Leading by Aligning
By Bruce Dybvad
Three macro trends hold the world’s top retail brands to modest gains. The cost of commodities is up, challenging companies to operate more efficiently while maintaining quality. Modest income growth and fragile confidence continue to constrain consumer spending. And the irreversible shift in power to the shopper, thanks to social media, puts pressure on retailers to operate transparently and engage shoppers through brand experience.
Faced with the soaring prices of raw materials, energy, and labor, companies are reviewing operations to find ways to cut costs. For the furniture category, large products drive up the cost of logistics and impact price. International home furnishings giant IKEA minimizes costs with fl at-packing, saving money in labor, shipping, and storage. Not only are devotees of IKEA’s European-modern aesthetic content to assemble products themselves, they share pictures of their newly furnished rooms on the retailer’s website.
Today, brands interact with consumers in a dialogue which amplifies the consumer’s voice and influence. The top retail story in the US — the travails of JCPenney (JCP) — illustrates what happens when a leading retailer fails to keep pace, listen, and respond.
While we now have access to more transparent information, we’re also confronted with innumerable information sources. In the past, in the field of journalism for instance, sources were checked, double-checked, and then triple-checked before information was published. With the rise of bloggers, citizen journalists, a broad spectrum of alternative news sites, and a legion of internet personalities with opinions that run the ideological gamut, we can no longer assume accuracy and objectivity. We now have unlimited information at our fingertips, materialized in a matter of seconds, yet it’s harder than ever to separate fact from fiction, hype from reality.
While JCP’s attempt at brand transformation is highly commendable, it seems to have been done without consumer input. Marketing and pricing messages came out ahead of store reinvention and merchandising. Confused customers have not embraced the conversion of their beloved old-line department store into a new age fashionable boutique with everyday low prices. Consequently, JCP has suffered lost sales and plunging stock prices. Time will tell if the company’s new strategy is too fl awed to work. Meanwhile, there are two takeaways for the rest of the industry. First, rebranding a company is a complex endeavor, involving much more than a new pricing policy and image adverts. Second, retailers pay a steep price when they break a sacred covenant; that is, the need for the experience to deliver on the expectations set by its brand communications. Leaders of tomorrow will be those who effectively manage transformational change with the participation of their customers and keep their promises.
Conversely, American casual clothier Gap made strides this year, picking up strength after launching a global branding campaign. By refocusing on its California roots and regaining its identity for “slow” fashion, sales have increased and profits remained stable, despite the increased marketing expense.
For many retail categories, closeness with consumers depends more and more on their sensitivity to sustainability. Green products and services, facilities, and activism are heavily publicized and strongly supported by consumers. IKEA, for example, plans to be a 100 % green company, and works with the Forest Stewardship Council and the World Wide Fund for Nature.
Watchdog groups and conscious consumers continue to keep the pressure on Nike, Puma, and adidas to respond to accusations that their factories are polluting Chinese waterways. The three brands released a joint roadmap towards zero discharge of chemicals in the supply chain by 2020, setting a new standard for environmental performance in the industry. Big box retailers, such as Target and Walgreens, have developed in-store apps that help shoppers navigate and save time. Like a GPS, Walgreens mobile tool creates a way-finding pattern from a shopping list. It consolidates the trip and provides a platform for promotions at the optimal moment. 20% of sales are lost when shoppers can’t find an item which makes creating such mobile apps a strong priority for retail.
Global retail leaders are continuously challenged to align with demand. That means engaging customers through any means possible, including innovations in mobile technology; increased emphasis on inventory management; brand extensions and global expansion; and innovating with the customer to capitalize on best opportunities.