A new retail ecosystem

 

As brands go direct to consumers, retail is changing. Rob Garf and Jamie Merrick of Salesforce Cloud Commerce discuss what this might mean for retailers and brands. Jonathan Wright reports

ARE BRANDS AND retailers in the midst of a series of messy divorces? At the risk of over-dramatising what’s happening, one of the major developments within the retail sector over the last few years has been the growth in the number of brands deciding to go direct to consumer, potentially cutting out retail partners. Here, brand engagement really does mean that the brand is engaging directly with the consumers of their products.

Think of the way a company such as Nike has expanded its retail presence, both online and in stylish bricks-and-mortar stores. As to why companies such as Nike and Apple are taking this approach, listen to Jamie Merrick, head of industry insights at Salesforce Commerce Cloud as he rolls out a long list of the potential upsides: “More sales, better margins, less dependency on retail partners, better product assortments, engagement, loyalty, new geographies and the big one, which is a better experience.”

In short, brands are going direct because they see huge opportunities in doing so. Here, we’re not just talking about lifestyle brands with an upstart image, but far more traditional conglomerates too. Unilever, for example, sells and promotes its Maille mustard brand directly. More intriguingly still, for the way it shows a bold step away from a wholesale model, Unilever last year bought Dollar Shave Club, an online men’s grooming subscription service, for $1bn.

Out on the high street, in city centres and in shopping malls, this activity is starting to have an effect on traditional retailers. “Department stores in the US are feeling a lot of the pinch as brands start to go direct,” says Merrick.

Emergent behaviour

Nevertheless, it would be a mistake to see what’s occurring in crude ‘brands vs retailers’ terms. Rather, what we may be seeing is the emergence of an entirely new kind of business-to-consumer/retail ecosystem.

We’ve already noted how Unilever has bought a subscription-based ecommerce business. From another angle, Amazon’s Dash Replenishment Service “enables connected devices to order physical goods from Amazon when supplies are running low”. Less remarked upon, Amazon has started to use Google product listing ads, in great part to raise awareness of products they’ve created themselves. The lines between different kinds of retail activity are blurring.

In this context, a new report from Salesforce and management consultants Accenture makes for fascinating reading. Retail Organisations:

The Next Stage of Transformation is based around “20 interviews and 200 surveys of executives from non-food retailers with high online penetration, and brand manufacturers with high direct-to-consumer revenue”. The report argues that both retailers and brands need “to look beyond their own four walls and orchestrate an adaptive network of business partners to offer a personalised blend of products, services and experiences to customers, wherever and whenever they demand”.

To unpick that a little, both retailers and brands have traditionally focused on products – things they sell and/or make. Instead, the customer needs to be the focus, says Merrick’s colleague and report co-author Rob Garf, VP of industry insights at Salesforce Commerce Cloud. “It’s now as much about creating and curating a customer experience that, in many cases, goes well beyond the physical product,” says Garf. “It could include a service, it could include delivery.” But for both retailers and brands, there are huge problems in preparing for such a shift in emphasis. In particular, focusing on consumers means that businesses need to understand these consumers in far more detail before they can offer the kinds of experiences customers will increasingly demand. This means both collecting customer data, and then using it to create and hone new kinds of experiences.

This is particularly important because customers, and not just millennials and digital natives, are becoming aware of the value of their personal data. If they’re going to hand over information, they don’t want it to be a waste of time and want something in return beyond the goods they purchase. “Customers understand this relationship they’ve got,” says Merrick. “They’re giving up their data and are prepared to do it only if they get something back in return. The return they’re asking for is a better experience – they’re asking for something more engaging.”

Which begs the question, what kinds of businesses are best placed to provide such levels of customer service? Intuitively, it’s tempting to say retailers because these are businesses that should always have been customer-facing. Yet this is too binary a way in which to pose the question. To return to the idea of a new ecosystem, without underplaying the potential for tension between retailers and brands, nobody has all the answers here. To resuscitate a word that drops in and out of fashion, ‘co-opertition’ between brands, retailers and other kinds of businesses, such as delivery services and marketplaces, will have to become commonplace in the years ahead if customers are to get the service levels they’ll demand.

“I think what we’re seeing is that organisations don’t have the answer to everything,” says Merrick. “Therefore, working on partnerships and collaborations to overcome some of the differences is probably the way that’s going to be most successful.”

The challenge of brands

This doesn’t mean that brands don’t pose a very real threat to retailers. One of the findings in the Salesforce research is that executives at brands are less likely to anticipate the organisational changes that lie ahead. Does this mean they have their heads in the sand? Not necessarily.

“These branded manufacturers have only been selling direct to customers these last 15 or 20 years, so they don’t have as many hardwired systems and processes for their retail operations,” says Garf. “They have an opportunity to leapfrog the traditional retailers and they’ve already had massive change moving from a wholesale operation to including a retail operation. They feel like this massive change is behind them and this next stage of transformation is relatively easier, although nothing’s easy.”

In other words, it may be that brands are better placed to make the most of new opportunities ahead not because they have the greatest retail expertise, but because they’re so confident about dealing with change that they will approach the problems with fewer preconceptions.

Again, though, we should be careful of making too many generalisations as there are also plenty of example of retailers being innovative. Take sports company Under Armour, for example, which also has a fitness app business. “[Under Armour] is adding more to its [offering] to elevate it in customers’ minds,” says Merrick. “Once it’s elevated itself in consumers’ minds and is seen as the home of fitness – somewhere customers can engage and not just to buy a pair of trainers – then it becomes a different proposition. And that’s what will make it stand out.”

To return to data, this also means Under Armour has rich sources of information on which to base its offering, both about the products it sells and how they’re used by its customers.

And make no mistake, such data will be crucial. “Brands were reluctant to go to the consumer but now that they have to, they’ve seen some early success and they’re going to start to gain more insights,” says Merrick. “They’re in an interesting position. In a past life, we had the saying, ‘Do consumers shop because of the brand on the door or the product on the floor?’ What we meant by that is do consumers go to a store because they’re loyal to the name of it or do they go to a store because they know there’s a particular brand in the store that they want to get?”

It would seem that we may not quite see an acrimonious divorce of brands and retailers creating lasting divisions in the retail landscape. However, while there will certainly be instances of brands refusing to stock retailers based on insights they’ve gained directly from consumers, a certain amount of counselling may be necessary if this new business-to-consumer/retail ecosystem is to be harmonious.