How retail stores are scrambling to catch up with shoppers empowered by the Web
A couple of years ago, Erik B. Nordstrom, store president for his family's retailing empire, noticed something disturbing. Customers were no longer wowed when his staff offered to call other stores and find that out-of-stock size 6 black cocktail dress. Instead, "they looked at us like we were crazy," he says. "'Why don't you just go on your computer and find it?' they'd ask." Suddenly, the department store's vaunted reputation for customer service, nurtured for more than a century, looked dangerously dated. And as far as Erik Nordstrom was concerned, the Web was to blame.
The Internet hasn't destroyed brick-and-mortar retailing, as many once feared. But has it ever changed consumer behavior. Across the U.S., stores are playing catch-up with shoppers habituated not only to the speed and convenience of purchasing online but also to the control it gives them. The Web provides shopping when you like, where you like, with access to gobs of research—from a product's attributes to where it's cheapest. No real-world store can replicate all that.
But increasingly retailers are trying to give customers more control over the shopping experience. That often means bringing Web-style technology into the store. AMR Research estimates retailers will spend $766 million this year, up 14% from 2006, on things like cash registers that locate inventory. Bloom supermarkets, which are owned by Food Lion, have poured money into a sophisticated system that allows shoppers to pick up a scanner and grocery bag at the front of the store, keep track of the bill as they shop, download the scanner at the self-service checkout, and pay. Voilà—the weekly food run with fewer hassles, in Internet time. Retailers know, of course, that gadgetry will take them only so far. So they're trying to replicate the best things about the Web but in a more personal way. That's why Best Buy (BBY) is retraining its sales employees so they know more about their products than their Google-happy customers.
Whatever the approach—high tech or low—retailers know it's crunch time. Services are popping up that allow consumers to use their smartphones to learn what other retailers are charging for a given item, which means competing on price is no longer enough. Meanwhile, industry watchers are citing declining foot traffic as evidence that shopping, the other great American pastime, may be losing ground to Web-based entertainment. "Five years from now," asks Barnes & Noble (BKS)Chairman Leonard Riggio, "to what extent will people see buying a gift at retail as essential?"
Over the past few years, most big retailers have built thriving online stores. And increasingly they're using them to coax shoppers to their brick-and-mortar outlets. Many now allow online shoppers to pick up purchases at their local store. It's a smart move. Impatient consumers need not wait for the FedEx (FDX) guy. More important, getting people to show up gives retailers an opportunity to sell them more stuff.
Circuit City Stores (CC) has been particularly aggressive on this front. The electronics retailer promises that online purchases will be available for pickup in 24 minutes. If the item isn't ready, shoppers get a $24 gift card. Circuit City reports that 50% of its online orders are now picked up in stores. And staff make a point of pushing accessories: Do you want a carrying case for that camera, sir? Ben Tan, a computer programmer from Brooklyn, N.Y., recently ordered a $40 Sony (SNE) AM/FM radio online for his wife. "She wanted it sooner than later," he says. So he went to the store. In the spring, a similar program at Wal-Mart (WMT) drove a 20% increase in the number of customers who spent an extra $60 during pickup.
Today's consumer doesn't always have the patience for traipsing around a store looking for the perfect cashmere scarf or obscure French novel. So Barnes & Noble and other retailers are installing kiosks that allow people to search inventory, locate merchandise, and order out-of-stock items. Consumers also want to know about special sales and trunk shows, and retailers have become increasingly adept at figuring out who is most likely to show up and alerting them by e-mail. Veteran Nordstrom personal shopper Nader Shafii now keeps 5,000 customers in a database and routinely blasts come-ons to 500 of them. Shafii says he's selling 37% more merchandise as a result. Now Nordstrom is experimenting with text-messaging the cell phones of younger customers.
Few retailers are attempting to give customers more control than grocer Bloom. Visitors to shopbloom.com can key in a shopping list and get a printout of the aisles they need to hit. That can be risky, because when shoppers know what they want and where to find it, they may be less likely to buy on impulse. Echoing the Internet's user-generated craze, Bloom also lets people "build your own six-pack" of imported brews. Throwing away decades of habit and convention hasn't been easy, says Bloom marketing director Robin Johnson: "It's a paradigm shift."
Another retailing convert is Melissa Balas, who helps oversee customer service at a Best Buy store in Durham, N.C. For years, Balas's employer didn't put as much emphasis on getting its sales staff acquainted with what it was selling. That won't fly anymore. Few products are more zealously researched online than digital gadgets; numerous sites are dedicated to that very purpose. Balas says her people were having a hard time keeping up with increasingly savvy customers.
In October, Best Buy overhauled its entire sales force. Now 30% of store staff have been redeployed from specific departments to roam the entire floor. They're supposed to know the whole store and how gadgets work together: which printer to choose for a certain laptop, the best memory card for a digital camera, how a gaming platform works with a given TV. To get her employees up to speed, Balas has them meet with manufacturers' reps for a rundown of their products, attend storewide and department training programs, and, when customers are scarce, play with the products. Reps are in the store as often as every other week giving demonstrations and group instructions on features and improvements. "I would say we are always training," says Balas.
As retailers battle to stay one step ahead of their increasingly impatient and informed customers, many are dabbling in Web-like experiments. Who would have imagined that Bloomingdale's (M) would find a way of bringing social networking into the store? Earlier this year, design firm IconNicholson ran a three-day test at Bloomingdale's featuring the designer Nanette Lepore. Shoppers participating in the test tried on outfits in front of an interactive mirror that connected them with friends via the Web. Thanks to a camera in the ceiling, their pals could see the outfit they were trying on, instant-message their thoughts, and suggest alternatives from Lepore's inventory, all of which popped up on the mirror for the shopper to read. The technology also markets matching accessories and provides a store map showing where shoppers can find them.
Nordstrom, meanwhile, has been testing perfume kiosks at 20 Southern California stores. With a few touches of the screen, a customer can find out which celebrities favor a certain perfume, the high and low notes of their favorite scent, and such details as the artist who designed the bottle. Creator Jan Moran, an author and consultant to fragrance companies, compares fragrance fans to wine aficionados. But Erik Nordstrom says he hasn't seen much impact on sales and suspects the kiosks can't compete with his staff's vaunted customer service. "Our focus is less about the latest supercool technology," says Nordstrom, "and more about the customer interaction."
Still, retailers will keep experimenting because the next generation of technology will turn consumers into even bigger control freaks. Already, shoppers can use their cell phones to access a Web-generated list of nearby stores selling a certain product. Dial frucall.com, enter a product code, and you can get immediate info on the lowest price available online. In China, Web sites amass large numbers of customers interested in a certain product and then bargain with retailers on their behalf. It's called "mob shopping"—a perfect metaphor for how the Web has empowered the consumer and left retailers scrambling in their wake.