This week, I sat down with Karen Wong, the CEO and Founder of both ACE POS solutions Ltd. and TakuLabs. Ltd. She stresses that while the retail industry is going through many changes, the reality is that, physical retail is far from dead.
About Our Founder
Before co-founding Takulabs, Karen has been a part of several ventures – from being a small retail business owner herself, to working in marketing,manufacturing, and wholesale. Her passion lies in helping retailers sell more by building solutions that drive store growth.
The goal of this video series is to share Karen’s broad knowledge of retail and marketing with fellow store owners.
This talk will dive deeper into the importance of physical retail and the pros and cons of physical retail vs. e-commerce.
Do You Think Physical Retail is Going to Die?
Everybody has probably heard of the “retail apocalypse” – meaning physical stores are dying. The headlines are all about how the big chains are closing down. But in my opinion, it’s heavily overblown. The reality is that 85% of retail is still physical!
It’s not just about one channel. Increasingly, it’s all about being accessible to customers wherever they are. Because customers don’t just want to engage through shopping – they want to engage through discovery.
What is Shopping and What is Consumption?
There is a difference between shopping and consumption.
Shopping means that there is a discovery process. It means you are looking for something but you need more information.
Consumption means you that you are just refilling the pantry. You buy the same brand every time so you just need to find a place to buy it from. In this case, people may just go online.
Why do you Push Physical Retail so Much?
A lot of our customers are established businesses. That means that they are already profitable businesses with fixed costs. But these fixed costs are covered by the fact that they have ongoing business that covers those costs.
Retailers should be leveraging their business while trying to grow their physical and digital channels.
Right now, many of our customers have those established doors and there’s so many reasons you want to push physical retail vs. only e-commerce.
When people say that “I have to go digital, I need to open an e-commerce store”, my first question to them is: have you optimized everything you are doing in your physical store?
You already pay those fixed costs. Everything you sell, you make a higher margin because your fixed costs are already covered.
What are the Pros and Cons of E-commerce vs. Physical Retail?
There are so many pros and cons to e-commerce.
Pros: everybody wants to be found immediately and they want their catalog up there – because shoppers like to see that information. But at the same time, there are huge costs associated with e-commerce.
People are much more price conscious online vs. in-store.
Free shipping is a massive cost.
People are more inclined to return items online. The return rates are proven to be more than double than what they are in-store. People are more likely to return online because there isn’t that interaction where people have guilt involved – when you are returning something to the store and you know it shouldn’t be returned.
So you have to think about these additional costs of going digital. Even though there are supposedly no overhead associated with those sales.
What are the Benefits of Leveraging Physical Retail?
Other things you want to think about is that if you don’t leverage physical retail, you are missing out on things such as impulse buys. When a person comes into the store looking for one thing, they often leave with multiple things. It happens to me and still happens to me all the time!
You should also consider thinking about cross-selling and up-selling. You have people in the store and you yourself (if you are in the store) are probably the best person to tell people “that item that you’re looking at really goes well with this”. Or maybe even get them to buy something even better than what they were originally considering.
The Future of Physical Retail
All of these things and moments are part of the reasons why I don’t think physical retail is going to die. It’s just going to be a major core or focus of retail as we move forward.
I mean after all, you are seeing more and more pure e-commerce businesses are opening physical stores because they’ve realized they can make more money in physical stores than they can online.
It means more engaged customers that come back with repeat business.
Data Analytics in Retail
Another thing that you want to note is data analytics in retail(this is where I talk a lot to customers about using technology). Those stores are famous for using data and using the data well to make sure that everything they are doing in that physical store is being driven by some type of statistic or analytics.
This is kind of my reason for encouraging customers to really reconsider re-vamping or reviewing the operations of their physical store first.
With many large retailers offering loyalty programs, it’s easy to think that there isn’t value for small retailers to develop their own programs. But there are a number of reasons as to why this isn’t true:
Lower Cost of Acquisition. Even if you take into account the cost of offering loyalty benefits, with a carefully-designed program, repeat program customers will pay out over time as the cost of their business is much lower to acquire vs. new customers. While it’s expected for direct cost of goods to be carefully tracked, it’s still easy to forget how expensive the indirect costs of business development are — marketing, free shipping, etc.
Make Customers Sticky. By rewarding repeat customers for their business, you are making it harder for your competitors to make inroads as there is a cost for your customers to stop buying from you.
Store Data. Store Data. Store Data. Many retailers work on razor-thin profit margins. Inventory is the largest asset for retailers. It makes sense for you to have a clear idea of what products your most loyal customers want to buy. The data from loyalty programs often pays for itself if it is utilized to optimize supply and demand in your store. Minimizing stock-outs and overstock will reduce how much ongoing inventory you need to carry and ultimately, improve your cashflow.
Channel for Direct-Customer Engagement. Loyalty programs are an easy way for retailers to get permission to market to customers. Essentially you are offering program benefits in exchange for authorization to communicate with customers. Remember that customer engagement is often a two-way street nowadays. Customers appreciate businesses that also value their opinions.
Profiling for Personalization. Loyalty programs are a great way for retailers to collect quality product feedback or actionable service improvements that will improve your customer engagement and save you money in the long-term. Because customers volunteer their profile and demographics details to become a loyalty member, you are able to deliver higher personalization to create a more unique (and hopefully more profitable) engagement.
How do I Implement a Loyalty Program?
Have I convinced you to implement a loyalty reward program yet for your small business? If so, there are a few things you can do to run your program more cost-effectively and successfully:
Don’t focus exclusively on discounts. You want to rewards shoppers, not encourage your best customers to only buy on discount. While special offers are expected with most loyalty programs, it’s more effective in the long-term to offer a range of benefits such as:
Special Events: book signings, wine & cheese meet and greets, launch partie
Exclusive Access: limited edition new products, members only early access
Free Gifts: exclusives for volume purchase, samples from manufacturers
Free Services: alternations for purchases, wifi access (e.g. free wifi with data collection from companies such as Purple, etc.)
Don’t constantly hard sell. Shoppers are marketed to in nearly every medium today — from TV to social media. Studies show that consumers, especially Millennials, are jaded from relentless hard selling. Today’s buyers are increasingly looking for retailers that offer discounts or experiences. As the retail expert, Steven Dennis, quoted in one of his recent articles for Forbes magazine:
…engage in a discounting fueled race to the bottom or seek to do what is unique, intensely customer relevant and truly remarkable, where price is not the determining factor in the customer’s decision.
Be careful when setting up the terms of your loyalty reward program. This cannot be stressed enough as it can be costly (financially and in terms of goodwill) to change a loyalty reward program once it is in place. As companies such as Waitrose in the UK have learned, there is an art to even giving away free coffee or tea. It’s important for retailers to consider everything from affordability, running costs, how to minimize program abuse, whether the benefits match the values of your target market, whether to have caps or expiry on benefits, etc.
Offer a sign-up incentive. An easy way for you to increase engagement and sign-up for your loyalty reward program is by offering a free gift or a limited time offer with purchase. Offering low profit-margin stock or manufacturer samples is a common practice but remember that program members should feel that they are getting a gift of value, not simply a throw away product.
Promote your loyalty reward program in-store. Merchandising your retail store on a budget includes having displays in-store to encourage customers to sign-up for your loyalty program or to showcase your latest reward benefit. If you have the budget, digital signage will make it easier to make updates over time without having to re-print display materials as new benefits or offers are launched. Having in-store displays will also help your staff as it encourages shoppers to ask about joining during check-out.
Training of check-out staff. It doesn’t help a business to offer a loyalty reward program if the check-out staff give shoppers the impression that those who use them are a nuisance or thrifty. Make sure to train your check-out staff to ask if paying shoppers are members, and if they are not, whether they would like to join. Offering a loyalty reward program without bothering to train staff about program details or by discouraging its usage will only come across as insincere by savvy shoppers in today’s competitive retail environment. This is especially true if you plan to have tiers in your loyalty program. The backlash against Sephora’s famous Beauty Insider program is a prime example of how retailers can lose sight of the purpose of their programs and how to execute them.
Loyalty reward programs are a great way in which to build a following of repeat customers or even influencers over time. Consider the tips above to make sure you are offering a successful program that adds long-term value to your bottom line.
Good Luck and Happy Retailing.
I’m Karen Wong, contact me if you’d like to connect. Follow me on LinkedIn.