Retail Services September 2017 SPOTLIGHT REPORT In collaboration with As Shopping Behaviors Evolve, The Retail Experience Must Follow Best practices for shifting to an experience-per-square-foot business strategy
As we explored in the first installment of this report, Why Online Isn t the End of the Physical Store, one of the most exciting elements of retail is that the industry is ever-evolving. However, this evolution has presented several key challenges for physical retailers not the least of which is the over-proliferation of stores followed by the existential threats posed by online shopping. Yet we believe that stores can survive and even thrive in this hyper-competitive landscape by offering appealing experiences that give shoppers a reason to spend more time and dollars in physical stores. In this second edition of our collaboration with GlobalData, we take a closer look at consumers. What drives them as shoppers? How do they view the shopping experience? Why do they make the shopping decisions they do? Consumers today are less impulse-driven and more contemplative and discerning about what they buy using more channels and tools when shopping and relying on a wider variety of retailers and brands. In this report, we examine the implications and seek to answer the question: How should retailers adjust their strategies? The U.S. Consumer: Yesterday, Today, Tomorrow Over the past 10 years, the way in which Americans have approached shopping has changed. Behaviors initially influenced by the economic downturn have now become established and have resulted in a more considered form of consumption. Arguably the contemplative consumer is also more demanding. They are less prepared to sacrifice quality, service or convenience for low prices. The contemplative consumer is cautious and careful when it comes to consumption. For example, 88% of U.S. consumers believe that it is unnecessary to spend a lot in order to have a good time. In addition, 70% say they are focusing on buying the right product rather than buying lots of products. And well over half seek out bargains and offers to make their money stretch further. And yet, 67% of consumers say they have more to spend than at this time in 2016, which underlines the fact that the more measured, less materialistic mindset taking hold is not primarily linked to economics. People are not behaving more cautiously just because of issues of affordability and budgeting; they are doing so because of an underlying change in values and beliefs. A Changing Consumer Mindset Old Mindset: Careless Consumption Quantity I buy lots of things; some I need, some I don t. Product It s mainly about the product. Price I ll often sacrifice quality for low prices. Impulse I buy things without thinking much about them. Loyal I use a few retailers to fulfill my needs. Source: GlobalData New Mindset: Contemplative Consumption Quality I prioritize and buy things that I really want. Holistic It s about the product, and where it s made and sold. Value I want good things and discount prices. Contemplative I think carefully about what I m buying. Disloyal I use many retailers and multiple channels to get what I want. Consumer Views on the Economy, Spending, Retail and Buying You don t need to splash out in order to have a good time. I am focusing on buying the right product rather than lots of products. I have more money to spend now than I did at this time in 2016. I am generally more optimistic about the economy now than I was at this time in 2016. I intend to look for bargains and offers in order to make my money go further. Agree 88.1% 70.3% 67.4% 59.6% 55.8% Source: GlobalData s consumer survey Survey conducted in June 2017 with a nationally representative sample of 4,250 U.S. consumers 2 Retail Services Spotlight Report Colliers International & GlobalData
Product Saturation Drives Selective Consumption One of the reasons consumers have become more contemplative is that they are barraged with product options. This is true across most categories, but is particularly marked in apparel. The average American woman has 164 items of clothing in her closet, of which she doesn t wear 41 pieces. Aggregated to a national level, this equates to 5.3 billion pieces of unworn clothing, valued at $219.8 billion. What Fashion Consumers Want 76.3% 64.8% 54.9% 39.8% 34.3% 20.2% 62.8% 73.6% 40.1% 59.7% Many consumers have become aware of their wasteful spending and have sought to cut back. This has made the job of selling to them more challenging as consumers are more selective about what they buy especially when it comes to fashion. Shoppers also increasingly expect retailers to edit product ranges for them so that they are presented with a relevant selection. Many consumers feel frustrated when they have to do the work of finding the right product. This is part of a wider trend of consumers viewing shopping, especially in physical locations, as a leisure-based experience in which they want to be inspired and stimulated. I like to look through lots of things when I shop for fashion. I want retailers to present fashion that is relevant to me. Searching through lots of clothes to find the right thing is annoying. 2012 2017 I like to be inspired and engaged when I visit physical stores for fashion. When shopping for fashion in stores I like to combine it with having a coffee or a bite to eat. Source: GlobalData s consumer survey 2017 survey conducted in June 2017 with a nationally representative sample of 4,250 U.S. consumers. 2012 survey conducted in May 2012 with a nationally representative sample of 3,000 U.S. consumers. The American Closet 21.3B 164/person Number of clothing items American women have in their closets 5.3B Number 41/person of those items that American women don t wear Total value of unworn items at retail prices $219.8B $1,682/person Source: GlobalData s consumer survey Survey conducted in January 2017 with a nationally representative sample of 5,200 U.S. women. All data are for 2016. Value data based on calculations using GlobalData s price survey database Retail Services Spotlight Report Colliers International & GlobalData 3
Rising Consumer Demand for Experiences The Shift in Retail Spending As consumers product needs have become satiated, a larger proportion of spending has been diverted to non-traditional retail categories, many of which have an experiential element. These include areas like dining and drinking out, subscription services and travel. In 2006, some 76.3% of spending by those under age 25 was channeled to traditional retailers. In 2016, that figure dropped to 61.2%. Like other demographic segments, younger consumers are still spending on products, but retailers are increasingly competing for spend with a whole host of retail distractions. Of course, those distractions can also present an opportunity for retailers savvy enough to tap into new areas of demand. For retailers, thinking beyond traditional retail practices to focus on offering true experiences can help strengthen customer traffic and other critical metrics. This could involve regularly changing assortments or offers, incorporating services like beauty treatments or spas and offering entertainment like fashion shows. Or it could be something as simple as a compelling food service offering or creating a strong customer service proposition. In essence, it is about ensuring that retail goes beyond simply selling products and becomes more immersive and interesting. The evidence shows that where retail locations put these things in place especially in terms of mixing non-retail offerings with retail shoppers respond positively in the frequency of visits, the amount of time per visit and spend per visit. Source: GlobalData s consumer spending model and consumer panel data Balancing Retail and Non-Retail Offerings Drives Positive Shopper Experience Metric Average number of visits per year Average dwell time (minutes) Source: GlobalData s consumer survey work Shoppers who use a mall with a strong non-retail offer Shoppers who use a mall without a strong non-retail offer 18.9 10.2 135 62 Average spend per visit $142 $54 Notes: A strong non-retail offer includes services like restaurants and casual dining options, leisure services, enhanced customer facilities like child care, in-mall entertainment, pop-up shops, integrated medical and health services, etc. All metrics refer to the mall that shoppers use. 4 Retail Services Spotlight Report Colliers International & GlobalData
Consumers Seek Value, Interest and Convenience While contemplative consumers are becoming more selective in what they buy, they are using more retailers and brands than ever before. This is especially true in sectors like apparel, homewares, beauty and food where well over half of consumers are relying on more retailers than they did five years ago. This shift is driven by a desire to seek out the best value as well as unusual, interesting products and experiences. This shift is also a consequence of consumers being less loyal and more interested in convenience. Consumers inclination to purchase from more brands and retailers aligns with the increasing number of brands in the market, including the rise of niche brands. The continued growth of online shopping has also given consumers easy access to a much wider array of national and international retailers. The consequence for retailers is that spend is now spread more thinly across a greater number of players. Consumer Views on Retailer Patronage Percent of consumers using more retailers in 2016 vs. 2011 80% 70% 68.9% 66.7% 60% 50% 55.9% 53.1% 40% 37.8% 37.4% 30% 20% 20.3% 10% 0% Apparel Homewares Health, beauty, drug Food and grocery Electrical and personal electronics Furniture Home improvement Source: Data and analysis from GlobalData s ongoing consumer and shopper panel research. Data are U.S. only and refer to all retailers used at once in a calendar year. Retail Services Spotlight Report Colliers International & GlobalData 5
The Expanding Purchase Pathway In addition to relying on more retailers and brands, consumers are also using a greater number of platforms to seek out product inspiration, browse for products and assess product details, pricing and stock levels. When it comes to non-food shopping, the average consumer now regularly uses more than five channels or tools, such as physical stores, social media sites, websites, magazines and catalogs. By comparison, this number was just under four in 2011. Despite the rise of digital channels, the physical store still plays a vital role in the buying process. When it comes to looking for inspiration, stores are used more than any other single channel or tool a reminder that physical environments need to be more stimulating than their remote counterparts. As the purchase pathway has become far more complex, retailers are having to work harder for every dollar spent by consumers. They must invest in more ways of reaching the market but in many cases, such investments do not necessarily help to increase volumes. This can be damaging to profitability but retailers have little choice failure to do so puts them on the wrong side of consumer demand and runs the risk of hurting sales and market share. The way that consumers rely on channels and tools is also changing. Stores Vital, but their role is changing Stores are becoming more polarized into two groups: those that act as places to make functional, needs-based purchases and those that add significant value and act as experiential brand enhancers. Both types will be important and some stores may fulfill both needs but across retail there is a shift toward using stores as places of inspiration where shoppers connect with brands. Purchasing Traditional Role Online From functional to a place to browse and buy Research Traditional Role Inspiration & Connection Emerging Role Online is still commonly used as a channel to research product details but this is changing. More consumers are going online to browse offers and to gather ideas about what to buy. This means retailers need to create online experiences that interest consumers while also providing technical product information. Idea Gathering & Purchasing Emerging Role Mobile A tool to make purchasing easier Although purchases via mobile are growing rapidly, the value of sales via this channel is small. However, larger screen sizes and better connection speeds mean that mobile has moved from being a channel where shoppers quickly check product details to one where they do deeper research. Mobile tools and services like stockchecking are important. Checking Traditional Role Social Media Indirect influence and engagement Interacting Traditional Role Deeper Research Emerging Role Social media remains a very small direct driver of purchasing. However, it is growing as an influencer of purchasing decisions. Some consumers use social media to share looks, hot products or new finds. This makes it an ideal channel for discovering new things. Consumers are also increasingly engaging with brands via social media, often for customer service matters. Discovery, Influencing & Engaging Emerging Role 6 Retail Services Spotlight Report Colliers International & GlobalData
Strategies for Success: Considerations for Retailers In response to consumers changing wants, needs and habits, retailers need to reshape the traditional approach to selling. This means making appropriate changes to all aspects of the business model. Internet-Enabled Hub-and-Spoke Model Credibility and reach used to require a wide geographical spread of stores. Today, retailers can employ a flexible hub-and-spoke model: large flagship stores in key destinations, smaller stores selling a limited product range and a comprehensive online platform. In-Store Attractions As online shopping becomes more inspirational and social, retailers must draw shoppers into stores with events like fashion shows or social spaces like coffee shops. It s also important to create relaxing, enjoyable environments where shoppers are happy to linger. Rethinking Retail Seamless Consistency Across Buying Options Creating uniformity and integrating systems across channels allows consumers to buy anything, anytime, anywhere. Purchasing options like click-and-collect, reserving online and ordering via in-store kiosk for delivery will all become more important. Making this kind of shift is not without its challenges and complexities. Retailers would do well to consider these six steps: 1. Review all aspects of the proposition: Retailers need to assess what they sell, who they are selling to and how they are selling. Those that react appropriately to the changing retail environment will be the ones that emerge in the strongest positions. 2. Don t target too widely: Rather than attempting to be all things to all people, retailers must target discrete groups of consumers. But focusing on specific customers isn t enough: To be successful, retailers must understand consumers needs and then deliver on them. 3. Use insight to boost personalization: Leveraging consumer data allows retailers to personalize the customer experience in areas like the products shown online, the marketing offers sent to customers and the promotions put in front of them. Doing this properly increases engagement and conversion. 4. Use channels appropriately and create cross-channel insight: Retailers need to think about how consumers use different tools and channels and ensure that each is optimized to deliver. It is also critical to ensure that stores, the internet and other channels work together in a cohesive manner. This means being able to trace customer behavior across all touch points. 5. Search out growth pockets: Retailers should target the segments of the shopper population that are more lucrative than others. The same applies to certain categories, like beauty, that are growing more rapidly. 6. Create experiences: Retailers must provide shoppers with persuasive reasons to engage with their brands and visit physical stores. Part of the solution is giving consumers a truly immersive experience. Retail Services Spotlight Report Colliers International & GlobalData 7
Summary and Outlook Consumers have largely recovered from the Great Recession but they have also changed significantly over the past decade. Certainly, consumers are changing their shopping channels: from physical to online, from mid-market to value, from department stores to boutiques, from eat-in (grocery stores) to take-out and eat-out (restaurants). But the changes go further and deeper, with consumers adopting new mindsets on how they approach shopping. With budgets stretched and time limited, consumers prioritize more and seek out options wherever they can. They care more about how products are made and about the reputation of the retailers where they are sold and they vote with their dollars. With so many competing considerations on the minds of consumers, brand loyalty is not what it once was: Retailers must earn shopper patronage anew every day. This challenge is much more profound than simply competing with e-commerce. Rather, retailers must rethink how they engage shoppers with more interesting, compelling experiences that leverage the inherent benefits of physical stores over the virtual world of online shopping. It s no longer a focus on sales per square foot but experience per square foot. The solutions will not be the same for all retailers. Shoppers are using multiple channels, so retailers need to adopt approaches that resonate with their target audiences across these different mediums engaging shoppers on social media, making shopping easier with effective omnichannel strategies and most of all, integrating platforms and tools to provide consumers with a clear, consolidated view that highlights content and community. Getting there will not be easy. But the rewards of a successful strategy and execution can be rich and may well reverse the tide that is challenging so many retailers today. 8 Retail Services Spotlight Report Colliers International & GlobalData
Anjee Solanki National Director, Retail Services USA Colliers International +1 415 288 7871 anjee.solanki@colliers.com Andrew Nelson Chief Economist USA Colliers International +1 415 288 7864 andrew.nelson@colliers.com Neil Saunders Managing Director and Retail Analyst GlobalData Retail +1 718 708 1476 neil.saunders@globaldata.com For more retail insights and opportunities, visit: colliers.com/us/retail Retail Services Spotlight Report Colliers International & GlobalData 9
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