The retail outlook for the 2011 holiday season may be more promising than 2010, but executives know there’s a much larger issue looming overhead than sales this quarter: long-term growth. No other subject strikes as much fear and uncertainty in the hearts of executives these days than how to grow their business.
In retail, as in most industries, growth has never felt more ambiguous. While issues of growth have always been on executives’ minds, three trends make today’s situation particularly uncertain. First, growth by streamlining costs and rationalizing SKUs is less and less effective. Second, building consumer loyalty in a post-recession environment has become foggy at best. And third, the rapidly changing media landscape places the very notion of brick-and-mortar stores in question.
The truth is, all of this ambiguity can’t be clarified by any single discipline. The really important issues in retail aren’t ones confined to marketing, technology, design, finance, or managing the supply chain. It’s about all of them at once. These highly ambiguous problems call for a hybrid approach to strategy. The future of retail has to transcend disciplines to fulfill its growth ambitions.
Here are three hybrid approaches retailers can use to think across disciplines and find new opportunities for growth:
The lines between retailers and manufacturers are blurring. Retailers have realized their power to drive product development but haven’t fully developed the capability to manage it. A private label by itself isn’t enough. Taking a hybrid approach requires actively seeking unique partners to fill in the gaps. Collaborating with vendors and indirect competitors, for example, is a win-win–retailers are able to use a brand people already know and love while manufacturers get peace of mind that their new products will have a place on the shelf.
Take, for example, a recent partnership between Target and the online high-end fashion discounter Gilt. Trying to find a strategy to increase clothing prices, Target placed its new line of designer handbags and clothing on Gilt.com, hoping to benefit from the site’s exclusivity and sense of style. The products sold out within a few hours. By teaming up with what some would consider a competitive threat, Target found a new way around the problem of competing with Walmart for pennies on the dollar.
Segmentation models based on demographics or lifestyle are increasingly less useful in retail. Using these models can often alienate people at the shelf and show a lack of empathy for the customer. It’s more useful to identify overlapping needs and build solutions to meet them. Finding the intersecting needs of seemingly disparate groups, such as young couples and empty nesters, for example, can be a stronger approach than marketing to a single target.
Ikea focuses on folks in transition who don’t have an appetite for permanent, expensive furniture. While many young singles and couples love shopping there, older families with kids growing rapidly feel it’s designed for them, as they are also going through significant household transitions and need new, temporary furniture. By setting up all aspects of business to deliver on overlapping needs, retailers can demonstrate more empathy and capture a wider spectrum of consumers.
As businesses are under increasing public scrutiny, very few “backstage” behaviors, such as sourcing or employee conduct, are without an audience. That’s just the reality of business today. The knee-jerk reaction of running marketing campaigns that talk only about who their suppliers are fails to match the transparency consumers demand.
When done well, backstage activities can actually generate new growth, not just mitigate risk. Consider Whole Foods: In its flagship store in Lincoln Park, Chicago, there’s an office right in the middle of the produce section. The tasks that have traditionally been “backroom,” such as sourcing fruits and vegetables, are now front and center. Shoppers interact with the folks in the office and as a result have more confidence in their purchases. Blurring the line between consumer-facing and back-of-the house parts of the business can give consumers access to more information while driving sales at the same time.
Finding new opportunities for growth in retail by making connections between disciplines seems more promising than searching within the confines of a single category. And the cost of not using a hybrid approach is too great to overlook.
Jonathan Gabrio applies his design chops to craft growth strategies for Fortune 100 companies and not-for-profits alike. He helps clients gain deep empathy for their customers and come up with proprietary insights to build robust products, services, and businesses. In addition to leading projects at Jump, Gabrio is a frequent lecturer at Stanford’s cross-disciplinary Needfinding class.