Land Grabs: The Real Retail War is Being Fought Offline | OLIVER In-House Agencies
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Amazon’s swoop on Whole Foods last week proved something significant: that the battle for retail dominance won’t be lost online, but in-store.

This was duly noted by this journalist in the wake of the breaking news, who said that Amazon’s true objective in the purchase wasn’t a simple matter of empire expansion, but of understanding, “understand how shoppers behave in a physical store”.

Amazon, he says, wants Whole Foods’ data, to “better predict what goods to carry” and “learn how to strategically place products so customers are more likely to make impulse buys”.

This news is only the most recent manifestation of a longer-term trend:  online space becoming “crowded and expensive[1],” and both online competitors and new-model offline retailers edging into the offline territory.

For big retail brands, this poses a pressing question.

How can they keep making their spaces pay?

Common selling points

Physical space used to be a powerful USP.

By putting a wide range of stock in one place, you could deliver:

  • unparalleled convenience
  • unparalleled cost efficiency.

Shoppers came in their droves, and today, Walmart is the world’s biggest business by revenue[2]. Tesco is the UK’s fourth biggest, behind two oil companies and a bank[3].

Today, this selling point is no longer entirely unique.

Although we’re still waiting for ecommerce to truly compete on convenience (pending delivery drones and VR), it’s already beaten the offline sector on price.

The impact is clear to see.

Ecommerce, as a share of the overall retail market,  has been growing at an exponential rate of 1.12% per year since 2004.

ecommerce graphs combined

That puts America’s last physical shop out of business around Christmas 2038.

What last stand?

Now, clearly this isn’t going to happen.

We’ll always have some physical stores because their spaces deliver value which ecommerce can’t.

For just one example, “going shopping” for many people is like walkies for the family pet. People enjoy going out, and they enjoy activities, and no drone or VR headset can compensate for that.

But what’s worrying for retail brands is that there’s currently no sign of them attempting to market this value.

Instead, major retailers remain primarily price-focused – including those which don’t position themselves as value brands.

value retail brands

Now, there are valid reasons for this stasis.

One reason is that these brands have been heavily preoccupied in recent years with making their own inroads into ecommerce.

Progress has been healthy and profitable:

  • Carrefour expects to triple digital revenue by 2020[4]
  • Dave Lewis credited Tesco’s online business with leading to a third consecutive quarter of growth last year[5]
  • 18% of Sainsbury’s total group sales in Q3 2016 took place online
  • Walmart will invest a further $1.1bn in ecommerce this year[6].

…and off the back of statistics like this, supermarkets might be tempted to continue to invest in digital sales.

But in truth, with some degree of urgency, the retail establishment must divert its energies away from the battlefield, to guarding the fort.

Upping sticks?

Some indicators suggest that physical retail brands will be forced to reduce their physical footprints; but such a move could prove to be a Pandora’s box.

Granted, space is expensive. Walmart’s electricity bill in the USA alone is $1b[7].

One market analyst has suggested that Tesco could improve its current estimated profit margins of 0.5% by closing 200 of its 939 sites[8], and John Lewis CEO Paula Nickolds acknowledges that her business is heading to a future with fewer retail outlets[9].

But on the other hand, competitors are making physical space pay.

Aldi has shown it’s still possible to generate 5% margins[10] and expects to open another 70 UK stores this year[11]. Lidl plans to open its first 150 US stores in 2018[12].

And with Amazon swooping on Wholefoods, if you were Dave Lewis, would you really close a Tesco store, knowing that a direct competitor might pop up in its place?

Marketing the experience

Mainstream supermarkets have frantically tried to rekindle the low-cost sell, but with embarrassing results.

Tesco registered a record loss of £6.4bn in 2013 – a year when it was reported to have attempted to drive down prices by “generating income from complex deals with suppliers, rather than attracting customers.[14]”

And more recently, more than one UK supermarket has come under fire for misleading uses of multi-buy promotions[15].

So with the price USP officially defunct, these brands should look to their nearest threat for inspiration.

Amazon’s growth trajectory is dizzying.

amazon vs walmart

And their purchase of Whole Foods is only one recent landmark in their experimentation with a whole variety of new grocery store models[16].

There’s the cashless “Amazon Go” concept store[17], they’re dabbling in pop-up shops, and so on.

And one wonders whether Waterstones’ opening of a cluster of unbranded book shops[18] was inspired in any way by Amazon Books’ foray into physical space.

Tesco, to its credit, has made a valiant effort with the Fresh & Easy micro-supermarket chain in the US – and only appeared to falter on the size of the space it marketed. The brand’s short-lived CEO Tim Mason conceded that, “It’s a land of plenty. People are used to big stores[19].”

And I’d point to some of the work our sister agency Adjust Your Set undertook for Marks & Spencer as another, more successful example. The In the Moment content suite spoke more about the consumer’s relationship with the M&S brand than that with their bank balances.

Throwing spaghetti

Yes, M&S is a luxury brand, but I see no reason why other big retailers can’t do the same.

Doubtless, it’s a delicate exercise.

Poking fun at the foibles of ecommerce (that mistake we’ve all made of ordering one crate of chopped tomatoes rather than one can) might be a non-starter because of their own growing ecommerce businesses.

But it doesn’t have to be that complicated.

More brands should ape Waitrose and dish out free coffee.

A supermarket could run a crèche or a soft play area.

In-store cooking demos could take place, maybe with the occasional celeb chef.

Not every bit of spaghetti sticks to the wall; Tesco learned that the hard way. But what’s clear is that the current big retail formula runs a very real risk of going stale, and going the same way as print journalism, black cabs.

Or, perhaps, going to the same way as Whole Foods.

Growing the way it is, one wonders if there’s any retail chain Amazon wouldn’t secretly like to buy.

~

Find out more

Whether you’re fighting your retail war online or offline, our experience could come in handy.

Retail clients in the OLIVER Group include Vision Express & Marks & Spencers, for whom we create everything from POS collateral, to TV campaigns, to in-store digital displays.

Call +44 0203 142 3500 or email info@OLIVER.agency to find out more.

About the blogger

IMG_0049

Paul Tomlinson joined OLIVER in April 2016 as Business Development Content Marketer. He previously worked for the now-infamous tech startup Powa Technologies, where he amassed a bank of knowledge on payments, retail tech and customer experience, and also has a background in ecommerce.

He’s going to publish a novel one of these days, but is currently content marketing to pass the time.

References

[1] https://www.theguardian.com/business/2016/jan/30/future-of-e-commerce-bricks-and-mortar

[2] https://en.wikipedia.org/wiki/List_of_largest_companies_by_revenue

[3] http://www.managementtoday.co.uk/27-british-companies-worlds-top-500/any-other-business/article/1357359

[4] https://www.ft.com/content/54a6f07d-2b1d-3faa-9afc-14f2822670fd

[5] http://www.decisionmarketing.co.uk/news/tesco-boss-praises-direct-and-digital-for-turnaround

[6] http://s2.q4cdn.com/056532643/files/doc_financials/2016/annual/2016-Annual-Report-PDF.pdf

[7] https://www.forbes.com/sites/christopherhelman/2015/11/04/walmarts-everyday-renewable-energy/#147a3eeb4a30

[8] http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11559498/Strangely-Tesco-is-the-only-one-not-obssessed-with-its-profit-margin.html

[9] http://www.bbc.co.uk/news/business-39441039

[10] http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11559498/Strangely-Tesco-is-the-only-one-not-obssessed-with-its-profit-margin.html

[11] http://www.retail-insight-network.com/news/newsaldi-to-build-70-new-stores-in-2017-5017132

[12] http://uk.businessinsider.com/lidls-expansion-plans-in-the-us-2016-9

[14] http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11559498/Strangely-Tesco-is-the-only-one-not-obssessed-with-its-profit-margin.html

[15] http://www.independent.co.uk/news/business/news/asda-ordered-to-change-misleading-supermarket-prices-a7003006.html

[16] https://www.wsj.com/articles/amazon-grocery-store-concept-to-open-in-seattle-in-early-2017-1480959119

[17] http://uk.businessinsider.com/amazon-go-grocery-store-future-photos-video-2017-6

[18] https://www.theguardian.com/books/2017/feb/27/waterstones-chief-defends-decision-to-open-unbranded-stores

[19] http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10299870/Tescos-Fresh-and-Easy-a-timeline-in-pictures.html

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