The state of retail

The love of the bargain is what drives them… Click for CNBC’s coverage

It’s a common fallacy to think of a time before a change in status quo as somehow being magically problem-free. A Panglossian world where all was well and nothing needed to change, and wasn’t it a shame that it had to. Similarly, we cannot blithely consign the retail industry of the past to some glorious era when everything was perfect; far from it. The industry has been under continual evolution, with no absence of controversy on the way. It was therefore a timely reminder, as well as being a fascinating article in its own right, when the New York Times provided readers recently with a potted history and a gaze into the future of Manhattan department store stalwart, Barneys. Not only is their past one in which the original proprietor sought to undercut his own suit suppliers, creating a bootlegging economy by literally ripping out their labels and replacing them with his own, but it was also one where department stores served a very different purpose to what they do today. They had less direct competition, not least unforeseen competition in the form of shops without a physical presence. Moreover, today they are run in an extremely different way, with an arguably much healthier emphasis on revenue (though some might say this comes at the expense of a feeling of luxury, in a lobby now brimming with handbags and little breathing room). The problems and opportunities for Barneys could serve as an analogy for the industry of which it is a part.

Despite brief reprieves such as Black Friday (click on headline image for CNBC’s coverage), as well as the expected post-Christmas shopping frenzy, can one of the main problems affecting retail at the moment simply be that it is undergoing an industry-wide bout of creative destruction? Zeitgeist has written about the nature of creative destruction before, and whether or not that is to blame for retail’s woes, the sector is certainly in the doldrums. In the UK, retailers are expecting a “challenging” year ahead. Recent research from Deloitte shows 194 retailers fell into administration in 2012, compared with 183 in 2011 and 165 in 2010. So, unlike the general economy, which broadly can be said to be enjoying a sclerotic recovery of sorts, the state of retail is one of continuing decline. How did this happen, and what steps can be taken to address this?

Zeitgeist would argue that bricks and mortar stores are suffering in essence due to a greater amount of competition. By which, we do not just mean more retailers, on different platforms. Whether it be from other activities (e.g. gaming, whether MMOs like World of Warcraft or simpler social gaming like Angry Birds), or other avenues of shopping (i.e. e-commerce, which Morgan Stanley recently predicted would be a $1 trillion dollar market by 2016), there is less time to shop and more ways to do it. The idea of going to shop in a mall now – once a staple of American past-time – is a much rarer thing today. It would be naive to ignore global pressures from other suppliers and brands around the world as putting a competitive strain on domestic retailers too. Critically, and mostly due to social media, there are now so many more ways and places to reach a consumer that it is difficult for the actual sell to reach the consumer’s ears. This is in part because companies have had to extend their brand activity to such peripheries that the lifestyle angle (e.g. Nike Plus) supercedes the call-to-action, i.e. the ‘BUY ME’. The above video from McKinsey nicely illustrates all the ways that CMOs have to think about winning consumers over, which now extend far beyond the store.

If we look at the in-store experience for a moment without considering externalities, there is certainly opportunity that exists for the innovative retailer. Near the end of last year, the Financial Times published a very interesting case study on polo supplier La Martina. The company’s origins are in making quality polo equipment, from mallets to helmets and everything in between, for professional players. As they expanded – a couple of years ago becoming the principle sponsor of that melange of chic and chav, the Cartier tournament at Guards Polo Club – there came a point where the company had to decide whether it was going to be a mass-fashion brand, or remain something more select and exclusive. As the article in the FT quite rightly points out, “Moving further towards the fashion mainstream risked diluting the brand and exposing it to volatile consumer tastes.” The decision was made to seek what was known as ‘quality volume’. The company has ensured the number of distributors remains low. Zeitgeist would venture to say this doesn’t stop the clothing design itself straying from its somewhat more refined roots, with large logos and status-seeking colours and insignia. Financially though, sales are “growing more than 20% a year in Europe and Latin America”, which is perhaps what counts most currently.

Louis Vuitton’s ‘L’ecriture est un voyage‘ is a good example of experimental thinking and missed opportunities

In the higher world of luxury retail, Louis Vuitton is often at the forefront (not least because of its sustained and engaging digital work). While we’re focusing purely on retail environments though, it was interesting to note that the company recently set up shop (literally) on the left bank of Paris; a pop-up literary salon, to be precise. Such strokes of inspiration and innovation are not uncommon at Vuitton. They help show the brand in a new light, and, crucially, help leverage its provenance and differentiate it from its competition. Sadly, when Zeitgeist went to visit, there was a distinct feeling of disappointment that much more could have been done with the space, which, while nicely curated (see above), did little to sell the brand, particularly as literally nothing was for sale. The stand-out piece, an illustrated edition of Kerouac’s On the Road, by Ed Ruscha, Zeitgeist had seen around two years ago when it was on show at the Gagosian in London. Not every new idea works, but it is important that Louis Vuitton is always there at the forefront, trying and mostly succeeding.

So what ways are there that retailers should be innovating, perhaps beyond the store? One of the more infuriating things Zeitgeist hears constructed as a polemic is that of retail versus the smartphone. This is a very literal allusion, which NBC news were guilty of toward the end of last year. “Retail execs say they’re winning the battle versus smartphones”, the headline blared. What a more nuanced analysis of the situation would realise is that it is less a case of one versus the other, than one helping the other. The store and the phone are both trying to achieve the same things, namely, help the consumer and drive revenue for the company. Any retail strategy should avoid at all costs seeing these two as warring platforms, if only because it is mobile inevitably that will win. With much more sound thinking, eConsultancy recently published an article on the merits of providing in-store WiFi. At first this seems a risky proposition, especially if we are to follow NBC’s knee-jerk way of thinking, i.e. that mobile poses a distinct threat to a retailer’s revenue. The act of browsing in-store, then purchasing a product on a phone is known as showrooming, and, no doubt aided by the catchy name, its supposed threat has quickly made many a store manager nervous. However, as the eConsultancy article readily concedes, this trend is unavoidable, and it can either be ignored or embraced. Deloitte estimated in November that smartphones and tablets will yield almost $1bn in M-commerce revenues over the Christmas period in the UK, and influence in-store sales with a considerably larger value. That same month in the US, Bain & Co. estimated that “digital will influence more than 50% of all holiday retail sales, or about $400 billion”. Those retailers who are going to succeed are the ones who will embrace mobile, digital and their opportunities. eConsultancy offer,

“For example, they could prompt customers to visit web pages with reviews of the products they are considering in store. This could be a powerful driver of sales… WiFi in store also provides a way to capture customer details and target them with offers. In fact, many customers would be willing to receive some offers in return for the convenience of accessing a decent wi-fi network. Tesco recently introduced this in its larger stores… 74% of respondents would be happy for a retailer to send a text or email with promotions while they’re using in-store WiFi.”

These kind of features all speak more broadly to improving and simplifying the in-store experience. They also illustrate a trend in the blending between the virtual and physical retail spaces. Major retailers, not just in luxury, are leading the way in this. Walmart hopes to generate $9bn in digital sales by the end of its next fiscal year. CEO Mike Duke told Fast Company, “The way our customers shop in an increasingly interconnected world is changing”. This interconnectedness is not new, but it is accelerating, and the mainstream arrival of 4G will only help spur it on further. The company is soon to launch a food subscription service, pairing registrants with gourmet, organic, ethnic foods, spear-headed by @WalmartLabs, which is also launching a Facebook gifting service. At the same time, it must be said the company is hedging its bets, continuing with the questionable strategy of building more ‘Supercenters’, the first of which, at the time a revolutionary concept, they opened in 1988.

One interesting development has been the arrival of stores previously restricted to being online into the high street, something which Zeitgeist noted last year. This trend has continued, with eBay recently opening a pop-up store in London’s Covent Garden. These examples are little more than gimmicks though, serving only to remind consumers of the brands’ online presence. Amazon are considering a much bolder move, that of creating permanent physical retail locations, if, as CEO Jeff Bezos says, they can come up with a “truly differentiated idea”. That idea and plan would be anathema to those at Walmart, Target et al., who see Amazon as enough of a competitor as it is, especially with their recent purchase of diapers.com and zappos.com. It serves to illustrate why Walmart’s digital strategies are being taken so seriously internally and invested in so heavily. Amazon though has its own reasons for concern. Earlier in the article we referenced the influence of global pressures on retailers. Amazon is by no means immune to this. Chinese online retailer Tmall will overtake Amazon in sales to become the world’s largest internet retailer by 2016, when Tmall’s sales are projected to hit $100 billion that year, compared to $94 billion for Amazon. The linked article illustrates a divide in the purpose of retail platforms. While Amazon is easy-to-use, engaging and aesthetically pleasing, a Chinese alternative like Taobao is much more bare-bones. As the person interviewed for the article says, “It’s more about pricing – it’s much cheaper. It’s not about how great the experience is. Amazon has a much better experience I guess – but the prices are better on Taobao.”

So how can we make for a more flexible shopping experience? One which perhaps recognises the need in some users to be demanding a sumptuous retail experience, and in others the need for a quick, frugal bargain? Some permutations are beginning to be analysed, and offered. Some of these permutations are being met with caution by media and shoppers. This month, the Wall Street Journal reported that retailer Staples has developed a complex pricing strategy online. Specifically, the WSJ found, it raises prices more than 86% of the time when it finds the online shopper has a physical Staples store nearby. Similar such permutations in other areas are now eminently possible, thanks in no small part to the rise of so-called Big Data. Though the Staples price fluctuations were treated with controversy at the WSJ, they do point to a more realistic supply-and-demand infrastructure, which could really fall under the umbrella of consumer ‘fairness’, that mythical goal for which retailers strive. Furthemore, being able to access CRM data and attune communications programmes to people in specific geographical areas might enable better and more efficient targeting. Digital also allows for a far more immersive experience on the consumer side. ASOS illustrate this particularly well with their click-to-buy videos.

As the Boston Consulting Group point out in a recent report, with the understated title ‘Digital’s Disruption of Consumer Goods and Retail’,  “the first few waves of the digital revolution have upended the retail industry. The coming changes promise even more turmoil”. This turmoil also presents problems and opportunities for the marketing of retail services, which must be subject to just as much change. If we look at the print industry,  also comparatively shaken by digital disruption, it is interesting to note the way in which the very nature of it has had to change, as well as the way its benefits are communicated. It is essential that retailers not see the havoc being waged on their businesses as an opportunity to ‘stick to what they do best’ and bury their head in the sand. This is the time for them to drive innovation, yes at the risk of an unambitious quarterly statement, and embrace digital and specifically M-commerce. What makes this easy for those companies that have so far resisted the call is that there is ample evidence of retailers big and small, value-oriented to luxury-minded, who have already embraced these new ideas and platforms. Their successes and failures serve as great templates for future executions. And who knows, the state of retail might not be such a bad one to live in after all. Until the next revolution…

Neuromarketing Explained

“The trouble with market research is that people don’t think how they feel, they don’t say what they think, and they don’t do what they say”

– David Ogilvy

On Wednesday night, part of the Zeitgeist entity found itself at a Holiday Inn. No, it was not part of a dare. The Account Planners Group [APG] had chosen this venue in central London to host a conference on neuroscience, with specific reference to its application in marketing. Neuromarketing involves using tools, tasks or tests from the realm of cognitive psychology and neuroscience to measure non-conscious reactions in the brain to marketing stimuli. The use of the above image was made even more appropriate given that the organiser of these events goes by the name Steve Martin (I kid you not). AdAge recently featured a pretty good article on the subject.

Our host for the evening was Gemma Calvert. As Warwick University notes, “In 1997, Professor Calvert established the world’s first neuromarketing consultancy, Neurosense Limited, which has undertaken numerous fMRI studies for clients in the advertising, marketing and pharmaceutical industries. The company’s clients include Unilever, Viacom Brand Solutionts, GMTV, Omnicom, Quest International and McDonald’s Europe. This expertise has formed the basis for the establishment of a dedicated academic group at WDL which aims to help marketers and manufacturers understand how the brain responds to products/fragrances, brand extensions, packaging design and marketing messages.”

Ms Calvert began by talking of Descartes, one of the leading figures of the Enlightenment, who espoused philosophies on the inherent superiority of human beings to primates, because we had the rational mind. But then, more recently, in the 90s, some dude came along called Damasio. Damasio claimed that we were at heart (or rather, in brain) emotional beings ruled by emotive impulses. This theory, it turns out, is closer to the truth. While our brains have expanded as we have evolved, our limbic brain sits comfortably over our reptilian one, and our neocortex rests on this. The cortex makes our rational decision for us, while the more base parts of our brain do the instinctive “fight or flight”, “must have sex now” stuff. Unfortunately for those supporting the rational part of our brain however, the cortex makes no decisions without consulting the limbic part, subconsciously. Our brain is unable to tune into all the information it needs to, so sometimes we block out things that we see as extraneous. This is dangerous as it can lead to unexpected dangers down the road (see global recession and the premise of Black Swan). It’s well-illustrated by the following video:

Remarkably, we even rationalise post-hoc, telling ourselves something we know is not true but forcing our rational mind to accept it. There is an excellent article here on the subject of confabulation (link updated 2014). Zeitgeist watched this video last night at the conference and did not believe that there had been a gorilla in the video the first time it was shown. Watching the YouTube video this morning, he now believes this is a different video that does contain bears in both clips. It is very unlikely that he is correct. Ms Calvert also highlighted the fallibility of focus groups, as evinced by the great Mr. Ogilvy at the beginning of this article. One of her more whimsical comments came after her statement that 97% of new products fail in Japan within the first 12 months (there are specific reasons for problems in this region). This despite months of testing, focus groups and general consumer research. Ms Calvert’s opinion was that you were just as – statistically speaking, better – off flipping a coin, as at least with that you had a 50-50 chance. Neuromarketing on the other hand can give you an insight into how consumers actually feel, rather than merely what they are telling you. The application for this study is done through eyetracking, fMRI scans and EEG. MRI involves the rather unnatural state of lying down surrounded by a gigantic magnet. Wearing fibre optic glasses, the subject can be shown pictures, movies, or even be given a joystick to engage on a virtual shopping trip. It can be used to study how a 30-second spot holistically effects the brain. EEG on the other hand can be used to examine how someone feels about something on a second-by-second basis, with a positive or negative timeline.

Ms Calvert also spoke briefly on behavioural economics. Zeitgeist has commented previously on behavioural economics – which, contrary to classical economics, argues that we are not all inherently rational beings making purely rational decisions –  which is a methodology that, according to Ms Calvert, aims to effect large-scale population change. Thinkbox has the pleasure of hosting none other than Ogilvy’s very own Rory Sutherland on the subject on its website, video of which can be found here. These methodologies can help validate and measure effectiveness. It can help divine brand empathy, loyalty, liking and recognition. The findings were most interesting for subjects where the consumer was actually lying to themselves. When Dove tested to see whether they should enter the house cleaning market, those tested with neuromarketing revealed they were very turned off by such a notion, with their brains showing high signs of disinterest and even disgust. In focus groups though they told researchers they would be quite happy to consider buying such a product. Brain imaging better predicts intended purchases than what consumers actually tell researchers. How to reconcile these contrasts? Well perhaps the fact that fully 85% of consumer behaviour is driven by non-conscious awareness is part of it; we are not even aware of most of the decisions we make. Now neuroscientists are. Sounds like a movie I saw this summer…

Location, location, location

Foursquare is to the zeitgeist what Chatroulette was all those days ago. Location-based targeting has been gathering steam for some time, and the potential blossomed with the release of the iPhone 3GS last year. For the user, it allows them to ‘check in’ to a certain place, alerting those who follow them. If said user checks in to a certain place often enough, they become ‘mayor’ of that location. Moreover, with time a map builds up showing definitively where the user tends to go. It is this last point that is of particular interest to advertisers, who are always desperate for more facts and figures to make it appear that the industry they work in is one of cold, hard, calculable facts, with no irrational outliers in order to better know the consumer they are targeting.

An exhibition detailing the evolution of maps is currently on show at London’s British Library; today we seem to rely on maps ever more as they become – with GPS functionality – an important feature on most mobile devices. It was reported earlier today that the Foursquare service has now exceeded forty million check-ins. Not one to miss out on anything that involves the decay of personal privacy, Facebook shortly intends to release its own version where users can check-in through their site, with McDonald’s already on board.

eConsultancy has a list of ten select marketing examples using geo-location, however Zeitgeist are going to focus on two specifically. The first is that of the Financial Times and its walled garden. Borrowing a page from other brands of getting a user while they’re young, the FT may soon begin providing free access to those who check-in in certain areas. Those areas being “select coffee shops located by major financial centers and near business schools including Columbia, Harvard, the London School of Economics, London Business School and London’s Cass Business School”, in other words, superior centres of academia, that Zeitgeist may or may not call an alma mater. According to FT.com, “Only the ‘mayors’ will be granted a free pass, and only for a limited time”. It’s a nice incentive and it will be interesting to see how competitive the race for free content becomes among ostensibly cash-strapped students.

The other example Zeitgeist likes is that of the luxury shoemaker Jimmy Choo, who have decided to organise a shoe hunt. As one blog describes it, “The idea is pretty simple, a pair of Jimmy Choo’s new trainers will check into some of the most exclusive and fashionable places in London, if you can track them down and catch them while still checked in at a venue, then they are yours.” Sounds like a very fun idea and a fantastic excuse to run around town going to lots of great places. Let the games begin.

Does retirement beckon for Ronald McDonald?

Zeitgeist has always been somewhat midly peturbed by Ronald McDonald, not exclusively due to the fact that no matter which McDonald’s in the world Zeitgeist chooses to frequent, Ronald is unfailingly always at the very same one. That and the fact that he seems to enjoy sitting by himself on benches, smiling to himself.

For many however, Ronald is an enduring mascot, a brand ambassador like no other. The man has presided over McDonald’s profligate – but morally questionable and nutritionally unhealthy – past since 1963, as well as its more lean, green present form. It still commands massive clout as far as promotions are concerned, particularly for film and TV.

Now though, Corporate Accountability International  – whose previous targets include, Nestlé, GE and, fittingly, Target – has designed a website called Retire Ronald that states it is time for Mr. McDonald to join other brand mascots such as the Marlboro Man and Joe the Camel and stop recruiting children to unhealthy acts.

Comparing fast food to cigarettes might seem like a stretch, and Zeitgeist believes it is. To say that obesity rates have shot up in the US since the introduction of Mr. McDonald and directly connect the two in a latent manner – which the site does – is naiive and unrepresentative of fact. Creating a scapegoat will not solve the problem of overweight people in the US. It does also not account for the fact that people in that country are no longer getting fatter. “[S]cientific evidence continues to mount that McDonald’s marketing to kids is no less than commercial exploitation”; well, unfortunately, yes, marketing is exploitative. Zeitgeist would prefer to see as much effort put into policies and websites promoting healthy living, rather than focussing on the removal of an imaginary plenipotentiary, successful as it may be. AdAge currently features a poll on the matter.

An Axe to Grind

Zeitgeist has not yet dedicated the time to comment on the increasing number of campaigns involving elements of crowdsourcing, which has become popular enough that last year an agency launched dubbing itself the world’s first crowdsourced ad agency.

The latest campaign to leap onto the bandwagon is for Axe / Lynx, based on the insight that apparently the fairer sex, inscrutable as they are, “get bored easily”. Does this presumption say more about men though than women? One might also question whether corralling a mere 25 students together really constitutes ‘crowdsourcing’.

UPDATE: Great article about crowdsourcing from the Ogilvy New York Digital Labs blog, here.