How legacy retail can compete with DTC disruptors

Legacy retailers have to adapt quickly and intelligently to the changing retail landscape, from personalizing in-store experiences to bridging the gap between their e-commerce and retail operations.

How legacy retail can compete with DTC disruptors

With the rise of direct-to-consumer (DTC) companies’ popularity among consumers, a “retail apocalypse” has been rumored for almost three years now. But is the apocalypse real? Or simply fearmongering? Well, with legacy retailers closing over thousands of storefronts and frequent bankruptcy declarations over the past few years, traditional retail has become a game of survival of the fittest. And the Covid-19 pandemic only expedited the inevitable shift to online shopping.

It's no secret that e-commerce played a crucial role in the economy in 2020 as quarantine and social distancing regulations went into effect, shutting down thousands of brick-and-mortar stores. That said, retailers that invested in e-commerce or DTC models were well-positioned to offset brick-and-mortar losses by staying ahead of the growing digital divide.

ecommerce covid change graph
E-commerce transaction changes from March 2020 - June 2020 (via NPD)

What DTC brands got right

For the last decade, DTC brands have transformed consumers' expectations of what a good customer experience entails — relevance being a core component. At this point, most retailers have invested in e-commerce to some degree, but selling products online and creating exceptional omnichannel experiences are two very different things.

DTC brands are leading the way when it comes to experiential retail, creating engaging and interactive online experiences through behavioral predictions and scalable personalization strategies.

How Casper caters to the customer

When looking to buy a mattress even just a few years ago, you probably would have considered going to Sleepy’s or Mattress Firm to lie down on a dozen or so mattresses in a fluorescent-lit room. There is a strong chance a salesperson would be lurking a few feet away from you, ready to close the sale when you finally decide that maybe this mattress doesn’t feel much different than the other five you just tried out, so it will probably do.

Flash forward to 2021, and you're in DTC mattress disruptor Casper's flagship store. This does not have the sterile atmosphere of its predecessors; it feels as though you’re walking into a neighborhood of tiny houses, dubbed “birdhouses,” where you can lie down and peacefully try out Casper’s various mattresses. On top of that, the store features interactive stations where prospective buyers can see and touch the fibers of their pillows. This facilitates both a fun atmosphere and a sense of company transparency — a far cry from the traditional mattress shopping experience.

Meanwhile, many older, larger mattress companies have filed for bankruptcy, closed hundreds of stores across the country, and rethought their retail approaches — going so far as to release lines of DTC-inspired mattress sub-brands or partner with those DTC inspirations directly.

Of course, Covid-19 changed consumers’ ability to shop in-store, which no doubt contributed to larger mattress retailers shuttering their stores. While one might expect this to affect brands like Casper as well, they actually reported 16% revenue growth in Q2 of 2020, despite “very modest sales” in retail stores. It’s imaginable that once people realized they’d be staying home quite a bit more than usual, a new mattress was in order. And Casper's sleek website design likely didn't hurt.

How Glossier caters to the customer

During the Covid-19 pandemic, the beauty and wellness industry has boomed as consumers become more attentive to their mental and physical wellbeing. Brands that have practice catering to this attention have done well to keep their customers top of mind.

This extends to DTC beauty brand Glossier, launched out of Emily Weiss’ beauty blog in 2014. Now valued at $1.2 billion, Glossier has effectively captured the attention of millennials and Gen Zers, who have propelled this digitally native brand into massive success. At their retail locations, there is none of the craze of big beauty retailers, no overwhelming dread that comes with too many product options or messy sample displays. And with beautiful interior design that reflects the store’s cities and their local consumers, the in-store experience is personalized to each location, making it a true shopping destination.

The question now is if legacy retailers can continue to step up their game and commit to providing such experiences both online and in their stores. In a recent study, Treasure Data reports that 61% of surveyed retailers have changed their brand’s retail strategy to create a more engaging, personalized in-store experience, and 36% of those surveyed have plans in place to do the same in the near future.

Particularly with millennials’ and Gen Z’s growing buying power and inclination to shop online, in-store experiences shouldn’t be discounted if legacy retailers aim to attract those key consumer generations and fuel future revenue growth from offline channels.

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How legacy retailers can adapt

There is still hope for legacy retailers. Adaptation by way of strong omnichannel marketing and retail strategies, customer-centricity, and the investment in consumer prediction capabilities is helping them deliver customer experiences that rival those of the younger, digitally native brands that are sweeping consumers off their feet.

Make customer-centricity the top priority

The expedited adoption of online shopping by consumers has caused many longstanding retailers — that have relied heavily on brick-and-mortar sales in the past — to restructure their approach.

This restructuring often begins with the companies’ internal organization. A major obstacle legacy retailers face today is the disparate nature of their marketing and retail teams: digital, offline, and retail strategists often operate independently of one another, unable to view their customers in a holistic manner.

This is how many DTC brands have been operating all along: working to develop a singular customer view to help unify their messaging and ad creative across a variety of channels.

Amy Vener, head of retail at Pinterest, noted, “With DTC brands, companies are thinking of their consumer in a holistic manner as one customer versus thinking of them as the customer that came through Facebook or an email marketing campaign.” This perspective is increasingly important to the efficient growth of DTC brands, and to the future stability of legacy retailers.

Guide digital strategies with location intelligence

The presence of a retail store can positively influence online web traffic and sales, counterintuitive as it may sound. Dubbed the “halo effect,” established retailers have seen an uptick of web traffic by 27% within a given store’s market, and it’s estimated that an e-commerce halo can add 20 to 40% to a store’s total sales.

To tap into this earning potential, retailers are beginning to rely more heavily on location intelligence services to accomplish a number of goals: identify geographies where there are clusters of ideal customers for their particular brands, predict how well a store will do in a considered market, and evaluate how well existing locations are operating.

The amount of consumer data — specifically behavioral data — that retailers have access to is unprecedented. Leveraging this data with machine learning geographic analyses like market sizing and penetration analyses can assist greatly in optimizing a brand’s physical retail strategy. This can be done in-house by way of a robust data science team and GIS work, or it can be outsourced to one of many emerging SaaS companies who offer location intelligence services.

No matter what route they take, it’s obvious that having a deeper understanding of market opportunities helps brands make more informed decisions about future store placements and the impact those will have on overall brand awareness and revenue growth.

With many brands offsetting business costs by restricting ad spend during the pandemic, where you do end up putting your money really matters. Location intelligence isn’t just useful to retail teams; these analyses serve marketing teams that implement location-based initiatives (e.g. direct mail, out-of-home, and even SEM bidding strategies) well, particularly as many people socially distance at home and rely on e-commerce for everyday goods.

Businesses also have a great opportunity to increase their personalization here: 72% of consumers say they exclusively engage with marketing messages tailored to their interests. Customizing location-based campaigns to fit the demographics, interests, and relevant attributes of a particular audience in a certain geography can engage potential and existing customers at a much higher rate.

It's not too late to change

Legacy retailers have to adapt quickly and intelligently to the changing retail landscape or else resign themselves to the fate of a retail apocalypse, spurred on by Covid-19. As consumers adopt short-term behaviors that may become permanent (e.g. relying on e-commerce over offline retail), tracking overall performance of campaigns, products, and engagement initiatives will be crucial.

From personalizing in-store experiences to bridging the gap between their e-commerce and retail operations, legacy retailers have a substantial task ahead of them if they want to continue to compete with DTC brands. The time to invest in these changes is now.

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