3 Strategies for Offline Retailers Amid Economic Uncertainty
With record food inflation immediately following the COVID-19 pandemic, retailers are scrambling for answers on how to retain and grow their market shares. Offline retailers, which saw the pandemic push sales online and inflation reduce whatever revenue was left to bring in, have a particularly daunting task ahead of them. Since around one out of every two shoppers has an Amazon Prime membership, what can offline retailers do to lure shoppers back?
[Read more: "Top 10 Retail Innovations for 2023"]
We conducted a survey of 2,271 U.S. shoppers to analyze consumer purchase behavior, focusing on the use of curbside pickup of orders, and the role that discounts can play in attracting and retaining in-store customers. Fifty-one percent of our respondents identified as female, 64% reported having an Amazon Prime membership, and 37% reported picking up their online orders curbside. Our research findings provide three actionable insights to help offline retailers succeed in today’s changing retail landscape.
1. Improving the Omnichannel Shopping Experience
The pandemic forced many offline retailers to develop or build up their online presence. Curbside pickup of online orders, offered by many such retailers as a response to health and safety concerns, proved an effective tool (The Washington Post 2022). Our research shows that the convenience and independence that comes with curbside pickup has made it a habit for many consumers, especially for those under 50 years of age and those with higher levels of education.
The success of curbside pickup creates opportunities for offline retailers to leverage and sharpen their competitive edge, which is their existing network of local stores. As more consumers are shopping online, a number of offline retailers are trying to match the delivery speeds of online retailers to attract them. Matching the speed of Amazon’s home delivery, enabled by its massive investments in logistics, is an expensive proposition. Retailers will be better off fulfilling online orders out of their existing networks of stores through curbside pickup and through BOPIS (buy online, pickup in store). Ironically, for shoppers eager to get their hands on purchases, these delivery modes can even beat the speed of home delivery.
Our results further suggest that customers who adopt curbside pickup value online features such as a user-friendly website, real-time inventory and online reviews. Investing resources into improving the online purchasing experience, while offering curbside pickup and BOPIS for delivery of goods, would allow offline retailers to compete more effectively with pure-play online retailers as well as other offline competitors. This also reduces shipping costs, with the savings passed on to customers to make the offerings more attractive.
In addition, curbside pickup improves retailers’ profit margins, as these customers, on average, are more educated, more thoughtful and discerning, and less interested in price discounts. Retailers can focus on specific product categories and price levels when reinvigorating their online offerings to better match the preferences of these customers. Our results show that shoppers with Amazon Prime memberships are also more likely to use curbside pickup as compared with non-Prime members, which suggests an opportunity for offline retailers to wean customers from Amazon Prime and capture a larger share of their wallets if they can provide a comparable online shopping experience.
Despite the increased popularity of curbside pickup, most shoppers still shop both online and in stores. Sixty-nine percent of general merchandise shoppers and 42% of grocery shoppers are multichannel shoppers (defined here as doing not more than 90% of their shopping in any one channel). Thus, converting entire stores into “dark stores,” as tried by a few offline retailers, isn’t advisable. Rather, reconfiguring existing stores to cater to both in-store shoppers and serve as a pickup point for online orders is preferable. By doing so retailers can also avoid regulatory restrictions on dedicated dark stores (BBC 2022; RetailWire 2022).
2. Winning Customer Loyalty
Pandemic-induced inflation, exacerbated by the Russo-Ukrainian war, is aggravating the retail world. As retailers compete with each other to retain and steal customers, discounts are a key weapon, but retailers need to target specific consumer groups. Our research shows that shoppers who value in-store features, like the ability to touch and feel the product and check produce and meat quality; a pleasant shopping experience; and employee friendliness, are easier to retain, as they want significantly higher discounts to switch to a new retailer. So, a critical step for an offline retailer to retain these customers is not to focus too much on discounts and to continue providing what attracted them to its store in the first place.
Results also show that price-sensitive customers want higher discounts to switch. This appears counter-intuitive, as one would expect such customers to move from one retailer to another in search of additional discounts that can save them money. But price-sensitive customers likely take additional costs such as the cost of transportation into account, too, when deciding where to shop. Therefore, retailers should consider their total costs when devising discounts.
Finally, results show that Amazon Prime members want higher discounts to switch. Their membership makes them loyal to Amazon for a number of reasons, such as the need to purchase a lot to recoup their membership fee, and their perception of lower search costs, given that Amazon is usually their first – and sometimes only – shopping destination, anyway. But this loyal purchase behavior extrapolates to their offline shopping, too. Thus, while Prime membership may reduce the share of purchases that offline retailers receive, they’re more likely to retain that share.
3. Strategies for Offline Retailers
Our results suggest three key lessons for offline retailers. First, they need to recognize two distinct stages in the consumer journey: product purchase and product acquisition. When competing with online retailers, they’re focusing too much on product acquisition. Instead, they should conserve their resources by offering efficient curbside pickup, which leverages their existing competitive advantage in the form of physical stores, and also reduces shipping costs. Retailers should reallocate those resources to compete better in the first stage of the purchase journey. They should beef up their online infrastructure – including accurate product information, real-time inventory, optimal website navigation and other digital user-experience tools – to be able to compete with pure-play online and other offline competitors. In this manner, they can differentiate themselves with better customer experiences and service.
Second, it’s short-sighted of offline retailers to write off those customers who subscribe to online retailers’ subscription services such as Amazon Prime. They should attract these customers by providing an improved online purchase experience and by offering “practically” faster modes of product acquisition like curbside pickup, which these customers prefer. Further, once attracted, these customers are more loyal and less likely to switch for small discounts.
Finally, retailers frequently use discounts such as price promotions and BOGO (buy one, get one free) deals indiscriminately to attract and retain customers. They need to develop targeted discounting strategies so as not to leave money on the table. Price-conscious shoppers look at the totality of their shopping costs, which include transportation, so targeted couponing based on geodemographic segmentation is a preferable discounting strategy. Resources thus saved should be used to improve the core business – by providing an enhanced assortment of brands and products, locational convenience, and a friction-free and pleasurable shopping experience – to attract and retain in-store shoppers for whom discounts aren’t the primary purchase decision attribute.
The COVID-19 pandemic and inflation exacerbated by the Russo-Ukrainian war have considerably changed the shopping behavior for frequently purchased goods. The next few years have the potential to make these changes perennial. Shoppers have a plethora of options and are truly “royalty” in the modern world of technology-driven retailing. Innovative retailers have a real opportunity to gain new shoppers, at the expense of slower counterparts, if they think strategically and act nimbly.
