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In today’s retail landscape filled with intense competition and discouraging news about store closures and challenging sales figures, Global Market Development Center (GMDC)|Retail Tomorrow is focused on designing new strategies for retailers and suppliers to navigate a path forward to evolve and thrive. Even during one of the industry’s most uncertain times, brick-and-mortar still has a unique role in the marketplace.
Mark Mechelse
Simply said, retail is not dead today but it will be very different tomorrow. Determining what the “new normal” looks like will be a significant challenge for many. Still, amidst all of this unpredictability, there is one definite: We must work smarter, not harder.
First and foremost, decisions should be driven by the store of the future. Historical data can be rich, but it will not indicate where the consumer is going next. When store headquarters keep in constant contact with trends and listen closely to each store operator, assortments and strategies will be influenced at the local level and the shopper will feel the difference. As a result, each store must remain nimble and flexible in order to adjust quickly and know what matters to the community it serves. Counterintuitively, sometimes retailers need to apply efforts that don’t scale, in order to maximize profitability and drive differentiation.
This is the overarching conclusion contained in the 2019 GMDC|Retail Tomorrow General Merchandise Benchmarking Study, an annual industry report recently released by GMDC|Retail Tomorrow in partnership with A.T. Kearney.
In 2018 unit sales for general merchandise (GM) within brick-and-mortar retail declined 3.9%, while average prices increased 2.4%. Grocery retailers have slowed their decline in GM sales overall from the previous year, while drug stores maintain a steady decline across the entire GM offering.
Rodey Wing
Still, selected GM categories did experience growth in 2018. In order for physical retailers to remain relevant in today’s ever-evolving landscape, they should focus on these pockets of growth that highlight the key opportunities to capture today’s consumer.
Of the 18 brick-and-mortar GM categories, 11 declined in sales in 2018, which marks three fewer categories with declining sales than the previous year. Three categories — automotive, pet and hardware — increased sales over two consecutive years, while four categories — apparel, baby, toys and electrical appliances — actually reversed the downward trend.
So what does this tell us? While many retailers analyze sales performance on a category-by-category basis, the same deep evaluation should take place within each segment of the entire GM department. GM should no longer be merchandised as a mega-category, but instead each subcategory (and even each item) should be viewed as a specific occasion within the store.
Today, industry leaders should think of “general merchandise” more like “personal merchandise,” then ask these questions: What items set your store apart? What are your best-sellers and why? If the category is slow turning, have you considered condensing assortment and offering a different balance of new and innovative items? What convenience items can you fulfill for shoppers that are within walking distance to your store or a short drive? Which GM products require a customer’s “touch and feel” in order to make a purchase decision? With online showing poor performance fulfilling impulse items, can you make these more visible and top of mind in the customer journey?
As certain GM categories migrate to the online marketplace or other channels, they need to be identified from the perspective of the local shopper. This approach helps determine what is still relevant for the store, how much variety and selection is necessary, and how to strike a balance with fresh and innovative assortments that consumers might not see in other stores or online.
Jason Maehara
Each retail strategy must be custom built to match the stores, markets and customer base. Adopting this customization strategy allows retailers to tap into a key trend that is currently shaping the retail landscape — a division in the way consumers purchase GM products based on the emotional and experiential relevance of the products. With this trend in mind, retailers can view their GM sales in two groups — “chore” versus “shop” — in order to better understand customers and cater to their needs.
Chore categories — such as household products and office — are rapidly migrating to the online marketplace, given that they are recurring purchases and customers have few emotional ties to the items. Instead consumers are driven by convenience and competitive cost. To perform better in these categories, physical retailers should consider reducing their in-store assortment in order to replace the space with products geared toward each store’s distinct shoppers and provide customer-driven pricing and promotions.
Shop categories — such as pet, baby and home — have seen less erosion. Within these categories, shoppers place great emphasis on brands, value the shopping experience and hold an emotional connection to the products. To leverage these growth opportunities, brick-and-mortar retailers should generate additional space devoted to these categories, expand assortment and deliver “out of the box” experiences to better connect with customers.
These consumer perspectives can provide a new framework for retailers when considering their GM strategies through this chore versus shop lens.
While some GM categories need to be expanded, others should be reduced if they no longer meet the criteria of evolving shopper expectations. Reevaluating in-store assortment now includes:
• Alignment with a store’s shopper demographics.
• Determine shop items that have an emotional link to the shopper.
• Avoid fighting the online price war by providing premium options and clearly communicating to the shopper the benefits and lifestyle promises.
• Offer products that enhance the store experience or are critical to the core mission of the shopper.
• Products conducive to demonstration and associate engagement will bolster sales and assist with brand conversion.
Private labels need be featured prominently in the product assortment strategy. Such own brand products are key to today’s in-store experience, especially since most shoppers (75%) look online first before making a trip to brick-and-mortar and expect to see differentiation. Products associated with the banner and destination deepen loyalty with shoppers who trust the store and what it stands for, and keeps them coming back for more.
Premium items are also a critical factor in building a successful product assortment strategy. In fact, last year’s GM benchmarking report found that the baby and pet categories were declining. We suggested retailers begin offering more premium items in these categories in order to capture Millennial and Generation Z shoppers. Such premium products are best suited for shopper experience, allowing buyers to read the label, feel the quality and understand why paying more is worth the price. Retailers who have closely watched this consumer data have been able to adjust their strategies and reverse the trends. The pet and baby categories are now beating total-stores sales year over year in growth rates. They are high-emotion categories, which means consumers are willing to pay more, purchase more frequently and seek items that normally are not factored into the household budget.
Once a retailer determines where to reduce assortment in order to optimize space and sales, and where to offer additional selection of innovative and unique items, it’s important to factor the store layout into the overall strategy.
Consider looking at the hot points of consumer engagement across the store and moving specific GM categories to locations that have clear sight lines. Do not make customers hunt for items, because shopper time and attention is increasingly limited. Consumers have a desire for a trip that is highly intuitive, spending minimal time inside the store to compete with the efficiency of online shopping. Apply suggestive selling tactics and offer lifestyle benefits to each item merchandised and highlighted.
It is important to maintain a healthy stock of key GM categories that have proven results so the store never runs out of supply, as nearly half of all shoppers go online as soon as they cannot locate what they want in a store.
In the age of mobile apps, digitally integrated households, voice-activated ordering technologies and online subscription services, consumers’ shopping habits are evolving at an intense speed. But the keys to winning consumer attention are out there for those who diligently embrace research and integrate the latest trends. It’s time for retailers to be bold and evolve with the consumer.
Mark Mechelse is the vice president of insights and communications for leading retail industry trade association Global Market Development Center (GMDC)|Retail Tomorrow. He can be reached at mmechelse@gmdc.org.
Jason Maehara is a Manager with A.T. Kearney in their retail and consumer goods practice, he can be reached at Jason.Maehara@atkearney.com.
Rodey Wing is a Partner with A.T. Kearney in their retail and health practices. He can be reached at rodey.wing@atkearney.com.
