The Supply Side: Retail reinvention driven by customer demand

Leon Nicholas, vice president of retail insights at WestRock, believes consumers bolstered by a strong economy are calling the shots in retail by demanding best prices and ultimate convenience options.

Nicholas recently spoke to a group of retail suppliers in Bentonville at WestRock’s first Lunch & Learn Series. WestRock, a supplier of paper and packaging designs, plans four other lectures by Nicholas in the coming months to take a deeper dive into the metrics of marketplace challenges relating to brands, digital and e-commerce disruptions as well as supply chain optimization.

The first event in Bentonville examined the role of the consumer driving the massive changes in retail. Nicholas said brands are more-or-less owned by the shopper who gives brands permission to act. This is a reactive role for supplier brands rather than proactive, and it’s also no longer just retailers calling the shots.

Nicholas said the division of wealth between those earning over $60,000 and those who earn less continues to create populations at each end of the economic spectrum. He said 60% of households earn more than $60,000 annually but they control 74% of the money. The remaining 40% of households share 27% of money.

As the gap grows, Nicholas said merchandising for the masses is becoming less useful because there are fewer consumers located in the middle. They have moved, Nicholas said, to one end or the other — the haves and the have-nots. The polarization of shoppers is also driving fragmentation in retail, forcing suppliers to seek out shoppers wherever they are.

FEWER STORES, MORE TRIPS
Nicholas said Americans are shopping fewer stores. But they are making more trips, which is why traffic counts are up amid stagnant or slow-growing sales. That’s also driving loyalty plays by retailers who want to get more out of the shoppers they do have. He said retailers can also focus on niche groups who are attracted to their brands.

Citing research from Kantar, Nicholas said 60% of shopping trips made today by U.S. consumers are for fill-in or immediate needs. He said the stock-up trip is continuing to gravitate online. Roughly 15% of U.S. retail sales were made online through 2017, according to U.S. Department of Commerce data as reported by Kantar.

That could be why, Nicholas said, Walmart is focused intensely on omnichannel by using its Supercenters as pickup locations and fulfillment centers. It’s also likely why Sam’s Club — traditionally seen as a stock-up venue — has seen the use of its Scan & Go feature being used more by a majority of its members. A member can walk into a club, purchase a sushi roll and drink, pay with Scan & Go and be out the door just about as fast as any quick-serve restaurant. Walmart and Sam’s Club have begun to focus on convenience as well as stock-up.

With 45% of U.S. households being Amazon Prime members, the online disruption is well underway. Nicholas, also citing Kantar, said only 15% of households have never ordered from Amazon. As the number of shoppers who now have smartphones has reached 80%, manufacturers and retailers have to react and align marketing and branding to reflect the growing demographic. Nicholas said many brands have not yet made the necessary adjustments.

LOOKING AHEAD
Kantar expects between 2013 and 2023, 63% of all brick-and-mortar sales growth will come from formats smaller than 50,000 square feet. Smaller formats less than 20,000 square feet are projected to have the highest compounded annual growth rate of 3.7%, while the larger stores over 150,000 square feet are expected to see the slowest compounded annual growth rate at 0.7%, according to data shared by Nicholas.

Walmart Supercenters average about 178,000 square feet, with some as large as 260,000 square feet. Walmart Neighborhood Market stores average about 42,000 square feet. Walmart has already said it will look for ways to exhibit the marketing tactic of retailtainment in larger stores, which can be seen as a destination, not just a place to buy things.

Nicholas said as retailers are rethinking store layouts, suppliers have the opportunity to reinvent aisles in the center of the store using sensory elements that can enhance shopping experiences. For example, a candy aisle could be reimagined into a confectionary experience, with colorful signs and lighting or a kiosk for smelling and tasting. Already in the beauty department retailers are using special augmented reality mirrors that show what a certain shade of makeup looks like on a customer before they buy it.

He said shelves must work harder today on behalf of the items they are holding. As retail-ready packaging has become the norm, there are fewer modulars and end-cap display fixtures, and in many cases the shelf itself must become the display. Nicholas said packaging has to do more of the work because there are fewer sales clerks in stores to assist shoppers.

One way suppliers ensure their packaging speaks for itself is by using connected or smart packaging that can act as a platform for shoppers to scan and trace the supply chain. Smart packaging, which can be scanned by the consumer, can also allow shoppers to easily gain additional information like recipes or the detail of a product’s full ingredients, which is important to a growing number of consumers. Nicholas said connected packages and displays are likely to drive shopper conversion, which can be measured given the digital connectivity.
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Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.