Three Ways Brick-and-Mortar Stores Are Closing In On Online Retailers

The last few years have seen great shifts in the retailers’ business models, mainly brick-and-mortar retailers. In the wake of increasing dominance of e-commerce giants, big-box stores had to find ways to get back to winning customers. Price competition was almost a reflex reaction from retailers as they attempted to stem market share losses. However, low-cost being the online model’s inherent strength, this strategy could not have won the battle for physical stores in the long run and declining profitability levels drove the point home.

Of late, focus has shifted from competing on price to developing a competitive advantage centered around customers’ in-store experience. Below we will take a look at how leading retailers Best Buy (NYSE:BBY) and Target (NYSE:TGT) are making progress on this front.

Reinventing Stores To Attract Customers

Best Buy led the way in transforming stores into experience centers, while others like Target are taking the cue. As part of its turnaround strategy, Best Buy came up with a new store format where a dedicated space inside its stores would be allocated to a single vendor. They are marked by large product displays, dedicated checkout areas and sales support, standing out from the other parts of the store. Popular brands including Apple, Samsung and Sony signed up for it and the format has been a huge success for Best Buy, providing increased sales of high-value products and some rental income too.

On the other hand, Target is coming up with its own ways of reinventing stores. ^[1] In categories like home decor, which accounted for 17% of the retailer’s $73 billion in overall sales in 2014, the company came up with layouts that it calls vignettes, which are used to showcase products in showroom-like areas. Rather than just stacking up items in shelves, the layout helps customers imagine what they would look like when put together in their homes. These are present in 200 Target stores currently and will be expanded to another 60 stores by the end of this year. The company is also hiring visual merchandising experts to further improve product presentation, to get customers to visit stores more often, rather than using a computer or mobile screen to shop for products.

Engaging Customers Through Sales Associates

Sales personnel have long been a key feature of brick-and-mortar stores. But, as their models evolve, retailers are taking customer engagement to a whole new level.

Best Buy is known for its Geek Squad services, through which it provides technical support to customers both in-store and on-site. The company considers this a key advantage which enables it to provide a better customer experience, helping it differentiate itself from competitors like Amazon. With increasing importance of the appliances category, Best Buy plans to leverage its system designers and Geek Squad agents to improve in-home services. Its Magnolia Design Centers already offer in-home consultations, where a professional would visit the customer’s home, understand their needs, and come up with a range of solutions.

On similar lines, Target is currently testing new services by appointing “Digital Service Ambassadors” in its stores, who help customers engage with Target’s offerings on mobile devices. It also plans to introduce style advisors to provide fashion tips to customers and also appoint sales associates in the beauty, food and swimwear sections. The new approach to engage customers was all started by Target’s new CEO, Brian Cornell, who headed Sam’s Club earlier and was known for improving customer insights systems across Wal-Mart.

Targeted In-store Marketing

Brick-and-mortar stores never had the luxury of having deep insights into customer habits and preferences, unlike their online rivals. This put them at a disadvantage as online retailers were able to tailor promotional efforts based on their knowledge of a particular customer. However, this is no more the case, as brick-and-mortar retailers are expanding online operations and can now leverage the information gathered to generate much-needed insights. In fact, with the availability of new technology, chances are that they will leave online retailers behind.

A case in point is Apple’s iBeacon technology, which is a software that helps iOS users connect to third-party beacons deployed in real-world settings. As customers roam around in a store, these beacons track their location within the store and alert them to a deal on a nearby product that they might be interested in. Along with generating incremental revenue for the retailer, this also helps consumers save on products that interest them.

While the effectiveness of newer technologies in drawing consumers back to stores and converting them into sales is still unproven, they put everybody back on a level playing field. Moreover, the above discussed strategies will likely change a typical consumer’s view of a physical store from that of a product showcase to that of a high-touch experience center that understands their needs at a deeper level and caters to them. In light of these shifts, it would not be surprising to see online retailers establishing their own physical presence, further converging business models in the retail industry.

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