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How is retail being changed by digital?
What better way to find out than by looking at six icons of retail, three from the US (Macy's, Walmart, Walgreens) and three from the UK (John Lewis, Marks & Spencer, and Boots).
Here are their digital transformation journeys, as they fight to compete with online and agile competitors.
We have to start with Macy's, a retailer that is closing 100 of its 728 stores by early 2017, and in August announced a 5.7% decrease in year-to-date sales.
The press release that says as such is probably the best document for describing the state of retail in 2016, and the impact of ecommerce. Here are the key points to note:
"Macy’s will operate fewer stores and concentrate its financial resources and talent on our better-performing locations to elevate their status as preferred shopping destinations.
"Stores will remain critical customer touchpoints for Macy’s, along with online shopping and mobile apps, as omnichannel retailing continues to evolve."
Not all stores are created equal. Look at the two examples below.
The second store pictured is part of a mall, which aren't as popular as they once were, with new fast-fashion competitors from overseas prioritising high-street, flagship style stores.
Macy's recognises that with online shopping maturing, customers need more reasons to visit a physical store. Boring real estate won't cut it.
This is part of a change across retail, where stores must offer a rich experience to compete.
That rich experience I mention is flagged up prominently in the Macy's store-closure press release:
"...increasing the size and quality of staffing through programs such as My Stylist personal shopping services, infusing new technology, accentuating high-potential businesses such as fine jewelry, and creating new in-store events and experiences."
There you go, more reasons to visit. Without them, customers will simply shop online more often.
Investing in web, app and click-and-collect
The Macy's website and mobile website (m.macys) are perfectly okay. I had a whizz through both and found no difficulty in finding an item and adding it to basket, then checking out.
However, neither is up to the standard of some of Macy's competitors.
For example, there could be much more product imagery (and video), a mobile menu that's easier to use and everything could be quicker and with a cleaner design.
Macy's addresses this in its strategy for 2016/2017:
"To foster continuation of [double digit] growth [online], the company is investing in capacity-building on its sites and apps, improvement in natural language search, faster page loading and simpler procedures for placing and fulfilling orders.
"Macy’s and Bloomingdale’s successful Buy Online Pickup in Store offering, introduced in 2013, is being refined to improve speed and convenience of the customer experience."
2. John Lewis
The multichannel sales mix
2015 sales figures are an eloquent summary of the changes happening at John Lewis.
Sales at stores were down 0.1% but online sales were up 17.3%. Online now accounts for a third of all sales. Sales via mobile & tablet grew 34% in 2015; smartphone sales in isolation growing by a staggering 86%.
Looking at the Christmas trading period, the nature of evolving multichannel retail becomes clear.
Footfall was down but online sales grew 21.4% (31% growth in tablet and mobile) and click-and-collect was up 16%, accounting for around half of online orders.
Overall this meant Christmas 2015 sales were up 5.1%, despite the aforementioned lack of footfall.
Looking at these types of patterns, it's easy to see why retailers like Macy's are closing stores that don't represent attractive shopping destinations.
The impact of TV and social media
Christmas is probably what John Lewis is best known for (at least lately). The fact that Christmas 2015 was a story of online success is testament to the retailer's strategy of big creative and social media.
Though some think such spend on creative is risky, the annual John Lewis Christmas ad of course continues to makes a significant impact via TV, but is also phenomenally successful on social media.
This combined reach has so far kept John Lewis front of mind when online shoppers are deciding where to go for their click-and-collect purchases at Christmas.
The mobile boom
John Lewis’ online product director, Sienne Veit, told Marketing Week earlier this year of the impact mobile is having on the company’s fashion division in particular.
“56% of orders for fashion are now on mobile at the company and mobile is now the first point of interest even if the purchase is made elsewhere,” she revealed.
John Lewis has been investing in its mobile web and mobile app experiences for some time and regularly tops polls of mobile-friendly online retailers.
Sienne Veit also highlights that app customers are the most loyal, with on average nine visits per user to the IOS app over a 12-week period, compared to 2.1 visits per user on mobile web.
Loyalty can, of course, be a mobile UX bête noire - by which I mean, a digital replacement for the loyalty card has proved difficult to master for many, outside of the food and drink sector.
John Lewis is playing a waiting game here, too, since adding loyalty functionality to its app in August 2015.
Chris Bate, Head of Customer Marketing, told Marketing Week that: "Loyalty is heading [towards digital] but it will take time to become mass market."
We are appealing to early adopters and with an active marketing plan we’ll get more people although it will take time to wean some people off the plastic cards.
But undoubtedly, advancements in this area are welcome, with in-store purchases tied up to a customer's online account when the mobile loyalty functionality is used.
The loyalty scheme (across digital and physical card) had 1.6m members in September 2015, with 1.5m extra purchases made over the scheme's two-year history.
This shows that loyalty is an area retailers cannot dismiss.
A John Lewis loyalty card on mobile
Online international sales increased by 50% in 2015, with interntional traffic up by 15%.
John Lewis now delivers to 40 countries through its website, with payment possible in 10 different currencies.
The startup incubator
JLab is John Lewis' own incubator scheme and it has also invested in TrueStart, alongside other retailers.
The first graduate of JLab (a digital peephole for doors) wasn't exactly a gamechanger for retail, nevertheless John Lewis is taking the lead in this area of startup/corporate cross-culture and fruit may yet be borne.
Multichannel growing pains
Of course, it's not all good news for John Lewis. There have been relatively high-profile growing pains with its multichannel offering.
Both its outsourced customer management (call centres run by Capita) and its smaller-item delivery (by myHermes) have been subject of much criticism.
This shows the difficulty when integrating infrastructure, with view of stock and customer history particularly tricky across warehouse/online and store.
There have been thousands of articles written about Walmart's attempts to fight back in the face of declining growth.
2015 was the first year out of 45 as a public company that Walmart made less money than the year before.
The chart below from Bloomberg shows change in annual revenue (-0.7% in 2015).
As Bloomberg details, this decline in revenue over 2015 can be partly explained by closure of Express stores and declining gas sales (as prices fell).
Over the same period, Walmart unveiled new stores (400), remodelled many more and revamped parts of its ecommerce infrastructure. Looking at second quarter sales for 2016, this appears to have had an impact.
Revenue is up 0.5% year-on-year, sales at established stores are up and footfall is up.
This store remodelling and an increase in minimum wage aimed to improve customer service have done their trick.
So what's the big deal?
Walmart still accounts for a tenth of all US retail sales, but it is the growth of Amazon that is of concern.
Amazon saw 20% growth last year, accumulating $107bn in annual online sales. Walmart's online growth in 2015 was 12%, up to $13.7bn.
The Jet purchase - changing online shopping?
Walmart's latest advance on Amazon has been its $3.3bn purchase of Jet.com.
It's not dissimilar to Amazon – it sells a wide variety of goods ranging from groceries and household products to tech and toys.
In a recent article about the acquisition on Econsultancy, Nikki Gilliland details the unique features of Jet.com:
"...one of its most distinct features is its real-time pricing algorithm which offers customers lower prices if they add more items to their basket. Likewise, it gives extra discounts if a customer forfeits the right to return an item.
"Nicely aligned with Walmart’s position as a low-price, bulk-buy retailer, Jet will also help Walmart streamline its delivery and online logistics. The algorithm identifies vendors closest to the consumer to help minimise shipping costs."
Nikki goes on to suggest that these features, once integrated into the Walmart ecommerce experience, may fundamentally change the way shoppers look for bargains online via Walmart. The website would offer a USP in line with the brand.
Fewer and larger orders would replace impulse purchases.
Uber delivery tie-up
In June of this year, Walmart announced it would be trialling partnerships with Uber and Lyft in Denver.
Walmart customers would pay the standard delivery charge and be able to choose a same-day slot.
This is a direct response to the pressure for improved delivery that Amazon is putting on almost every market, even groceries after the launch of Amazon Fresh.
The app experience (including Walmart Pay)
Walmart's ecommerce app also looks to increase customer loyalty and engagement in-store.
The app has 22m monthly active users and is one of the most impressive in the market.
Neil Ashe, head of ecommerce at Walmart, told the FT that of almost half of online orders in 2015 were in-app, a 100% increase on 2014.
The recently-launched Walmart Pay is incorporated into the app, allowing payment in store using a QR system at the till, similar to Starbucks.
This foray into mobile payment as well as loyalty is a bold move, with the retailer unwilling to implement Apple Pay or Android Pay, presumably because of uncertainty in the mobile payment space, and the urge to own the entire experience.
The Walmart app
4. Marks & Spencer
Marks & Spencer is the classic British clothing retailer that has wilted under the pressure of fast fashion from the likes of Primark and Topshop.
Whilst the company's food business is doing well, clothing sales declined for 14 consecutive quarters before seeing some growth in Q2 of 2015.
Recent results in July 2016 have seen an 8.9% fall for the quarter, the biggest drop in 10 years, in the midst of an overall fall in the clothing market in Britain.
Digital has been one weapon in M&S's attempts to improve clothing sales. We looked at the retailer's digital transformation efforts back in 2014.
Website replatforming pains
Website sales were up 23.4% in the year to March 2016.
M&S had well publicised difficulties with its new website in 2014, part of a £150m investment in digital, but the retailer's approach of combining content and commerce online is sound.
Marks is in a good place to succeed with its improved infrastructure. Next-day collect-in-store is offered, as is return-to-store, and stock-level indication is given on the website.
Attribution of online sales to stores where they are picked up is one notable strategy of a progressive multichannel retailer.
One agency to rule them all
M&S has awarded Grey London its creative account, meaning Grey is in charge of both advertising and digital strategy at M&S.
This is a first for the retailer, and seems promising from a multichannel point of view.
Having one agency in charge of TV and OOH adverts, media buying and online marketing is surely a route to more coherent and impactful campaigns, online and off.
A new focus on customer experience
M&S's current strategy is 'putting the customer at the heart'.
Expanding on what this actually means, the company details many customer experience improvements that aren't necessarily digital, but all make stores more attractive in the face of increased competition (some of it online).
More staff on higher wages will improve customer service, and clearer ranges with better availability will prevent disappointing sellouts of popular items.
However, it remains to be seen how fewer sales will be received by the customer.
It has helped re-establish margins and increase revenue in the past, but is surely dependant on an improvement in product range.
Overall, Marks & Spencer is perhaps the most interesting retailer on this list - its brand is still strong and it has not fallen behind as far as new ecommerce and digital tech is concerned.
But it is still seeking a differentiator on product (something that department stores like John Lewis have to worry less about).
Walgreens is a pharmacy (as is Boots, part of the same group, which we look at below), so including it in a piece on retail transformation is a bit tricky as this market is very different.
However, Walgreens retails, too. Retail sales in 2015 were up 1.9% year-on-year and though the pharmacy market has seen consolidation, it is likely to grow as the population gets older.
Walgreens has excelled at innovating the customer experience, often through digital initiatives, and this makes it a useful comparison for the department stores discussed above.
To understand the impact that online has had on Walgreens, one need only look at some widely reported stats from 2015, with the company claiming 48% of digital visitors would visit a store as their next action.
Those customers interacting with Walgreens online and in store spend 350% more than solely in-store customers.
Adding digital revenue streams
Quick Prints is the perfect example of a retailer adding a revenue stream that is mobile-first and also drives visitors to store.
Using the Walgreens app, users can select photos to print from either their camera roll or their social media photo albums.
The printed photos can be picked up in an hour, with the app allowing customers to choose their most convenient store.
With Walgreens operating c.8,000 stores, this kind of 'buy online/mobile, collect in store' service works well, and the retail pharmacy is attributing mobile sales to individual stores, in a bid to encourage multichannel customer service.
The value of mobile
To build on the aforementioned stat about the value of multichannel customers to Walgreens, those who visit in store, via web and mobile typically spend 600% more than store-only visitors.
The Walgreens app is a big success store for in-store use, too, accounting for fully 50% of the multifunctional app's usage.
Some features include:
- Personalised coupons redeemable in app (that 'learn' as you spend).
- Connecting the rewards programme with your fitness apps, to earn points for a healthy lifestyle.
- Refill by Scan - a barcode scanner that allows users to scan their medicine and automatically order a refill.
Other digital services outside of the mobile channel include email & text reminders to refill or take medicine (shown to produce a 2% increase in adherence), Pharmacy Chat (a webchat facility to ask your local pharmacist a question), and a virtual doctor service that allows video-chat consultations.
What all these services show is how well-suited a retail pharmacy is to digital technology. The use cases for digital and mobile are numerous.
As adoption of these services increases and Walgreens further refines the customer experience, there is the potential to dramatically change the business.
One only need look at the number of active Balance Reward (loyalty card) members, currently 85m, to see the possible future uptake of mobile among the customer base.
I did think about profiling Burberry, a revered British fashion retailer that is reaping the dividends of linking catwalk to high street using social media.
But, I've gone with Boots instead, to provide a UK counterpoint to Walgreens.
Boots is a pharmacy founded in 1849 in Nottingham, England. At the end of 2014 it became a subsidiary of Walgreens Boots Alliance, but it still bears further investigation here as a retailer undergoing change.
Preparing for omnichannel
In June 2015, Boots announced 700 jobs would be cut, many at head office. It was reported at the time that some of these roles would be cut by retraining in digital sales.
There was also an emphasis on improving order-and-collect services, which now allow customers to order until 8pm and collect the next day after 12pm.
Further investment in digital occurred in spring 2016, when BT began overhauling in-store IT infrastructure, preparing the systems for better integration with online technologies.
Part of this is improving WiFi across all stores, a key element of improving use of mobile in-store.
The past two years have seen Boots move from so-called 'point solutions' (projects designed to fix a problem and be rolled out quickly, but without proper integration) to be in a better position to provide omnichannel retail.
This emerging digital strategy has necessitated a change in structure, with centralised digital expertise evolving into a more hub and spoke model.
Digital services that add value
Boots has worked with IBM to launch SalesAssist in every store across the UK in June this year.
The app is designed to improve customer service, letting staff help customers through a slick interface that provides product and stock details, as well as reviews and ingredients.
Boots, with its perfume and makeup concessions, wide range of healthcare products and electronics is in a unique position to improve with this type of assisted selling.
Customers may want to understand how products work, what the alternatives are, how they compare, and whether they can get them shipped to their home.
Rather than simply referring customers to 'the website', Boots staff can make use of this improved functionality to directly drive sales, either online or in-store.
Away from store, Boots offers an online service called Beautiful You, which offers personalised skincare advice.
This approach to improving product information by providing content-rich experiences is designed to help loyal customers, in whatever channel they are in (online, in-store, or on mobile via relevant offers).
The Boots mobile app, similar to Walgreens, allows for photo print and collect, appointment booking, and online shopping, too.
Boots is only halfway along its journey of digital transformation - expect to see more innovation as new tech beds in, with the pharmacy mirroring Walgreens in its pursuit of new revenue, multichannel sales and greater loyalty.
The Festival of Marketing, October 5-6 in London, includes speakers from Marks & Spencer, Walmart, Boots and John Lewis. Book your tickets now.