How U.S. Retailers Can Drive Growth in 2011

So, how’s it going so far?

January 5, 2011

Todd Hale, Senior Vice President, Consumer & Shopper Insights
Uzma Rauf, Vice President, Professional Services Analytic Leader

The U.S. retail scene in 2010 was mixed. While the country was technically not in a recession, American consumers nonetheless remained skittish as uncertainty about the economy and jobs persisted. For retailers, this meant finding new ways to get shoppers into stores and retaining the loyalty of those already patronizing outlets. While the economy is expected to grow at a higher rate in 2011, high unemployment and rising commodity prices (including gasoline) are likely to negatively impact consumer confidence and spending patterns. In 2010, winning retailers didn’t sit on the sidelines, they innovated. In 2011, we can expect more from those areas where innovation occurred as retailers evolve their macro strategies in three key areas:

  1. Evolving infrastructure for profit growth
  2. Reaching consumers more effectively
  3. Driving loyalty by delighting the customer

Evolving the Infrastructure

Collaborative Formats: Why invest in reinvention when you can leverage expertise from others? Significant opportunities exist for retailers to evolve and take advantage of current consumer trends, particularly when it comes to collaborating with partner organizations. Over the past several years, many coffee, donut and fast-food retailers have collaborated with grocery and other retail channel operators to expand their reach via co-branding efforts. And last year, a large grocery chain and a large drug chain announced the launching of a new format, which included significant features from both, enabling the two companies to test a co-branding and integration strategy.

Flexible Formats: Brick & mortar retailers are giving shoppers greater flexibility to choose where they want to shop – online, in-store or both. They are also offering customized technology featuring discounts, product alerts and other tools to make the shopping experience more convenient and personalized. Look for pop-up retailing, which exploded this past holiday season within toy stores, to find its way into other retail channels.

Store Brand Focus: The explosion of private label goods is one of the big stories of the last few years, and consumers – who have come to accept that these goods as high-quality – continue to view them as offering great value. This is good news for retailers as private label products are profitable and with commodity prices on the rise in 2011, expect another strong year for store brands.

Reaching Customers More Effectively

Continuity-Based Shopper Engagement: Loyalty cards are a treasure for retailers – provided they are mining the data effectively. It is critical to deliver the right promotions to the right shoppers to keep them coming back. Providing kick-backs on credit card purchases or gas rewards are the incentives that keep on giving. Expect to see more retailers leveraging the shopper insights from these data to create up-selling opportunities and shopping list and home inventory management tools, which provide shoppers with reasons to keep shopping without pushing the item sale button as often.

Win Ethnic Consumers: Retailers can also win more shoppers by appealing to ethnic consumers as African American, Asian, and particularly Hispanics will post strong population growth over the next several decades. Look for new retail formats and modified assortment along with increased advertising and promotions to appeal to population growth segments.

Compete in the Digital World: To effectively reach today’s media-savvy consumers, it is critical to develop expertise in the online space. Retailer-specific mobile apps save time and provide self-service options for consumers – tools like these are win-win strategies for both shoppers and retailers. Using technology to enable more efficient shopping is key as more consumers are using their smartphones to help organize their lives. Look for an explosion of computer and mobile-based videos, which teach shoppers how to lead healthier lives, become better cooks and find more savings. They will demonstrate how connected shoppers interact with retailers who are best-in-class in this area.

Delighting the Consumer

Solution-Based Formats and Promotions: Consumers choose their stores on more than location: a good experience is critical. By devoting sections of the store to areas such as beauty care, home cleaning and meal solutions and by using promotions, retailers have the opportunity to build baskets from across the store. There has been some good work in this space where retailers (and in many cases due to the collaborative efforts with their manufacturer partners) have enhanced the center and perimeter of the store experience, but look for a few retailers to blow-up the store and create dramatically new formats based on shopper-centric mission-based shopping behaviors.

Enhancing the Shopping Experience: Big and small retailers are using technology to enable more efficient shopping. They are also modifying formats to make the shopping experience more enjoyable to increase trips and build baskets. And while some grocers have launched self-scanning devices to help shoppers avoid lengthy lines at check-out, when will check-out lines disappear altogether, allowing shoppers to avoid the part of the shopping experience they dislike the most? Mobile apps designed for shoppers to locate products in stores will provide smaller retailers (who may not have the space on budget for wholesale changes to their store formats) with a means to provide a more convenient shopping trip. Some retailers have added in-store dining options and broadened carry-out meal options. And some retailers are even creating formats that serve alcoholic beverages with live entertainment. In 2011, retailers will create radically new formats to elevate the shopper experience and enhance the connection between store personnel, the retailer and the shopper.

The year ahead is not likely to see any sea changes in terms of retailers’ strategies, but rather an expansion and refinement of tactics launched over the past year or so. These moves can, however, drive solid growth – even in a continually challenging market. Longer term, winning retailers will look much different than what we see today as we see store formats created to fulfill consumer demand.

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