SMITH BRAIN TRUST – COVID-19 arrived in what was already being called a “retail apocalypse,” and the cumulative effect has been daunting. It's also instructive, as providing online options for shopping and fulfillment remains a pillar of sustainability for conventional retailers, notes Maryland Smith’s P.K. Kannan. “Large retailers like Walmart and Target have been investing heavily in their online channels in the past years, specifically to counter Amazon’s threat, that when the pandemic came, they were ready to take online orders and ship,” he says. “They have done extremely well in the pandemic even as Amazon struggled to meet their orders and had to prioritize items.”
Kannan, Dean’s Chair in Marketing Science in the University of Maryland’s Robert H. Smith School of Business, made those comments in a recent, wide-ranging Authority Magazine interview. In the following excerpt, he explains the significance of “customer-centricity” and navigating “direct-to-consumer” competition.
…While many retailers are struggling, some retailers, like Lululemon, Kroger, and Costco remain quite profitable. Can you share a few lessons that other retailers can learn from the success of profitable retailers?
Kannan: The common denominator for all these retailers you mention is “customer-centricity.” Lululemon has figured out that they are not for everyone in the market. They know their niche well, provide products their customers love, use technology to get to know the customer better, use social media influencers and are able to keep their customer loyal. It is the same with Kroger — they provide value (quality at a fair price), use technology and use analytics to understand their customers — personalized mobile coupons and such, are not afraid to innovate beyond their core grocery offering and run very efficient stores. Costco has always been a very efficiently run operation, centered around knowing their customers in the local areas they serve and customizing their offerings based on that. Their customer service is just great, and this customer-focus has translated into overall success. Some lessons include: Know your customer needs and pain-points, provide value, use technology and analytics to personalize, run a right ship and don’t be afraid to innovate.
Amazon is going to exert pressure on all of retail for the foreseeable future. New direct-to-consumer companies based in China are emerging that offer prices that are much cheaper than US and European brands. What would you advise to retail companies and e-commerce companies, for them to be successful in the face of such strong competition?
Kannan: The DTC (direct-to-consumer) companies are becoming very common as consumers migrate more and more to online channels. Most of the DTC companies in the US could be using manufacturers elsewhere such as China for cheaper sources and they are likely to get significant venture capital backing to start up. Many of the successful ones have identified the customer need and provide direct value to them. However, the brands have trouble scaling up.
When they want to expand their customer base, they are forced to look offline — through stores etc., — and overhead costs and expenses increase. Their acquisition costs also go up as copycat brands move in, increasing the customer acquisition cost. So, they could be getting 3- 5% market share but have trouble growing. My advice to large retailers is not to go on a price-war with them but rather ignore them if they are really small. If they grow larger and start hurting them, then retailers could go omnichannel themselves or buy up such companies. In addition, the current trade war between the US and China is leading to additional duties on imports that may hurt those DTC companies sourcing from China.
Read more via Authority Magazine’s “The Future of Retail In The Post Pandemic World."
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