5 Innovations Helping Retailers Take on Disruption
The retail industry is breaking new ground to adapt to changing consumer preferences and evolving business models.
Here are five innovations global retailers are pioneering amid an uncertain business climate:
- Transforming retail supply chains
As the pandemic disrupts traditional retail supply chains, several retailers have begun investing heavily in micro-fulfilment centres, which are touted as the ideal last-mile delivery solutions designed to reduce delivery costs and shorten the time it takes to reach the consumer. These centres can operate as highly automated, stand-alone modular structures, or built in an existing retail space.1
For example, Walmart has plans2 for building more than 100 micro fulfilment centres in the next couple of years, as part of a larger plan to invest $14 billion3 in 2021 in areas including automation, technology and supply chain; Ahold Delhaize is building an MFC that could fulfil 15,000 orders per week; and Instacart is partnering with Fabric and Alert Innovation, with plans to launch 50 micro fulfilment centres across the US. In April, Kroger inaugurated a 375,000 square-foot automated fulfilment centre in Cincinnati, Ohio. It is reportedly planning to build nine more centres across the country.
- Doubling down on private label and owned brands
Compared to third-party retail brands, private labels have doubled market share over the last five years. As of April 2020, private brands accounted for $120 billion4 in annual sales in the US alone, making up 18% of the overall retail sales.
Private labels, which typically allow retailers to keep costs down by as much as 35-40%, are also increasingly catering to emerging consumers trends such as demand for organic and plant-based products, in turn helping retailers build consumer loyalty and shift away from third-party brands. For instance, Kroger expanded its organic-product private label Simple Truth, which saw more than US$3 billion in annual sales in 2020; Kroger’s private brands division saw more than US$26.2 billion in annual sales. Target has over 30 owned brands representing a third of its overall sales.
Moving beyond affordable house brands means retailers are also making higher investments in marketing, design, packaging and product development skills beyond their manufacturing mandates with several even working with artists, celebrities and product innovation agencies. Earlier this year, Walmart teamed up5 with actor Drew Barrymore to release cookware brand, Beautiful by Drew Barrymore, following a previous engagement with Barrymore related to the launch of Flower Cosmetics.
- Reimagining brand loyalty with innovative subscription-based programmes
Major retailers are finding success in subscription-based innovations like membership programmes such as Walmart+ and Amazon Prime. Walmart+ offers both in-store and online benefits for customers including unlimited free grocery deliveries, a scan-and-go app and fuel discounts. Just a year after its launch, the membership programme, which costs about US$99 a year, is estimated6 to have signed on more than 32 million US households.
Members of Amazon Prime, which costs about $119 per year, reportedly spend on average about $1,400 annually, more than double7 of the comparable spend from non-Prime members. About two-thirds of those who sign up for a Prime free trial convert to a paid subscription, with 93% of signed members continuing as paid members even after the expiration of the subscription period of one year.
- Accelerating omnichannel marketing
The retail industry is also upping the ante on omnichannel marketing, offering hyper-personalisation to consumers. According to recent research, omnichannel has the potential8 to boost customer engagement by 250%. According to another retail industry study, an omnichannel strategy can help retailers achieve a 90% higher client retention rate.
Traditional retailers such as Walmart have fought back against the growth of Amazon by investing in digital innovation including online personalisation. In 2018, Walmart redesigned its website to make it more personalised, with location-based and relevant product recommendations for every shopper based on their past shopping history.
Walmart’s strategic partnership with Chinese online retailer JD.com has only deepened in recent years with the former leveraging tech, data and omnichannel marketing to grow the number of its Asian customers. “Our ability to tap into JD.com’s advantages across logistics, big data, technology and customer service gives Walmart a huge advantage in reaching China’s rapidly expanding consumer class. We look forward to further bringing together our strengths in digital and physical retail to take the customer experience to the next level,” Ben Hassing, senior vice president of Walmart China eCommerce and Technology, said in a company statement.
- Optimising customer engagement through data
Many retailers continue to leverage advanced data analytics to optimise customer engagement and predict consumer and retail trends that help in not just future product development but also in ensuring that right offers reach the right customers through the best channels.
Hyper-personalisation of retail offers is widely being touted as a way to counter mass discounting made popular by discount-focused retailers.
For instance, Starbucks9 reportedly used real-time data and artificial intelligence (AI) to send more than 400,000 variants of hyper-personalised messages, including food and beverage offers, to its 16 million active users on its Starbucks Reward Loyalty Programme.
Similarly, Whole Foods partnered with location-based marketing firm Thinknear10 to geofence a number of its store locations that resulted in targeted ads and special offers for many mobile users in the area. The retailer also used targeted ads for shoppers at nearby competing grocery stores, luring them with better deals at Whole Foods. That campaign paid off giving Whole Foods a 4.69% post-click conversion rate, much higher than the national average of 1.43%.
1Micro-Fulfillment Centers Bring the Supply Chain to the Consumer, SupplyChain247, January 12, 2021
25 Companies Leading the Way in Micro-Fulfillment Center Technology, New York Engineers, June 17, 2021
3Walmart forecasts global e-commerce sales to reach $200B in coming years, SPGlobal, February 18, 2021
4The Private-Brand Imperative for Grocers, BCG, April 1, 2020
5Why Walmart is increasingly working with celebrity influencers on private labels, Glossy, May 27, 2021
6Walmart+ is gaining momentum, hits 32 million members, Deutsche Bank estimates, CNBC, September 14, 2021
7Walmart+ Is Already a Massive Success, The Motley Fool, February 26, 2021
8Three reasons to adopt an omnichannel marketing strategy, backed by data, Retail Dive, May 14, 2019
9Re-imagining Businesses with Hyper-Personalization, GSPANN, May 26, 2020
10Location-based marketing examples: 4 brands that are Winning, Beaconstac, Aug 23, 2021