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Expert Spotlight: 6 Big Ideas from my Interview with Neil Saunders

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If you follow retail, you’ve followed the work of Neil Saunders. He’s the media’s go-to expert for all things retail, and his insights have been published in the likes of Wall Street Journal, New York Times, and on CNN, NBC News, and more. No wonder Neil Saunders is widely considered one of retail’s most influential consultants. 

Neil Saunders

Now the Managing Director of GlobalData’s retail division, Neil got his start in the UK working for John Lewis doing research and strategy development. Over time, he moved into consulting, working with data and insights for other retailers and across other firms. 

I got the chance to sit down with Neil and pick his brain on a range of topics, from the merchants winning the retail race to the where the industry is headed, and more. Here are our six favorite insights from the conversation.

 

#1: Neil sees the future of retail as belonging to 3 (very different) retailers.

Neil Saunders:      One of the most interesting ones getting it right at the moment is Target. Target has gone through a period of very good growth, delivering very solid results, and a lot of the reason for that is because the financial investment they made in their stores. When they first announced that, there was a lot of skepticism. I think people were querying why Target was putting money into what they saw as a declining volume channel. But Target knew that customers liked coming to stores—but that they wanted a better experience than Target had been offering.

So they invested in making the store environment much more pleasant. They moved away from traditional, big supermarket-type merchandising with high fixtures and shelving to breakout areas where they can display things like beauty and show what’s on offer in a much more visually engaging way. And that certainly has encouraged people to come into stores, to get more inspiration from stores, and to ultimately buy more from stores. The other thing they did is improve a lot of the products that go into their stores. They’ve done a lot of their own brand development which has made the whole proposition much more compelling and helped Target to drive growth.

Alongside Target, another example of retailers doing well in the physical space is the dollar store segment—Dollar General and Dollar Tree being the main two players. And they’ve been opening a colossal number of stores. You know, Dollar General has over 15,000 shops now. These are quite small stores, but the numbers and coverage is remarkable—especially in an era where so many are saying stores are doomed.

One of the reasons they’ve been successful is that they offer things that online can’t, namely immediacy and convenience. A lot of these stores are located in rural areas and smaller neighborhoods where there aren’t many other shopping options. And customers appreciate just being able to pop in quickly and get some household products or whatever they want to stock up on, and then get back home. Dollar General and Dollar Tree have really tapped into a need for convenience in retail. And they’ve also done a lot to make sure that price proposition is strong. They’re offering really good value for money. Plus they’ve been developing their stores as well—putting more fresh products and produce in them—and making sure that they have a good range of different things that people can find. I think they’re an often-overlooked part of the retail segment, but they shouldn’t be because they are one of retail’s success stories.

Another winner that comes to mind is Best Buy. I think Best Buy has put a lot of effort into making the stores hubs for experience and customer service. They recognized that when people go into their stores, they want advice, they want assistance, they want to try out products. And they’ve invested in all of those areas, which means that their stores actually are still very relevant. They do a lot of sales online, but a lot of those online sales start in stores with people going in to look at or query things. So the two successfully work hand-in-hand and I think they’re a great example of how a retailer can avoid damage from the push into digital. Best Buy managed to survive in the digital age by using stores very effectively to deliver what customers want.

 

#2: Department stores need to re-assess.

Neil Saunders:  I think that department stores have had a lot of difficulty because there are many structural challenges. One of them being really, really large stores. The real estate that they have is very expensive and you have to have great volume to make it work.  

Unfortunately, a lot of customers have drifted away from department stores. They visit them less frequently or don’t visit them at all. And one of the reasons for that is because in the physical sense, a lot of these stores have haven’t really invested in physical environments at all. Many of the stores are very old fashioned, and they don’t deliver a great deal of inspiration. A lot of them are not merchandised particularly well and customers just aren’t in the market for that kind of environment.

For customers, it’s really difficult to shop a department store. They have to do a lot of work in terms of finding the product they want and there are so many different departments and options. It takes a lot of effort to shop at department stores at a time when actually retailers should be making shopping as easy and as stress free and as frictionless as they can. Department stores haven’t optimized these areas, so a lot of them really are struggling and their financials are very poor. The sales numbers coming out of the them are very weak, which is why they’re shutting stores.

 

#3: For grocers, the biggest challenge is margins.

Neil Saunders:  Another group that I would put into the ‘challenged’ category is the supermarkets and grocers. The interesting thing here is that grocery is a very low margin business. And in grocery, there’s a lot more competition entering the market. You’ve got the likes of Aldi and Lidl coming in and expanding. You’ve got the dollar stores, as we’ve mentioned, selling elements of groceries, and they’ re expanding. You’ve still got Walmart and Target doing very well. And now you’ve got more online players in grocery. Online grocery is low in terms of penetration, but it is growing.

And I think for a lot of the traditional grocers that’s taken some of the edge off the volume that they can generate through that physical stores—because the consumer is shopping in different places for their groceries. And that’s really damaged the economics of some of the traditional grocery players. It means that they’re having to really rethink how they approach customer retention and what consumers want from stores.

Traditionally, I think people would’ve gone into a grocery store, walked up and down the aisles to do a full shop—and they’d probably go in once a week, once a fortnight, something like that. And they would spend a lot of money on their trip.

That’s still an option for some people. But actually, what’s happened now is that many more people are buying the basics—the household products like laundry detergent or pet food that they buy all the time—online, which means that they are actually not visiting some aisles in stores. So often people are now using supermarkets for a top-up shop or to buy food for the same day, or to pick up a few things. In some way, this has undermined the whole model of having these really big stores that are designed for people doing a full-scale shop.

So I think a lot of the growth is in trying to adapt to these shifts, which is why there’s a lot of experimentation in trying to develop small store formats, trying to develop urban store formats, or convenience type formats, and trying to put more inspiration to some of the physical stores. But it’s difficult. And some of the retailers out there like Safeway, which is part of Albertson’s, and even Kroger are finding the going very tough and the sales numbers that are coming out and not that great.

 

#4. Brick-and-mortar shoppers want to be inspired.

Neil Saunders:  There are a number of things retailers need to be looking at today. I think one of them is definitely inspiration, especially when you think about physical stores. In the past when we didn’t have the internet, physical stores had to offer all products and usually had wide assortments. And so a big warehouse type of store made sense because customers were going there to buy products.

Now people can buy everyday and more unusual products online. So the role of the store has changed. It no longer has to be a warehouse where you go to find everything, because you can do that online if you want. Of course, some retailers still operate in the old way. Like Walmart, for example, and they’re still doing quite well. But most retailers don’t need to offer absolutely everything in stores. What they do need to offer though, and what customers increasingly want, is much more engagement and enjoyment.

I think people want an experience. They want to see new things. They want to try new things. They want to be entertained. And that means visual merchandising has to improve. The range of services offered has to improve—which is why some retailers are putting in things like beauty bars where customers can actually try on and test out products. People want value-added services. So, having things like foodservice and dining in stores is important. Retailers like Restoration Hardware are adding restaurants where you can go and have a real dining experience, eating off the products that are sold in the store. I think that that signifies a deep recognition that it isn’t just about buying products now. It’s about being entertained, being engaged, and feeling good about shopping.

Retailers also have to adapt to this new way of thinking. Some have done it very well, but others have not been quite so quick to adapt and they’re struggling a bit more. But everyone is moving, or trying to move, in the same general direction and I think we’ll see a lot more innovation within the next five or so years in terms of making the shopping experience great for customers.

 

#5: As for retail tech, here are some to watch.

Neil Saunders:      There are so many of these technologies to choose from, and that’s always a problem in and of itself because retailers have to find what they want to focus on. Some technologies have a lot of potential. I think electronic shelf edge labeling, for example, is sensible because it reduces the cost of having to change ticketing. And investing in shelf edge promotions is a good way to capture consumers’ attention. Something like that has great promise.

I think technology that helps retailers understand customers in-store or a technology that helps retailers identify your customers is also promising. This technology can help retailers make decisions about ranging and buying and personalizing the retail experience, as well as marketing, and all those sorts of things that tie back to customers. So, all kinds of customer recognition and analytics technologies have a really important role to play for retail.

And I think some robotics developments are good in retail: things like the automation of online delivery, whether that be robotic picking and packing, which Ocado pioneered and Kroger’s is now using through its partnership with them. I think that sensible because that’s a big area of cost, if you can automate it, it’s very useful for improving margins.

Autonomous vehicles for delivery are also going to be interesting. We are still at the early, early stages of that, but some retailers are trialing it now and I think that’s really important because grocery deliveries are an expensive part of online fulfillment. If retailers can take out some of the labor costs and automate the process it is very beneficial. I don’t autonomous delivery will be here for a number of years yet because it’s still in trial and there are a number of legal considerations about how it works, but it is definitely a pathway to the future and will be a part of the retail landscape.

 

#6: The future of retail is a polarized one.

Neil Saunders: There is currently a polarization in retail and this will continue to play out. And one end, I think retailers are becoming more experiential, more customer service driven, and are adding more value.

But I think at the same time there’s also a degree to which there is real simple format side of retail: offering low prices and operating with low costs for every day and essential products. This is why there has been growth of places like dollar stores, discount grocers, or value concepts like TJX. All of these have done very well because of their low-price position and because they offer  good value for money.

So it’s value at one end and experience at the other.

Outside of these two poles, the middle part of the market is very pressured. That’s where ground is being lost and there is pressure. That’s the part of the market where stores are closing and businesses are going bankrupt. There are lots of positives in retail, but you have to go outside of that part of the market to find them.

To keep the conversation going with Neil Saunders, follow him on LinkedIn or via his very active Twitter account, @NeilRetail.

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