Why retailing needs a new model

“Showrooming” involves customers visiting a store to seek advice or to experience a product, but completing the purchase through an internet retailer or directly with the brand. It has become such a menace for bricks-and-mortar retailers that a number of defences are hastily being attempted. These range from the logical but probably unsustainable strategy of price-matching the internet (as in the case of Best Buy), to Canute-like denial (Target delisting Kindle) and desperate tactics such as charging fitting fees for sports shoes (like some Australian retailers).

Meanwhile, brand owners, concerned at the increasing cost and declining quality of retail distribution, are exploring other routes – a tour round Westfield will find stores from Lego, Speedo and Sony alongside Apple, Disney and Nike – all brands that are becoming at least partly vertically integrated.

If multi-brand retailers are to address these threats, they need to re-persuade brand owners of their relevance. Burberry may come to believe that its own flagship stores plus digital marketing are quite sufficient – unless department stores can make the case that they, uniquely, can introduce new customers to a brand.

Retailers with category authority (such as Selfridges for fashion or Currys for technology) are still a special medium where brands are physically compared, trial begins and loyalty is nurtured. If retailers do this well, the brands cannot avoid being present and paying for the privilege. But for retailers to earn value from this role may require completely new economic models.

Last week’s announcement that Best Buy is to allow Samsung boutiques in its stores is a first step. Another example is Carphone Warehouse, which has negotiated lifetime contract revenue-sharing agreements with its network operators. No longer do retailers and suppliers squabble over ownership of the customer: both win when she renews or upgrades, whether the transaction takes place in a store or a call centre or online.

Retail has always been simple: buy and sell stuff and take a margin. But a new model is now called for: share the value of building customers’ brand loyalty. If a department store owns unique access to high-value customers and entices them to a launch event, then it can negotiate a share of value added to the brand whether the sale takes place then or later, in the store or through another channel.

Retailers need the skills of media operators to bring this off. Stores and websites become less machines for transactions and more experiences for winning brand loyalty. Every customer interaction must be captured and evaluated for its effect on loyalty to the brand: visiting the store (through Shopkick-type apps), scanning a barcode, downloading a mobile app. Retailers and brand owners need to overcome their reluctance to share customer information, rather than creating competing loyalty schemes and databases.

Whirlpool will come to recognise it needs display and service in Currys’ stores if it is to maintain its brand position. But Currys will need to prove what customer value it is bringing to the brand if it expects to earn its fair share.

This article appeared in “Retail Week”, 12 April 2013

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This entry was posted in Consumer behaviour, Future, Multichannel, Online retailing, Retail, Vertical Integration. Bookmark the permalink.

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