How to Differentiate Your Store from Online Retailers | A Guide for Independent Retail in 2012

I’ve spent the last couple of days thinking about articles that caught my attention in December. One story I’ve seen repeatedly pop-up has been the backlash against Amazon.com’s PriceCheck app. Amazon announced on December 6 that it would give up to $15 worth of credit to customers who use its app to price check and purchase through Amazon while browsing brick-and-mortar stores.

The uproar from retailers was immediate. The American Independent Business Alliance posted a collection of examples of how retailers had responded to Amazon’s attempt to “spy on local stores.” Gian Fulgoni, chairman of the Internet market research company comScore, was quoted in The New York Times saying that such acts were “a retailer’s worst nightmare.”

The elephant in the room is that the price and convenience wars are over. Traditional brick-and-mortar retailers are at a structural disadvantage vis-à-vis larger e-tailers like Amazon. With only a few exceptions, for brick-and-mortars to compete with e-tailers on price and convenience is futile. The success of independent retailers now hinges on how well they can offer a shopping experience that online retailers cannot duplicate. The question is, How?

Differentiate on Service–Or Die

Ted Hurlbut, Principal at Hurlbut & Associates, thinks independent retailers can still be successful but must move away from a business focused on price. Instead, they must focus on customer experience. “When we say, ‘customer experience,’ we’re really talking about the interpersonal exchange within stores,” says Hurlbut. “It’s the ambiance and the items, yes, but it’s mainly the people. The people create the connection and establish customer loyalty.”

On his blog, Doug Stephens, President at Retail Prophet, puts it more directly: differentiate or die. I gave Doug a call and dug deeper into his thoughts on the subject. Doug tells his clients that, to be successful, they need to choose and “win” one of two propositions:

1. Offer a high-convenience service. Be available at all times, on all platforms and offer most of the items and services a customer could ever need.
2. Offer a high-fidelity service. Your prices may be a little higher and you may not be accessible 24/7, but your service and customer experience are unparalleled.

Wal-Mart and other big box retailers used to dominate the first option. But now Amazon and other high-volume e-tailers are nipping at their heels. Smaller retailers have to focus on the second option to survive.

Three Ways to Differentiate Beyond Price and Convenience

Retailers need to spend their efforts creating a memorable in-store experience, offering remarkable customer service and likable employees that customers will return to for expert advice. These strategies can be grouped into three initiatives.

1. Interact, Entertain and Educate
Retailers need to re-think the purpose of their store. If it’s simply a place for customers to acquire products, they will lose against e-tailers. Instead, the brick-and-mortar store should offer what an online shopping experience cannot replicate: a place to interact with people, a place to be entertained, and a place to learn. The key point is to deliver an experience, not to process a transaction.

The obvious example is Apple’s stores. There, customers can interact hands-on with every product Apple sells, learn how to use the products, and bring in their equipment for servicing at the Genius Bar (which conveniently takes appointments). None of this can be accomplished online.

Other examples abound. Most pet stores allow customers to bring in their dog, and Fido gets a treat at checkout. Happy pets make happy pet parents–who are then more willing to shell out $50 for dog food. Some wine stores offer free wine tastings and track what customers buy so that, when they return, they can get feedback on previous purchases and recommend other wines they might like. Stores that sell cookwares often offer cooking classes or demonstrations, filling the store with great smells, and then selling patrons ingredients, cookbooks, utensils and more. I bet this is what ex-Apple retail head and new J.C. Penney chief Ron Johnson is envisioning with the recent purchase of Martha Stewart Living. Virtually any store can find a compelling experience to offer along these lines.

2. Rethink the Store Inventory and Layout
While online retailers generally have the most expansive inventory, the amount of choice is often overwhelming, and the ability to find desired product online can be unnecessarily challenging due to the categorization structures imposed by e-commerce sites. This can work against e-tailers and presents an opportunity for stores.

Retailers should aim to carry the right product mix, not the broadest product mix. Carrying a manageable number of the best products at various price points can be more valuable to customers than carrying every product on the market. Do retailers really need to sell 25 types of hammers? In fact, retailers may not need much inventory at all. Augmented reality technology can help show customers what a new, brown couch may look like in their living room–even if the store only stocks one demo couch in black.

Using clear signage, creative shelving arrangements, and instructive in-store displays is important for guiding customers through the store and sifting through product options. A customer looking for earbuds should know exactly where to go, and once there, should know how to quickly narrow options by price, brand or some other factor. Best Buy does this well. All the TVs are placed against one wall, grouped by screen size, with in-store product comparison charts for each brand. The Internet-age buyer will appreciate clear store layouts that help make products more accessible.

3. Replace the Sales Associate with the Likable Expert
Before the Internet, the sales associate was often the ultimate resource for product knowledge. But today, a customer can obtain most product details before even entering the store; pricing, customer reviews, and comparable products are almost always available from either an online retailer or the manufacturer’s own website.

Today’s sales associate is better positioned as a likable expert. Great employees don’t need to know the minute details of the store’s inventory–that information can be accessible with tablet devices like the iPad. Rather, a great sales associate should be personable, trustworthy, and able to relate to the customer.

This expert should be trained to guide rather than sell. The expert can first inquire about the reasoning behind the intended purchase, and then lead the customer to the products that will address these issues. Again, Apple has done this extremely well in its retail stores. Its sales employees don’t have quotas, nor do they receive commissions; they’re coached to solve problems rather than sell. While Apple obviously has a powerful brand and a limited set of products to stock its stores, this mentality and connection between sales associates and buyers can help differentiate the store experience from that of e-tail shopping.

Point of Sale Features for Success

Executing on these strategies largely involves a mix of creativity, planning, and potentially changes in employee hiring and training practices. Technology can help here, too. New point of sale (POS) solutions can provide the tools retailers will need to revamp their stores. Here are a few areas in which retail software functionality can support the strategies described above.

To Improve the Store Experience

• Customer databases to follow-up with customers on opportunities to enhance their purchase, or let them know about future events that may interest them.
• Repair and maintenance tracking models to effectively manage extended services and ensure that customer service is free of hassles or delays.

To Improve Inventory Management and Store Layout

• Reporting and inventory analysis tools to find the right amount and type of inventory to carry and promote.
• Kiosks for customers to search the store’s entire product catalog and locate products in-store.

To Improve Sales Associates

• Mobile POS and inventory functionality to arm sales associates with additional product information and expertise.
• Employee management features to reward and cultivate the most successful sales associates.

Even with the help of technology solutions, successful independent retailing will take business owner dedication and vigor. Independent, mom-and-pop retailing doesn’t have to be victim to Amazon’s online dominance–it just has to rethink what it really is in the modern shopping landscape.

Feel free to comment below with your thoughts or contact me directly at michael@softwareadvice.com.

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