Retailing - New Game, New Rules - Analyst Blog

By Zacks | June 21, 2013 AAA

The retail industry is rapidly evolving with a dramatic change in consumer buying habits. Satisfying customers and enriching their buying experience require fresh fundamentals for retailers today. Modern retailing, interestingly enough, is a new game with new rules.

Despite the gradual rise in consumer discretionary purchases, the sluggish U.S. economy and recessionary fears in Europe cannot be ignored. Burdened with the lackluster scenario, retailers have largely concentrated on buyers’ needs and lured them with innovative products, attractive discounts, free shipping and the ease of shopping through smartphones and tablets. However, these strategies only helped generate modest revenues.

Thus, retailers essentially need to ideate brilliant strategies, while incorporating technological advancements and utilizing their real estate portfolio to the optimum level. In short, they need to Experiment, Differentiate, Optimize and Transform.

With this new mantra, the world’s largest retailer of office products and services and second largest online retailer, Staples Inc. (SPLS) launched its first omnichannel stores – what it refers to as the future of retail.

Simply put, through this omnichannel strategy, Staples hopes to fuse its retail network with enhanced digital capabilities. The company stated that it’s Norwood, Mass, and Dover, Del., stores will incorporate its .com and mobile assets. Alongside, the stores will feature Staples.com kiosks.

This new era store concept, with all its attractions could well prove to be a game changer in the long run for Staples. Providing shoppers the ease of shopping on their own terms and enriching their in-store shopping experience could be a crucial point of differentiation among other retailers.

In harmony with the evolving retail industry, department store operator, Macy's, Inc. (M) also adopted an omnichannel strategy. Despite macroeconomic challenges and cautious consumer spending, Macy’s continues to post healthy results. Management largely attributes the credit to its omnichannel strategy aimed at enhancing customers’ shopping experience.

Another differentiating factor could be partnering renowned brands as store-within-a-store or simply displaying different brands under one roof ensures higher footfall and enhances profitability. Moreover, it is a viable option for retailers to optimize the usage of their real estate portfolio.

J. C. Penney Company Inc. (JCP), Best Buy Company Inc. (BBY) and Dick's Sporting Goods Inc. (DKS) have been focusing on this business strategy, which we believe is an astute move to reinvigorate growth.

J. C. Penney showcases shops-in-shop from brands such as MNG Mango, Liz Claiborne and Sephora, and more remain in the pipeline, while Best Buy has a dedicated floor area for Apple Inc.’s (AAPL) products.

Best Buy recently partnered Microsoft Corporation (MSFT) to roll out “Windows Store” across its 500 outlets in the U.S. with an additional 100 in Canada. Alongside, Dick's Sporting Goods has partnered Nike Inc. (NKE) and Under Armour, Inc. (UA) to strengthen its youth business.

Amid this competitive environment, the players who are able to cater better to the needs of consumers will have the last laugh. Moreover, the ratio of converting shoppers to buyers will also depend on the continued economic recovery and improvement in the job market.

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