A white paper on the retail industry,

prepared by Leo Burnett and Arc Worldwide

Introduction One of the most important questions facing the retail industry in a multi-channel, Internet enabled world is what – if any – is

the role of the physical retail store in a landscape where they are no longer needed for shoppers to make purchases and

retailers to sell products and services.

At Leo Burnett, we felt that this heartland issue merited serious attention. Moreover, we wanted in particular to hear the

shoppers’ perspectives. And so we asked them. Specifically, we asked 2,200 adults across the United States. We asked

them for their perspectives on the following key questions:

What do retailers need to do to keep their stores interesting, relevant and inviting?

What roles does the physical store play for them in the overall shopping process?

How synergistic does the store need to be with other shopping channels?

What stores do shoppers like to visit and why?

What are their expectations for personal service in store and how well are retailers delivering on their expectations?

How do they feel about the role that technology is playing in their experiences of physical stores?

Do they categorize stores into the same functionally-led groupings that the retail industry uses?

How important is price in their choice criteria?

We included in our study 40 of the most important retail brands in America.

We are very pleased to present in this white paper the key findings from our research and our perspectives on their

implications for the retail industry.

7-Eleven

Abercrombie & Fitch

Apple

AutoZone

Barnes & Noble

Bass Pro

Bed Bath & Beyond

Best Buy

Chase Bank

Costco

CVS

Dollar General

Favorite Movie Theater

Foot Locker

Gap

Hallmark

Health Club

Home Depot

IKEA

Kohl’s

Local Grocery Store

Lowe’s

McDonald’s

Neighborhood Markets by Walmart

Nike Stores

Nordstrom

Pottery Barn

Sears

Sports Park or Venue

TJ Maxx

Target

Tiffany’s

Trader Joe’s

Vacation Hotel

Verizon

Victoria’s Secret

Walgreens

Walmart

Whole Foods

Williams Sonoma

Our overarching observation:

Writing the obituary for the retail store is very premature.

However, a new shopper calculus requires retailers to have a new mindset. Many have argued that technology has chipped away at the need for physical retail stores. Websites provide shoppers with increasingly rich information about products and employ increasingly sophisticated technology to bring virtual shopping to life in ways that would appear to rival a bricks and mortar experience. This has driven a steady flow of sales – some might say a torrent - away from the physical store itself and onto the web. In this scenario, the old retail

store model is characterized as irretrievably broken.

Yet when we set out to more deeply explore, from a shopper’s perspective, this emerging paradigm, we did not find that this holds true. Even with the plethora of online options, most shoppers feel that the physical retail store is

still an essential part of their shopping experience.

While it varies by product category, most agree that there is really no substitute for the store itself. It may not always be perfect, it may not be loved, but it is needed. In many cases, shoppers feel that there is simply no substitute for seeing, touching and experiencing a product. The web, while often used, is not preferred.

In addition, there is much in our research findings to suggest that while the migration from stores to online isn’t completely over, it is slowing. Furthermore, there may be a natural bottom beyond which stores will not fall. Reported spending data from our respondents suggests a leveling off of the exodus to online. Also, for many shoppers for much of the time, the store experience is still rated substantially higher than the web experience – despite the growing

sophistication of web technology.

In the context of these findings, we think it especially important to re-think the nature of the paradigm shift that is taking place in the retail sector. While we believe that there is a shift taking place, it is perhaps not quite the one that has

been predicted.

As a result, we propose a slightly different narrative: Technology on its own – online, in-store and mobile – is certainly appealing to some shoppers. And for those specific shoppers, these enabling technologies have clearly diminished the role of the retail store. But what’s more important and often overlooked, is that for most shoppers,

technology on its own is not the solution – its appeal is too limited. What we believe is really going on is that the recession coupled with shoppers’ access to technology has driven the shift. Shoppers have used it to seize power. In difficult economic times, they are engaging in a more complicated calculus in which price, quality, convenience and personal relevance are more carefully weighed. Unless it is a product or brand they are already quite familiar with,

this new calculus often demands hands-on experience so they can be very certain about their choices. This means that technology, rather than existing as a force in its own right, enables shoppers to arrive at the store armed with information. Some may have already decided (or think they have decided) what they are going to buy – the store is merely a final check or pick-up station. In other cases they arrive at the store to check things out, but in a critical way and often on their own terms. They are informed and in charge and often focused on efficient mission-completion.

For these reasons -- more so than the allure of technology on its own -- the paradigm has shifted from the store being in the position of managing shoppers to

shoppers managing the store.

Importantly, the retailer still has opportunities to powerfully influence the evaluation and selection process. But they are different than in the past when the only goals that the shopper had and that the retailer needed to deliver against were about having the right product in the right location and at the right price. The new shift is all about “right process,” meaning the way shoppers are moved through the shopping experience from the time they get on a retailer’s website to the time they arrive in that same retailer’s store. Many things that retailers have not previously considered loom

large in this apparently beguilingly simple process.

We identify 10 dynamics, detailed in this white paper, that we believe are critical for retailers to understand and embrace if they are to succeed in this new environment.

Implication:

Learn the new rules.

Understanding the changed role of the physical retail store in a multi-channel Internet enabled world is crucial for all retailers. The new retail reality is that “If you build it, they won’t necessarily come.” Furthermore, it is shoppers, not retailers, who are in control of the buying journey and these shoppers have very clear views of what they want the physical store experience to deliver.

Key Finding:

A defining feature of the recession is that while price is focal,

shoppers want everything else too.

It is important to first of all have a current perspective on how shoppers feel that retailers are performing on the so-called retail basics of right product, right place (location), right price. Among these basics, it is inevitably price that has gained much attention lately.

Given the recession and its lackluster recovery, it’s not surprising that price is focal among today’s shoppers and that they are willing to invest substantial time to find bargains as well as substantial time re-thinking exactly what is right for them. There is no indication in our research that price sensitivity is lessening as the economic recovery proceeds – it is still pervasive, and our data shows there has been no significant change in the importance shoppers attach to price by comparison with a year ago. Fully 81% of shoppers strongly agree that it’s worth the effort to find real bargains and 70% strongly agree that price is the most important consideration in choosing a retail brand. A majority also report switching from one retailer to another based on price.

Despite this, quality of products and quality of store experience are still important. Nearly two-thirds of shoppers still strongly agree that quality is the most important consideration when shopping and three quarters strongly agree that high quality and excellent service are important also. Conversely, less than a third say that they would be willing to sacrifice quality of experience for lower price.

% Agree Top 3 Box on 10-Point Scale

The most important thing when shopping is to find high quality products

61%

When it comes to stores, It’s important to me to go to those that have high quality products

and excellent service

75%

I’m willing to sacrifice the quality of the shopping experience for lower price

31%

% Agree Top 3 Box on 10-Point Scale

It’s worth putting in the effort to find real bargains when shopping

2009 2010

53% 52%

Price is the most important consideration in choosing a brand

2009 2010

36% 36%

I often switch between buying a couple of different brands depending on price

2009 2010

36% 36%

Implication: Price competitiveness gets you an

invitation to the party, but price alone won’t get you a dance.

Recession impacted shoppers have become extremely demanding shoppers. They are no longer prepared to accept the old trade-offs of low price or a quality experience and quality merchandise. In America in 2010, they want it all and they are very intolerant of retailers who do not deliver on their expectations. Furthermore, retailers must understand that they are not just competing against other retailers; they are also competing against the shopper’s option to defer their purchase or not to spend at all. This recession has shown us just how able shoppers are to exercise their ‘no spend’ option if they feel they need to or if retailers do not give them sufficient reason to make a purchase.

Key Finding:

Physical retail stores are still very relevant

for many shoppers and many types of purchases,

but the experience certainly isn’t optimized. Our research tells us in clear terms that shoppers are often still disappointed in and frustrated by the inability of retailers to deliver on the ‘Retail 101’ basics of offering the right products in convenient locations at competitive prices. To this, the shoppers we surveyed add a fourth ‘retail basic’

– a reasonable returns policy.

When asked to rank 76 store attributes in order of the importance that they attach to them, it is these 4 constructs, no matter how expressed, that dominate the top of the rankings. By contrast, web and technology items fall much farther down the list.

However, our data also shows that retailers are still not getting the basics right – even in the eyes of shoppers who prefer to shop their stores. When we compare what’s important to shoppers to how retailers are delivering on these attributes, there is substantial under-delivery. We found that price suffers most from perceptions of under-delivery by retailers. In terms of having the right brands and products, the biggest under-delivery is on having things in stock. Convenience of store location could also be better. And stores could also do rather better on their return policies, particularly in terms of the timeframe that they will

allow returns.

Top 10 Store Attributes as Rated by Shoppers

Rating Rank

A store I can trust 7.7 1

Has a great selection of products 7.7 2

Has a location that’s really convenient for me

7.6 3

They always have the items I want in stock 7.5 4

Has good value for the money compared to other stores of its type

7.5 5

Makes shopping quick and easy 7.4 6

Has the right mix of products 7.4 7

Has a good range of prices on the items I shop for there

7.4 8

Has prompt service-I don’t have to go searching for someone if I have a question

7.3 9

Keeps prices lower than the competition 7.3 10

Has consistent return policy, whether I’ve shopped online or in the store

7.3 10

Mean Score on Importance (scale 1-10) and importance rank out of 76 items

In fact, 55% of shoppers agree strongly that the 10 items identified in the survey overall as most important are indeed extremely important to them personally., However, only 43% believe that retailers are doing a good job in delivering on those attributes. Thus there is a substantial gap between importance and delivery just on the store

basics.

This highlights the fact that there are clear opportunities for retailers to raise their game on the basics. Those who consistently deliver on the fundamentals will have a clear competitive advantage over the majority who can’t. This may sound like low hanging fruit, but it is a constant challenge for retailers and, as our research shows, a frustration for shoppers that they are still not able to get it

mostly right most of the time.

Importance of top 10 items 55%

Delivery of top 10 items 43%

GAP -12%

Implication: It may not be sexy, but there’s work to

do – and profit to be made – from making the basics better.

Retailers are often still struggling to get the basics right. Shoppers are noticing and are expressing their frustrations. It may still be ‘Retail 101’ but there are clear wins to be had by improving customer appeal and retention – and therefore profitability.

Key Finding:

Shoppers are largely unimpressed with in-store service.

It’s not just the delivery that’s weak – it’s the service proposition itself. For many shoppers, good service used to mean a smiling staff member. Shoppers’ expectations, however, have changed and service now means much more than staff who

are just being friendly but doing little else.

Our research shows that many retailers are still caught up in the old definition of service and too often believe that service means a person in store who acknowledges the customer’s presence. Shoppers are clear that they want much more than this. They’re looking for real help to make better informed decisions. They’re seeking a lot of information about products in the store as well as salespeople who are in tune with when they’re needed and

when they aren’t.

For American shoppers today, In-store service has been re-cast to be much more about real effectiveness than about acknowledgement.

Store Attributes as Rated by Shoppers Rating Rank

Has prompt service-I don’t have to go searching for someone if I have a question

7.3 9

Has sales people who really know the merchandise

7.0 16

Make it easy to get the information I need about a product right there in the store

7.0 18

Has figured out at which points in the store experience the quality of service matters the most

6.7 22

Has figured out how much or how little interaction I want to have with the sales staff, and has gotten it just right

6.7 24

Mean Score on Importance (scale 1-10) and importance rank out of 76 items

This means that staff need to be more attuned to a shopper who arrives at the store already armed with information. They need to know their merchandise to a level of detail that adds to the shopper’s (often very high) knowledge when they enter the store. They need also to understand when to interact with the shopper and when they want to be left alone to explore and move through the store or the merchandise category at their own pace and without interruption.

Importantly, effective service doesn’t necessarily have to include a person. Effective service can also include informative displays, signage, or interactive technology in store. However, as we highlight later on in this paper, technology that empowers shoppers to get help completely on their own also has the potential to create a division

between shoppers and the retail store.

Implication: Reframe service from staff ‘just being there’ to service being truly effective and delivered by both staff and the

store environment.

Shoppers regard service as of key importance in their choice of retailer. However, ‘good’ or ‘high quality’ service is a very nuanced and multi-faceted attribute in the minds of the shopper. Few retailers understand this and fewer still are able to satisfactorily deliver it. There is great competitive advantage to be secured by those who do.

Key Finding:

Shoppers organize stores in terms of the experiences they want to have,

not just the merchandise they want to buy. In order to understand shoppers’ perceptions of retail stores, we asked them to rate the 40 retailers included in our research on a variety of attributes.

We were then able to map the attributes and the 40 retail brands into a two-dimensional space based on shoppers’ perceptions as expressed through the data. As such, this analysis reflects how consumers mentally organize the retail

world.

When placed into the correspondence analysis map, the items (shown summarized by their overall factor locations) reveal that today’s shoppers organize the retail space in which they operate very differently than the way that retailers do. Whereas retailers tend to focus more on the types of products being sold, the shoppers’ world is defined by two dimensions that are largely to do with how they

shop, and less to do with what they are shopping for.

The first dimension is one we call “Buying vs. Browsing.” In other words, are shoppers in the store primarily to “close the sale” or are they there to look around, gather ideas, immerse in a theme, and maybe purchase something? As can be seen from the map, the items at the buying end are

from the factors “Convenience,”

“Strong Value,” and “Right Brands and Products” – all factors that are about getting there, finding what you want, hopefully at a good price, and getting it done. By contrast, items anchoring the browsing end of this scale are from the factor “Experiential Environment,” and to some extent from the factor “Engaging Ideas” – both factors that are more about immersing yourself in the store, being entertained and

engaged, browsing, and ideating.

We call the second dimension “Self Directed vs. Retailer Guided.” It reflects the degree to which shoppers are handling the shopping process more or less on their own, in a self-directed manner versus letting the store, its display of products and its employees play a role in guiding the purchase process. Again, as can be seen from the map, the items at the self-directed side are from the various technology factors – “rEtail Integration,” “Cell Phone Friendly,” Reasonable Returns,” and “Technology Empowered” – all factors that are about using the web site or other technologies to do research, order, search in-store, all without the help of service personal. By contrast, the items at the retailer guided side of the map are anchored by factors that are all about needing the store itself and its personnel – “Physical Over Virtual,” and “Effective

Service.”

Implication:

Knowing what’s important is the essential first step to knowing where to improve.

Shoppers don’t view the retail world through the same lens as retailers. Shoppers organize their stores of interest according to the experience they want to have as well as the merchandise they want to purchase. A shopper-centric perspective is required for retailers to better deliver on the experiences desired by their shoppers.

Key Finding:

The way that shoppers cluster stores is very different

from the way that retailers do.

In addition to running the data through correspondence analysis to understand how the attributes and stores defined the space, we cluster analyzed stores on their attribute profiles. Stores with similar profiles to one another, but different from other stores, clustered together. Six clusters of stores emerged, each representing a different store archetype, as perceived by shoppers. These clusters are quite different from how the retail industry groups stores.

Price Led Stores All About Ease

Best Buy

Walmart

CVS

Neighborhood Markets by Walmart

Sears

TJ Maxx

Target

For Price Led stores, low prices are central and self-service options can be a means to that end. These stores are also perceived as offering convenience and good return policies. However, the store environment tends to lack inspiration and the service can be lackluster. For these stores, the in-store experience doesn’t offer much that consumers can’t find online.

7-Eleven

McDonald’s

Dollar General

Local Grocery Store

Chase Bank

All About Ease stores offer convenient locations, where it’s all about getting products you need in a timely manner. It may include self-service check-out. They don’t tend to have good return policies or offer inspirational ideas or displays, but it doesn’t really matter. They have high average store penetration and the highest shopping frequency. Web penetration is low and these stores are primarily encountered physically and frequently.

All About Atmosphere Ideas Led

Tiffany’s

Williams Sonoma

Barnes & Noble

Pottery Barn

Bass Pro

Nordstrom

Abercrombie & Fitch

Stores in the All About Atmosphere group have created an extraordinary in-store experience, often with a special theme, where consumers are more likely to think it’s fun to go even if they don’t buy anything. These stores don’t tend to sell a wide array of products and their prices are generally thought to be high.

Whole Foods

Hallmark/Gold Crown

Trader Joe’s

Compared to All About Atmosphere, stores in Ideas Led haven’t created the same sort of experiential environment. However, they tend to have a greater selection of products that are displayed in a highly appealing way. They also offer fresh ideas of products to buy—often these are unique products for that particular store.

Price Plus Efficient Errands

Kohl’s

Bed Bath & Beyond

Costco

Nike Stores

Stores in Price Plus offer a good value on items they sell and are an interesting place to shop, but not as exciting or inspiring as Ideas Led or All About Atmosphere. They frequently add new merchandise and are stores where consumers like to take their time and look around. They tend to offer a more seamless shopping and returning experience between online and in-store.

Lowe’s

Gap

Walgreens

Footlocker

Home Depot

AutoZone

Verizon

Efficient Errands stores offer convenient locations to get products you need with decent service. Sales people have reasonable merchandise knowledge and these stores make it fairly easy to get product information. However, they don’t offer an interesting or exciting environment or inspirational ideas. They are seen mainly as places go pick up things you already know you want.

Implication:

Understand which retailers you’re really being judged against.

Truly customer-centric retailing demands that retailers look at their own bricks and mortar stores and those of their competitors through the eyes of the shopper. The conventional

retailer-derived sub-segments are not relevant in a shopper-centric model.

Key Finding: There are 2 clear ways to win in store-based retailing:

excel within your archetype or break with conventions

and create something truly new.

Path #1: Delivering better on shoppers’ expectations

within the store archetype in which you operate

Each of our shopper-defined store type clusters (or ‘archetypes’) has a set of attributes that distinguishes it from the others in terms of what shoppers perceive the archetype to be centrally about. Some of these definitional attributes

are also highly important for the store to deliver on.

Depending on the archetype, delivery on these important, definitional attributes is often perceived by the shopper to be sub-par. By improving delivery specifically on important, definitional attributes, a store can more effectively compete and deliver what shoppers seek from a particular archetype. Moreover, retailers can also avoid over-investing in attributes that are perceived by shoppers as low-order or largely unimportant and, accordingly, will not deliver either a satisfactory return on investment or

meaningful competitive advantage.

For example, keeping prices low, being convenient, and having reasonable return policies are what cause Price Led stores to group together. Additionally, these attributes are also of high order importance to shoppers of these types of stores. However, all three are under-delivered on by the Price Led group of stores included in our research. Clearly, this is a very significant problem given that it is precisely for these attributes that shoppers choose to visit these types of stores. Furthermore, in our survey we are able to construct highly nuanced and detailed pictures of the exact dimensions on which stores are perceived to be under-performing on attributes of high importance to their target

audiences.

Path #2: Break out of the norms of the store archetype

Several notably successful retailers have moved deliberately, decisively and very successfully beyond the concept of playing to type and have effectively created fusions of store archetypes that lead to unique retail offerings. Thus, launching a relevant fusion physical store format can also be a path by which retailers can achieve

great differentiation and relevance.

In our survey of 40 retail businesses, three in particular stand out as having decisively broken out of the conventions

of their categories: IKEA, Apple and Victoria’s Secret.

• Victoria’s Secret combines elements from three store archetypes: Efficient Errands, Ideas Led, and All About Atmosphere. So even in convenient, “errand-running” mall locations, Victoria’s Secret’s colorful environment inspires shoppers via its unique atmosphere and its delivery of

interesting and stimulating ideas.

• IKEA, like Victoria’s Secret, combines elements from Ideas Led and All About Atmosphere with Price Plus. It delivers good value yet at the same time avoids the “price only” trap by offering inspirational displays in a fun and engaging

environment.

• Apple also combines elements from Ideas Led and All About Atmosphere, but this time combines them with a variety of Technology strengths. Thus, they sell and leverage complex technology,

with engaging displays and a creative atmosphere.

Implication: If you’re not winning by the rules, make sure you’re breaking them.

We have identified already that many (arguably most) retailers still have considerable ‘headroom’ to more effectively engage their target shoppers by delivering better on the norms for their store cluster type. Doing so is likely to deliver substantial competitive advantage through deeper customer engagement. The more radical path to greatness in store-based retailing is to create entirely new formats that break out of category conventions and deliver unique hybrid experiences.

Key Finding:

Shoppers are promiscuous. They shop around

and their loyalty has to be earned, not bought with a card in their wallets.

The current recession-defined landscape for shoppers and retailers has clearly exerted a considerable influence on the

loyalty that shoppers have to retail brands.

More specifically, one of the very clear findings from our research is that loyalty to retail brands is, for the most part, notably weak. As their price sensitivity has increased and as their dissatisfaction remains relatively high with the experiences that they often get from retailers, so their

loyalty to retail brands has weakened.

Furthermore, loyalty to individual stores is often weak also. The shoppers that we surveyed showed generally only limited levels of store preference. When asked if they prefer to go to a store or venue they currently shop versus a competing one, only half of shoppers indicated a preference for the store they already shop – in other words, loyalty is

limited even among a store’s current shoppers.

How much do you feel you need to go to that particular store or venue versus a competing

store or venue?

Definitely prefer to go to this store or a competing store

52%

Don’t have a strong preference

48%

This underscores the need for stores to not just tend to their loyalty rewards programs, but also to identify the dimensions on which they are most vulnerable to competitors. We have already highlighted the need for retailers to work harder to deliver on the ‘Retail 101’ basics, and we have also noted that all of the store archetypes are under-delivering on at least some of their key definitional features. It is clear then that, for all retailers, a good place to start in the difficult task of building higher levels of shopper loyalty is to examine the degree to which the business and indeed the individual stores in the business are delivering – or not – on the expectations that shoppers have

for these types of stores.

Implication: Understand and work on

the real drivers of shopper loyalty.

The deep and long recession and the great fragility of consumer confidence has fundamentally and permanently changed shoppers’ perceptions of and expectations of retail businesses. Loyalty has to be truly earned by understanding in detail the expectations of shoppers and delivering at least to those expectations every time that they engage with the business. A loyalty card alone will not buy loyalty in today’s climate.

Key Finding:

Cutting edge technology is a low order priority for shoppers.

Furthermore, technology is too often undermining, not enhancing

the relationship of shoppers with retail stores.

Technology -- whether web or in-store -- is growing in scope and influence, but is not universally embraced. It is still the basics – right product, right price, right location that matter most to shoppers. Most tellingly, half of the shoppers we surveyed agree strongly that cutting edge technology is not as important as the core aspects of the

store.

% Agree Top 3 Box on 10-Point Scale

Having cutting edge technology in a store isn’t as important to me as the store having great

products, great services and a great store environment

48%

Furthermore, shoppers have mixed feelings about technology in store. In general, of all of the attributes that we measured items relating to technology fall towards the bottom of the list in terms of perceived importance. This means that stores cannot abandon or give short shrift to other core competencies, in the belief that technological innovation will be a substitute – customers simply do not see it this way. Additionally, when we asked respondents for their attitudes about nine emerging technologies that stores might offer, all were regarded as of low importance – at best ‘nice to have’ rather than ‘important to have’. Also and tellingly, all of the technology items we measured and ran through our correspondence analysis fell towards the “Self Directed” side of the map. By contrast, items relating to having satisfying retail store experiences all mapped on

the opposite, “Retailer Guided” side of the map.

While there are some shopper segments for whom in-store technology is more important, there are others for whom technological innovation will do little or nothing to attract them to or keep them in the store environment. Thus, technology has more of a segmented rather than a mass appeal. In-store technology tends to play to the “tech crowd” as opposed to the average shopper. This means that stores cannot abandon other core competencies, thinking that technology will be a substitute. It must be in addition to, or applied in ways that enhance these other

competencies.

Finally and very importantly in this area, technology has the power to both enhance and undermine a shopper’s relationship with the store. Our research suggests that it is currently undermining more than it is enhancing by reducing the emotional engagement that shoppers have with retailers. Technologies appear often to be putting more distance between the shopper and the retailer by encouraging shoppers to work completely independently of retailers. This appears to be an unanticipated – and unwelcome – result of the investments that retailers have been making in in-store technologies, with the general objective of delivering better and more consistent service with fewer staff. Thus, much of the technology stores are putting in place today further undermines the need for the store rather than necessarily enhancing it.

Implication: Use technologies in store and in the hands

of shoppers to enhance the relationship between retailer and shopper, not

undermine it.

Technology has profoundly reshaped retail. In-store technologies have very often been seen as the holy grail for retailers to both lower their operating costs and deliver better and more consistent service to customers. The ‘average’ shopper’s perspective is somewhat different and the unintended consequence of many of the in-store applications of technology has been to create distance between the shopper and the retailer. This will need to be addressed as a priority if physical retail stores are to remain, even increase, their relevance in a multi-channel landscape.

Key Finding:

Physical stores need to be made relevant with the Internet.

It’s not stores or Internet, it’s stores and Internet. One question we raised at the outset was how does a store “win” versus the Internet. But our research suggests that, in fact, the question should be reframed to how does a bricks and mortar store win with the Internet? To leverage real power in the new environment, retailers need to think of themselves as collaborating with the Internet rather than competing against it. This is certainly what shoppers want. One of the more highly agreed to statements in the study is that shoppers want a seamless experience between the website and the store, with over 40% agreeing strongly that it’s very important to have this type of experience. When we look at all agreement (5+ on a ten point scale), the figure

jumps to 75%.

% Agree Top 3 Box on 10-Point Scale

It’s very important to me that a retailer provide a consistent experience across all of its

channels – the store itself, the website, the catalog, its coupons and promotions, etc.

44%

It’s also clear from much of the data that we’ve already discussed that while the Internet plays a powerful role in shopping, it is no substitute for the store. Rather, there’s an important interplay between online and in-store. It’s not either/or. Most shoppers have dual strategies, shifting back and forth between the web and the store depending on the product, or task, their own time constraints, interests, and

pocketbooks.

More than anything, the Internet is a place where people can gather initial information and get ideas about products, but it is not such a good place to actually make their final decisions. (Our recent research into the behaviors and attitudes of the so-called Multi-Channel Shopper discusses this in far greater detail). Conversely stores are viewed as a convenient and timely way to obtain products, as well as

places to check them out more thoroughly and in person.

When asked where they do their information gathering, shoppers were twice as likely to agree strongly that they started online as they were to agree that they started in

the store.

This means that the Internet is really the front door to the store. It is the place where shoppers will do their initial searching and narrowing down. In this role, it’s not enough to just show shoppers what the store has, at what prices, etc. It needs to present the store beautifully and to create a compelling first impression – to engage and excite shoppers

as to what the retailer is all about as well as to provide information about its particular offerings. The store should view itself as more of the second act, a middle and end point in the shopping process. Shoppers will enter already armed with information about products. Thus it is the store’s job to refine and further illuminate, to make products come

more to life, and to make this process smooth and effective.

One of the great challenges for retailers is to work out not just how to co-exist with their and their competitors’ websites, but rather, how to create a synergistic experience that serves the needs of today’s varied shoppers and simultaneously builds loyalty for their brand. For shoppers, there’s an important interplay between online and in-store.

It’s not either/or.

% Agree Top 3 Box on 10-Point Scale

For most of the products that I buy, I do most of the information gathering online and then only go to the store at the end to make the

retail purchase

34%

For most products that I buy, I do little or none of the information gathering online. I rely more heavily on just going to stores

16%

Implication: Shoppers want seamless integration between the physical and the virtual. Internal silos cause disconnects and disconnects cause extreme shopper

frustration.

Quite reasonably, shoppers expect seamless integration between a retailer’s online and offline worlds. Equally understandably, they are highly intolerant of retailers who are unable or unwilling to deliver the seamless experience that they expect. Merely talking about ‘seamless integration’ is simply not enough in an environment where shoppers live it every day. Customer-centric retailing demands channel neutrality.

Key Finding:

Shoppers look to stores to deliver what the web cannot.

When they disappoint, they are relegated to just being pick-up points.

As we’ve discussed already, many shoppers still want to shop in physical retail stores, but the actual experience they’re getting often disappoints them. There’s a clear opportunity to make stores more interesting and engaging to shoppers. Currently they’re often seen as primarily pick-up

and collection points.

We gave shoppers a checklist containing a variety of retail attributes and asked them to check all those where they felt the store performed better than the website. Factor analysis of the list reveals six dimensions on which shoppers evaluate a physical store versus the store’s website. Some of the benefits the physical store provides versus the website are functional, such as getting a product, returning it, saving money and saving time. Other benefits, such as learning about brands and products and stimulating and entertaining

me are much more emotional.

What becomes clear from this analysis is that stores excel at being pick-up points and time savers, but do relatively poorly on dimensions related to stimulation or learning. This is a substantial problem for retailers: If stores really are perceived as performing best at the largely functional tasks of getting and returning merchandise and saving time, then they are essentially functioning as mini-warehouses – but unfortunately for the retailer with all of the costs associated

with creating and running a retail store!

The flip-side of the same coin is the considerable opportunity that this insight points to. As we have shown already, some of the best examples of high performing stores have elements of stimulation and learning in their environments that is still far from easy to replicate on the

website.

% who checked that the physical store is better than their website for . . .

Average store

Getting it 51

Returning it 47

Saving time 42

Stimulating or entertaining me 32

Learning about brands or products 26

Saving money 25

Implication: Dial up the attributes where stores can

win over web – stimulation, entertainment, experience and ideas. Shoppers want it and will reward you

for delivering it.

There is a clear opportunity for physical retail stores to play to one of their key strengths over the Internet and that is by creating more engaging, entertaining and ideas-orientated environments that will persuade the shopper to want to be in this type of environment and to want to make a purchase when they are there.

In Summary: The 9 key themes for physical stores

1 Price competitiveness gets you an invitation to the party, but price alone won’t get you a dance.

2 It may not be sexy, but there’s work to do – and profit to be made – from making the basics better.

3 Reframe service from staff ‘just being there’ to service being truly effective and delivered by both staff and the store environment.

4 Knowing what’s important is the essential first step to knowing where to improve.

5 If you’re not winning by the rules, make sure you’re breaking them.

6 Understand and work on the real drivers of shopper loyalty.

7 Use technologies in store and in the hands of shoppers to enhance the relationship between retailer and shopper, not undermine it.

8 Shoppers want seamless integration between the physical and the virtual. Internal silos cause disconnects and disconnects cause extreme shopper frustration.

9 There is a clear opportunity for physical retail stores to play to

one of their key strengths over the Internet and that is by

creating more engaging, entertaining and ideas-orientated

environments that will persuade the shopper to want to be in

this type of environment and to want to make a purchase when

they are there.

Contact Information

For more information about this study and Leo Burnett and Arc Worldwide’s perspective on and capabilities in the retail sector, please contact:

Dr Alan Treadgold

Head of Retail Strategy

Leo Burnett Group

Phone – cell: +44 7958694045

Phone – landline: +44 20 7071 1140

Email: alan.treadgold@leoburnett.com