Personalization and subscriptions are changing retail realities

Retailers from Wal-Mart to Nordstrom are well aware of the challenges they face from ever-changing retail trends often driven by more consumer personalization and a plethora of subscription services that reduce physical store traffic and comparable sales.

Angelo Welihindha, head of hardware sales for Google and former Wal-Mart merchant and buyer for Sam’s Club, said consumers crave personalization features in their shopping experiences and that is not likely to change.

“Amazon has been offering personalization for some time on its site. Wal-Mart is playing a quick game of catch-up with Pangaea — its new e-commerce platform,” Welihindha said during his presentation on e-commerce at the NWA Technology Summit in Rogers on Aug. 11.

MAKE IT PERSONAL
WalmartLabs over the past year has unified all of the retailer’s online entities into a single in-house platform known as Pangaea. The retailer said Pangaea allows for more personalization, better customer service and more payment options.

Lowe’s is also doing more to allow consumers to find previous purchases for items like light bulbs, filters, plants or any product sold in-store or online. These personalization capabilities require continued investment, something Wal-Mart remains committed to, noting that ongoing acquisitions in the e-commerce division would shave a few cents off the bottom line profits this year.

Nordstrom recently anted up an estimated $340 million to purchase Trunk Club, an online personal shopping service for men. The five-year old Chicago-based startup offers a subscription-based service that’s like having a personal stylist on demand who picks out top designer labels and ships them to the customer’s home for free.

After signing up, men are interviewed by a stylist about their own personal tastes, and provide their measurements. They then receive their first “trunk” – a box containing a selection of clothing and other items, and they only pay for what they don’t mail back within 10 days. Trunk Club did more than $100 million in sales last year, proving that there are plenty of men who want help with their wardrobe.

“Trunk Club operates a bit more like a personalized shopping service and it is a perfect fit for Nordstrom and very ‘in brand’ given its well-known reputation for personalized customer service,” said Carol Spieckerman, CEO of NewMarketBuilders in Bentonville.

Jason Long, CEO of Shift Marketing, said brick and mortar retailers have an opportunity to drive in-store traffic through the use of various personalization practices.

“Home Depot for instance knows which customers are shopping for certain power tools online or who shops the store regularly for upgrades and latest models. They could take that information and notify the customer by email or text as soon as a new model becomes available ... perhaps offer a coupon to get them to pick up in-store. Research shows that 30% to 40% of those who order online and pick-up in the store also purchase items when they come inside,” Long said.

He said while there is some capital outlay needed to make the personalization possible, it’s more likely upfront costs could be recovered if more traffic is driven into the store.

PERSONAL OPPORTUNITIES
Retailers like Old Navy, Wal-Mart and Amazon are looking for ways to connect with their shoppers and they are consciously looking at abandoned online shopping carts. Old Navy will often send an email to the shopper who has abandoned items in an online cart. The email typically offers a deeper discount than previously extended. Wal-Mart and Amazon also send emails, with price notifications if there has been a rollback.

Experts see opportunities for more personal interaction between a retailer’s online and physical stores.

“Managing shopping cart abandonment and serving up relevant deals in the digital space are one thing but the next step will be to bridge digital browsing and purchasing behavior with physical retail,” said Spieckerman. “Many of the digital solutions available today are isolated to that environment and focus on digital conversion yet shoppers are channel agnostic.”

She said the next opportunity is to remind shoppers of their online journeys and choices while they are in the store, most logically through retailers’ shopping apps. For example, she said retailers could offer a personalized promotion on an item that was abandoned in an online shopping cart while a customer is in a store. 

“In the meantime and back to the digital-only environment, Google is said to be testing a capability that will connect mobile browsing with mobile apps, which will allow marketers to create seamless campaigns and promotions across both, rather than building them in silos. This is an exciting development that promises to shore up the digital marketing opportunity,” Spieckerman said.

Long said many retailers are already reaching out to consumers who abandon items in their online shopping cart through Facebook and other social media feeds. Images of those abandoned or previously browsed items seemingly follow the user around on the social media sites as a subtle reminder from the retailer.

SUBSCRIPTION CRAZE
Welihindha also said popularity of subscription services linked to a membership are a changing dynamic in the traditional retail space. Consumers may sign up on a plethora of websites for everything from regular delivery of dog treats to gourmet ingredients for dinner tonight or tomorrow night.

“Membership is really taking off. It goes much further than apparel, “ Welihindha said.

Naturebox will deliver five full-sized healthy snack packages to the front door. The product can be chosen by the subscriber or they may opt for the surprise package. Founded in 2011, the California-based snack company launched 60 products and shipped 50,000 boxes in 2012. Last year it added 100 more products and shipped a million boxes as more consumers look for healthy snack options.

BlueApron will deliver fresh ingredients in the exact amounts needed to prepare gourmet recipes. The subscription service claims to do the legwork for the consumer who loves to cook but has little time to plan and shop for the ingredients.

BirchBox is an online service that sends five beauty aids for men or women for a standard $10 per month. The personalized beauty and lifestyle samples that have been tailored to the consumer profile. The service allows consumers to try products from niche brands, up-and-coming lines and brand favorites.

BarkBox is a subscription service available monthly, quarterly or semi-annually. Subscribers tell the company how large their dog is and they select the frequency of delivery. BarkBox does the rest in choosing four or more products such as toys, treats and grooming products which are shipped to the subscriber’s front door. Subscriptions begin at $19 per month.

SUBSCRIPTION IMPACT
Welihindha said as subscription services become more mainstream the impact to retailers will likely be felt sooner rather than later. To that point, Michael Santoli, senior financial columnist at Yahoo!, said Tuesday (Aug. 12) that Wal-Mart, like many other retailers, continue to report lighter traffic and soft comparable sales. 

“They are struggling with too much square-footage at a time when the industry dynamics are changing toward online sales. Consumers have more options than ever and it's not that they are shopping less but perhaps spreading their spend around,” Santoli said.

Spieckerman disagrees with the sentiment that subscriptions result in lighter traffic.

“At this point, I don’t see subscription services making a major dent in big box store traffic. They are more of a novelty and in no way replace a stock-up or fill-in trip to a retailer,” she said.

Spieckerman said these types of services aren’t necessarily complementary to retailers’ core businesses either as Wal-Mart’s shuttering of its subscription service, Goodies Co., bears out.  

“That said, subscription services are a great way for brand marketers to introduce brands and products to new consumer groups and to inject an element of surprise into their overall marketing strategies. The results from these programs can then be leveraged to lobby for space within traditional retailers,” Spieckerman adds.

Just like Amazon Fresh is an add-on service for Amazon Prime, there are possibilities that Spieckerman sees for Sam’s Club, also a membership-based shopping experience.

“Sam’s more loyal members might consider a subscription service as a convenience option, and it could be a good fit for members that demonstrate high levels of engagement within Sam’s ecosystem – those who take advantage of Sam’s savings programs, travel services and other offerings. These members would have the trust level required for the service to make sense,” Spieckerman said.

Long said subscriptions seems to be more suited to niche areas and he does not believe the sales lost to subscription services are enough to move the needle backward at big box retailers. He adds that Costco and Sam’s Club could risk key impulse sales in their club if they bought too heavily into the subscription arena.