Why Retail Businesses Fail Part 3: Do You Make This Mistake In Retail?

Lack of Understanding of Target Market

I visited Harrods for research for my books on store design and visual merchandise display. Harrods, for anyone reading this White Paper who might not know this, is the Mecca of retailing. Royalties, A-list celebrities and the ‘who-is-who’ from around the world fly into London just to shop at Harrods.

You can now imagine my anticipation when I visited Harrods. In my mind everything in Harrods was made of gold. I was disappointed, when I noticed a toy bus I had purchased for my son from ASDA, was also being sold in Harrods. It was exactly the same toy bus, in exactly the same packaging that it is sold in ASDA.

A question popped into my mind, why is it that exactly the same bus, probably manufactured in exactly the same factory in China, is sold in Harrods for twice the price that it is sold for in ASDA?

The answer is decisively simple – ASDA sells a ‘toy bus’, however, Harrods sells a ‘classy toy bus’. There is a difference. This is marketing 101: people buy emotionally but justify their decision logically.

Customers who shop at Harrods do not shop there to buy Harrods’ products; they shop at Harrods to buy ‘elegance and class’. Harrods sells them class even if it is ‘Made in China’.

How does Harrods pull this off? They achieve it with the combination of elegant store design and attractive visual merchandising displays. When you move from one department to the next in Harrods it is like moving from one store to another. Their ability to use their store design to create the illusion of differentiation is one of the keys to Harrods’ success. Harrods understand their customers; they know what their customers desire so they design their store and display their products to satisfy the desire of their customers.

Marcus Buckingham, in his book “The First Thing You Need to Know”, said when he interviewed Sir Terry Leahy, who transformed Tesco into a global brand, he asked him what was the key to Tesco’s successful transformation. Sir Terry Leahy replied that it was asking and answering the simple question: Whom do we serve?

When Tesco figured out whom they were going to serve, they changed their store layout and products to serve their target market. As a result of this change; Tesco increased the number of checkout counters which reduced the amount of time customers spent queuing at the checkouts ultimately resulting in a dramatic increase in Tesco’s footfall.

Wal-Mart serves the person who lives: pay check to pay check.

Body Shop serves the ethical consumer.

Waitrose and Holland & Barrett serve the consumer who wants to live longer.

Ann Summers took merchandise that were hidden in secret ‘adult’ shops; made them trendy and brought them to the High Street. They made a taboo subject acceptable to the mainstream.

If I was to take my significant other clothes shopping at John Lewis she would probably phone my mother to inform her that I was having a nervous breakdown. She would not want to be caught dead in John Lewis’ outfit. She describes John Lewis’ clothing department as a Bridget Jones museum where they store a collection of Bridget Jones costumes.

However, John Lewis continues to increase profit year after year because John Lewis understands their target market. Someone like my significant other might not want to be caught dead in John Lewis’ outfit, but there are people in the UK, who love Bridget Jones’ memorabilia, these people are John Lewis’ target market, so John Lewis cater for them.

The most successful retailers understand their target market and show their understanding of their target market through their store design and visual merchandising displays.

The retailers that go bust fail to understand this basic marketing concept.

Most book retailers are struggling because they are still using the 1960’s business model in the Amazon era. Borders failed because it did not develop its internet business properly and it invested heavily in compact discs when music was going digital. WH Smith only makes money from its airport and train station sales. The rest of its stores are struggling. Waterstone’s is also on a downward trend. Sales are down and customer footfall is in steep decline.

Why are bookshops under threat? Amazon! They will all shout. Of course Amazon is the cause because Amazon understands their market better than them. Since it seems Amazon is not going away anytime soon, are all book stores going to close down?

Will WH Smith and Waterstone’s close down? Or will they rise to the challenge and modernise their stores? Instead of complaining about Amazon, they need to redefine their target market and redesign their stores to attract their target customers.

On Christmas Eve, I had not done my grocery shopping and was dreading the prospect of entering a supermarket, knowing how packed they were going to be. But as I drove passed my local Lidl store, I noticed it was empty. I rushed in and completed my shopping. As I drove back home a question came to mind; why is it, that even on this day when most supermarkets are typically jam packed to capacity, was Lidl empty?

The answer, in my opinion, is that Lidl does not have a target market. One of their biggest sins was making the decision to force customers to pay for carrier bags. Marks & Spencer can afford to do that because they appeal to a different class of customer.

In Tesco and ASDA, customers who are environmentally conscious have the option of paying for shopping bags. However, those who do not want to pay for carrier bags also have the option of getting free ones.

This is because Tesco and ASDA understand their customers. Lidl’s senior management, on the other hand, believed that having implemented a similar strategy in Europe, can introduce the same in the UK. If the Brits do not like it, tough! Well, the Brits are showing their displeasure with their feet.

I have tried to demonstrate with the above examples, that success or failure in retail is the result of the strategies every retailer adopts. Those retailers who understand their target market and cater to them will continue to move from success to greater success, while those who roll the dice and hope that customers show up are the ones who will struggle or go into administration.

I hate to be the one breaking this type of news to the retail industry I guess someone will have to do it: the internet is not going away. This means that retailers are not only competing with one another, they are also competing with factory owners in China whose name they have never heard. Shoppers are now ordering directly from warehouses and distributors, for example an individual can log on to eBay and order a pallet load of goods.

Here is the good news: the majority of people still prefer to shop from physical retail outlets. The question is how does an individual retailer ensure that shoppers are attracted to their store? It can be done by adopting the concept of the “Blue Ocean” strategy.

Adopting the “Blue Ocean” strategy is the only salvation for book, DVD, music and furniture retailers. What is “Blue Ocean” strategy? “Blue Ocean” strategy “is the simultaneous pursuit of differentiation and low cost” which results in the creation of a new market space making the competition irrelevant.

The concept of “Blue Ocean” is practiced by the most successful business organisations whilst struggling businesses pursue what is described as the “Red Ocean” strategy. “Red Ocean” strategy is fighting to compete in the existing market place.

The “Red Ocean” strategy is adopted by many of the book, DVD, music and furniture retailers. They are trying to compete against the internet and it is just not possible. A brick and mortar store can never go head to head with the internet and win. It can never be cheaper that the internet.

However what they need to do in order to drive customer traffic to their stores is become innovative and creative. For example a book store could arrange periodic book signings; of course authors want to sell their books so it is a win-win situation for all parties concerned.

In order for the book signings to be a successful marketing platform for the book stores it would be advisable for retailers to work in collaboration with the publishers from the onset in order for the book signings to be better promoted.

Promotion of the book signings could take various formats such as making effective use of social media sites, local press and captivating signage in and outside the store.

Another idea could be to arrange book clubs for various genres of books this would entice a variety of customers in to the store, these book clubs would also need promoting in a similar way as described for the book signings promotion.

The trick is to be innovative.

Richer Sounds is a classic case of a retailer that has adopted the “Blue Ocean” strategy. They understand that people still prefer to interact with other people. So whilst other electronic retailers focus on price, they focus on excellent customer service and staff product knowledge. Their “Blue Ocean” is excellent customer service and superior product knowledge.

For book, DVD or music retailers to compete in Amazon country, they need a “Blue Ocean” strategy that goes beyond price discount. They need soul. They need understanding of the perception of their target market.

• What do they want?

• What are their hopes and fears?

• What is their perception?

I can order a book or DVD from Amazon and receive it the following day. I can download music instantaneously from iTunes. There are millions of me in the world. What kind of “Blue Ocean” strategy can WH Smith or HMV devise to get me away from my laptop? It takes me half an hour to drive to the town centre, pay for parking, spend another half an hour in WH Smith or HMV and another half an hour to drive back home.

The 64 million dollar question is: What can WH Smith or HMV do to make it worth my while?

Let me give them a clue, I could order my groceries online, however, I choose to go to the supermarket. What is the difference? That is for book, DVD, electronic and furniture retailers to find out. They probably need to visit Starbucks it might just hold the keys to unlocking their creativity.

The only point of differentiation that most retailers know is price reduction. Price reduction is not a business strategy, it is a death wish.

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