Retail in hypercompetition

For a long time, brick-and-mortar retailing has been one of the economic sectors that are meant to have a special ability to adapt to the respective competitive situation and the changing expectations of its customers. The expression ‘retail is change’ is a phrase associated with this – for decades, highly successful and industry-defining forms of operation such as department stores, supermarkets and discount stores or shopping and outlet centers have been created in this way.

However, with the digitalization of the economy and the associated emergence of completely new business models, the appeal of the former formula for success has weakened considerably. This is because new competition has developed on the internet through the establishment of highly successful online stores, entire marketplaces or much-used price comparison portals, which present the range of products very clearly in a virtual environment. They’re available not just ‘24/7’ around the clock and on weekends from home, but also through smartphones from any location on the road. And while these new shopping options with their search term logic initially tended to serve only targeted shoppers, the new possibilities of social shopping also satisfy the need for inspiration and stimulation while shopping.

As a result, in some industries, more than 40 percent of all retail sales are now made via online-based business models – and the trend is rising. While even before the Covid pandemic there were speculations that brick-and-mortar retail was in danger of becoming a victim of digitization, the consequences of the lockdowns have significantly intensified this development: a large number of studies show how strongly and permanently shopping habits have changed as a result of the pandemic – with even more intensive use of online offers and even more critical questioning of one’s own consumer behavior.

An additional potential threat to stationary retailers is the increasing entry of companies from outside the sector into stationary retail by opening their own stores. Under the terms ‘direct-to-consumer’ and ‘verticalization’, manufacturers are now seeking the direct route to the consumer in almost all product ranges – bypassing the traditional retail trade. This is being done via highly professional specialty stores, excitingly staged flagship stores or temporary pop-up stores in the best locations. What is also particularly interesting is that more and more former ‘online only’ companies are discovering this route for themselves and setting new standards with unusual, attractive shopfitting and staging concepts – and that too in an almost perfect network of the offline and online worlds.

With the consequences of digitization and changing values, with the parallel strengthening self-confidence of the industry and now also with the consequences of Covid and the accompanying lockdowns, a competition that used to be just about predictable for the traditional companies of stationary retail, has developed into a competition that is more multifaceted than ever before. With an enormous breadth and an increasingly professional appearance, highly exciting shopping alternatives are opening up at a threatening speed – a phenomenon that has developed into a ‘hypercompetition’.

If classic retail wants to survive in such an environment, if companies really want people to keep coming to their stores, then the stores must offer more than the competition, not less. They can do with even more exciting assortments and inspiring merchandise presentations, relevant services and convincing advice, an inviting atmosphere and smooth, consistent processes that are in line with the assortment concept.

At the same time, a move away from business models that all too often tend to focus only on optimizing internal processes. If brick-and-mortar retailers want to continue to inspire their customers, then they must also adopt this customer perspective in the evaluation of their own business model and the accompanying processes. The focus must no longer be solely on cost and efficiency-driven considerations from a one-sided company perspective – the actual desires and needs of the customer must become the yardstick for evaluation: Only when retailers stop thinking like retailers will they be truly innovative in a competitive context and win customers over again.

What is exciting in this context is that traditional business models can learn from their competitors online. One of the special success factors of online retailing is an unconditional customer and experience orientation of all design aspects and process factors in the realization of the respective business models. It is not just that Amazon founder, Jeff Bezos, is reported to attribute his great success to the uncompromising orientation of all processes down to the last detail, to his customers wishes. Tarek Müller, the founder of the German online store AboutYou, which is still quite young but now listed on the stock exchange and has won many awards, also attributes the rapid rise of his business model to a strict orientation of the entire concept to his customers’ requests and an outstanding quality of experience compared with their competition.

When it comes to designing the shopping experience, online providers are not content with just offering a range of products tailored to the customer, but also incorporate all operating and handling processes down to the smallest detail:

• In the case of online providers, individual products are provided with even more information through the integration of exciting tutorials, lively moving image sequences or helpful experiences of other customers, while most classic providers have their assortments mostly tucked away on the shelf without commentary or emotion.
• On the internet, the actual product range is supplemented with meaningful accompanying articles – in many classic business models, the customer ‘stumbles’ across special setups that are obviously selected more from a margin-optimizing perspective.
• While in online retail the click effort in the checkout process is constantly being optimized in terms of programming to enhance the customer experience, consumers in classic supermarkets are driven at the checkout to pack up their purchases as quickly as possible to make room for the next customer.

A convincing shopping experience is so important because it can be firmly anchored in the consumer’s memory for a long time – in contrast to marketing measures that are often rather impersonal, highly standardized and increasingly perceived as superficial. This makes it clear that in today’s world we can no longer speak of the ‘point of sale’ – from all our thinking and actions we must move to the conscious design of a ‘point of experience’. Holistically, from the customer’s point of view across all design and process levels down to the smallest detail, is the only way to make customer centricity a direct experience.

Professor Dr Wolfgang Merkle
Professor Dr Wolfgang Merkle is Professor of Marketing & Management at UE – University of Europe for Applied Sciences in Hamburg and owner of ‘Merkle. Speaking. Sparring. Consulting.’ Prior to this, he spent over 25 years as CMO, divisional board member, managing director and director at Tchibo, Galeria Kaufhof, ZARA, Massimo Dutti and Otto.
https://www.ue-germany.com/