modest front-of-store selection while focusing on a well-staffed prescription-drug dispensary. A pharmacy in an area with an aging population could focus on senior care. Curating inventory also means creating a more local experience. Buying local and supporting the local economy are the two top reasons that customers shops at independents, but among the retailers we surveyed only 19% are using this as one of their strategies. Admittedly, providing local and/or artisanal goods may not be possible in all industries. But independent retailers can demonstrate their support for the local economy and community by participating in street fairs, sidewalk sales, sponsored events, regional circulars, or loyalty programs. In our study, 45% of independent retailers indicated that they have already built product assortments based on regular customers shopping habits. Customers have noticed, with 40% believing that independent retailers offer product assortments that make it easy for them to choose what they need. This is a good start, but there is room for growth in these statistics. Own social media Independent retailers may not have the time (or budget) to invest in mass media promotions, but many are finding great value in social media marketing. 53% utilize social media to promote their products and of these, 55% plan to increase their investment in this platform. It s a smart move: 67% of those using social channels (n = 339) agree that they have seen a good return on investment from their current activity. The research shows that social media resonates strongly with customers, who are more likely to engage with and advocate for independents than large brands via these channels. 33% of customers would recommend their favorite local shops via social media, while only 17% would recommend large retail brands. When it comes to follows and engagement, 23% of customers connect with local retailers versus only 18% engaging with large chains. Invite consumers into the conversation by creating interesting, relevant dialogue. Specializing in selective inventory and services can help independents appeal to their target customer base while keeping operation costs low.

10 page 9 When communicating with customers via social media, independent retailers can focus on their best clients, especially those with a wide network who are willing to share their shopping experiences with others. It is critical to avoid creepy behaviors, such as posting too-frequent updates, tracking customer locations, or forcing customers to share or like posts. The more effective approach is to invite the consumers into the conversation by creating a dialogue that is highly relevant and interesting, as those are more likely to be shared naturally. For example, Foiled Cupcake, a Chicago-based cupcake shop, began their business using Twitter. The retailer connected with its target demographic to discuss their interests. As a result, they have drawn over 90% of their customer base from social media. The size of this opportunity becomes clear when analyzing how independent retailers are currently using social media. Primary Business Objectives for Social Media 36% 27% 14% 13% 9% Driving store traffic Building brand awareness and reputation Managing customer relationships Generating leads and building relationships with prospects Engaging existing customer Other 1% Independent retailers are focused on using social media to drive traffic and build brand awareness, but missing the opportunity to grow customer engagement. Source: 2014 Independent Retail Study Q: You indicated that your company uses social media, discussion forums, or customer review and rating sites to grow your business.specifically, what are the objectives you are aiming to achieve using these social channels? What is your primary objective? Please check only one. n = 339

11 page 10 Stay local Proximity has traditionally been one of the top reasons why customers visit independent stores, and 35% of consumers say their top reason for shopping locally is because they live nearby. However, brick-and-mortar independent retailers could potentially lose this advantage to online or mobile stores that are just one click away. 55% of shoppers report that saving time is one of the top reasons they shop online, with 34% saying they shop online specifically to avoid dealing with crowds and traffic. Recognizing this growing problem, 42% of independent shops say that large online retailers like Amazon pose a greater threat to them than the retail chains. However, only 34% of independent retailers have a web store. Of those who do not have a web store (n = 404), only 61% have a website. For independent retailers, technology can enable two key survival strategies: Adding and maintaining an online store, and making each transaction feel local and easy for the customer. Only 34% of independent retailers have a web store. Understanding and responding to customer preferences is easier for online retailers who can gather transactional data and shape the customer experience in response as Amazon pioneered with its purchase recommendations engine. To compete with this level of online relevance, independent retailers must extend personalization to all customers, both online and in-store. This can be accomplished by instituting a CRM or loyalty strategy, designed to capture data that can then be deployed to enhance the customer experience. For 70% of independent retailers, the existing loyalty strategy is to build relationships with customers through personal interactions. The limitation of this strategy is that it doesn t engage the entire target customer base. Only 27% of independent retailers have their own loyalty program for their customers, and among those without a customized loyalty solution (n = 447), 47% want to have one but lack the resources or expertise. Investing in technology and keeping it up-to-date is an ongoing challenge for independents, with 52% saying they are overwhelmed by keeping up with new and evolving technologies. One solution is to partner with other businesses running existing loyalty programs that are set up to share data management and collection.

12 page 11 Conclusion Independent retailers must shift from the mindset of competing based on price to supercharging what they already do best: providing a personalized experience, offering unique and differentiated products, connecting via social media, and offering a friendly, local encounter both in-person and online. To win against retail chains and digital supercenters, today s independent retailers must institutionalize these core competencies by adopting increasingly accessible and affordable technologies, and by using informed marketing approaches. Success for independent retailers is about amplifying what they already do well which happens to be exactly what customers are asking for. Methodology The research findings are based on the results of two online surveys conducted in January A survey of a representative sample of 1010 Canadian customers. A survey of 613 independent retailers in a variety of industries (grocery/market, pharmacy/health, clothing and accessories, specialty retail, etc.).

13 page 12 ABOUT The Author As Senior Director of Research and Development at LoyaltyOne, Jeff Berry manages research initiatives in North America and internationally. With more than 15 years of experience in loyalty marketing, analytics and customer engagement, Jeff manages and directs the development of LoyaltyOne s thought leadership content including research and best practices for global loyalty marketers. Jeff s background in client management, business development and consulting in both the B2B and B2C spaces make him an expert who has experience in the theory and practice of loyalty marketing. An engaging presenter who is a frequent speaker at loyalty conferences, Jeff has also been featured in such media outlets as CNBC, National Post, Direct Marketing News, Target Marketing and Strategy Magazine and writes a blog for the Canadian Marketing Association. ABOUT THE Retail Council of Canada s MySTORE division ABOUT LoyaltyOne This survey was conducted in partnership with Retail Council of Canada's MySTORE division a vibrant community of independent retailers of all formats across Canada. Our passion is retail, our strength is our members, partners and staff and our promise is to be the Voice of Independent Retail in Canada. LoyaltyOne is a global leader in the design and implementation of coalition loyalty programs, customer analytics and loyalty services for Fortune 1000 clients around the world. LoyaltyOne s unparalleled track record delivering sustained business performance improvement for clients stems from its unique combination of hands-on practitioner experience and continuous thought leadership. LoyaltyOne has over 20 years history leveraging data-driven insights to develop and operate some of the world's most effective loyalty programs and customer-centric solutions. These include the AIR MILES Reward Program, North America's premier coalition loyalty program; a majority stake in European-based BrandLoyalty, one of the largest and most successful campaign-driven loyalty marketers outside of the Americas; and a working partnership with Latin America's leading coalition program, dotz. LoyaltyOne is also the owner of COLLOQUY, a group dedicated to research, publishing and education for the global loyalty industry. LoyaltyOne is an Alliance Data company. For more information, visit. Connect with LoyaltyOne facebook.com/loyaltyoneco