Following many years of good economic times for retailers, the Great Recession of 2008–2009 turned many retailers’ fortunes from boom to bust. Even as the economy has recovered, retailers will feel the effects of changed consumer spending patterns well into the future.

Some retailers actually benefit from a down economy. For example, as consumers cut back and looked for ways to spend less on what they bought, big discounters such as Costco scooped up new business from bargain-hungry shoppers. And price-oriented and off-price retailers such as ALDI, Dollar General, and TJ Maxx have attracted greater shares of more frugal buyers.

For other retailers, however, tighter consumer spending meant tough times. During and following the recession, several large and familiar retailers declared bankruptcy or closed their doors completely—including household names such as Linens N Things, Circuit City, KB Toys, Borders Books, and The Sharper Image, to name a few. Other retailers, from Macy’s and Home Depot to Starbucks, laid off employees, cut their costs, and offered deep price discounts and promotions aimed at luring cash-strapped customers back into their stores.

As the economy has improved and as consumers have retained their more frugal spending ways, many retailers have added new value pitches to their positioning. For example, Home Depot replaced its older “You can do it. We can help.” theme with a thriftier one: “More saving. More doing.” Retailers ranging from Walmart to Macy’s to Kroger and Whole Foods Market have boosted their emphasis on more economical private-label brands. And to compete with the boom in fast-casual restaurants such as Panera Bread and Chipotle, traditional sit-down restaurants have added value offerings of their own. For example, Applebee’s has a 2 for $20 menu—two meals and one appetizer, all for just $20. TGI Fridays offers The 474 “Where less is more” menu, featuring right-sized portions of its signature dishes with appetizers at $4, main dishes at $7, and desserts at $4.

When reacting to economic difficulties, retailers must be careful that their short-run actions don’t damage their long-run images and positions. For example, drastic price discounting can increase immediate sales but damage brand loyalty. One analyst calls this “death by discount” and suggests that “virtually every retailer—at both the high and the low end—has fallen so deeply into the trap that discounting has become an expectation of customers rather than a bonus.”22 A stroll through your local shopping mall confirms this assessment. However, instead of relying on cost-cutting and price reductions, retailers should focus on building greater customer value within their long-term store positioning strategies.

New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter. Department stores took about 100 years to reach the mature stage of the life cycle; more recent forms, such as warehouse stores, reached ­maturity in about 10 years. In such an environment, seemingly solid retail positions can crumble quickly. Of the top 10 discount retailers in 1962 (the year that the first Walmart, Kmart, Target, and Kohl’s stores opened), not one still exists today. Even the most successful retailers can’t sit back with a winning formula. To remain successful, they must keep adapting.

New retail forms are always emerging. One of the most recent blockbuster retailing trend is the advent of online retailing, by both online-only and store retailers, via websites, mobile apps, and social media. But lesser innovations occur regularly. For example, many retailers are now using limited-time pop-up stores that let them promote their brands to seasonal shoppers and create buzz in busy, high-rent areas. As an example, during an NBA All-Star weekend at the Barclays Center in Brooklyn, New York, Nike opened a Jordan-themed pop-up shop across the street. And Nordstrom offers monthly The Pop-In@Nordstrom shops, specially designed in-store pop-up shops featuring rotating themes, new and exclusive products, and brand partnerships meant to ­create experiences that excite and intrigue ­customers. “I love the frenzy that’s created from a pop-up shop concept—that spontaneity and emotion is one of my favorite things about working in retail,” says Nordstrom’s director of creative projects.23

The online and mobile equivalent is flash sales sites, such as Nordstrom’s HauteLook and Amazon’s MyHabit, which host time-limited sales events on top fashion and lifestyle brands. Similarly, Gilt.com flashes member-only, 70 percent discounts on designer-label clothing, and Groupon offers flash deals on travel through Groupon Getaways. Zulily flashes sales on products for moms, babies, and kids, offering limited-time sales “events” that quickly “scoot away to make room for new events.” Flash sales add excitement and urgency to buying. Says Zulily, “Shopping here is like opening a new treasure chest every day. You never know exactly what you’ll uncover, but you know gems are waiting.”24

Today’s retail forms appear to be converging. Increasingly, different types of retailers now sell the same products at the same prices to the same consumers thanks in part to the price transparency the internet provides. For example, you can buy brand name home appliances at department stores, discount stores, home-improvement stores, off-price retailers, electronics superstores, and a slew of online sites that all compete for the same customers. If you can’t find the microwave oven you want at Sears or Lowe’s, you can step across the street and find one for a better price at Target or Best Buy—or just order one online from Amazon.com. This merging of consumers, products, prices, and retailers is called retail convergence. Such convergence means greater competition for retailers and greater difficulty in differentiating the product assortments of different types of retailers.

The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing systems, and a rash of retail mergers and acquisitions have created a core of superpower megaretailers. With their size and buying power, these giant retailers can offer better merchandise selections, good service, and strong price savings to consumers. As a result, they grow even larger by squeezing out their smaller, weaker competitors.

The megaretailers have shifted the balance of power between retailers and producers. A small handful of retailers now controls access to enormous numbers of consumers, giving them the upper hand in their dealings with manufacturers. For example, you may never have heard of specialty coatings and sealants manufacturer RPM International, but you’ve probably used one or more of its many familiar do-it-yourself brands—such as Rust-Oleum paints, Plastic Wood and Dap fillers, Mohawk and Watco finishes, and Testors hobby cements and paints—all of which you can buy at your local Home Depot store. Home Depot is a very important customer to RPM, accounting for a significant share of its consumer sales. However, Home Depot’s sales of $83 billion are 18 times RPM’s sales of $4.6 billion. As a result, the giant retailer can, and often does, use this power to wring concessions from RPM and thousands of other smaller suppliers.25

Most consumers still make a majority of their purchases the old-fashioned way: They go to a store, find what they want, plunk down their cash or credit cards, and bring home the goods. However, consumers now have a broad array of nonstore alternatives, including direct and digital shopping via websites, mobiles apps, and social media. As we’ll discuss in Chapter 17, ­directand digital marketing are currently the fastest-growing forms of marketing.

Today, thanks to advanced technologies, easier-to-use and enticing online sites and mobile apps, improved online services, and the increasing sophistication of search technologies, online retailing is thriving. In fact, although it currently accounts for only about 8 percent of total U.S. retail sales, online buying is growing at a much brisker pace than retail buying as a whole. Last year’s U.S. online retail sales grew 14 percent over the previous year versus a 2.2 percent increase in overall retail sales.26

Retailer online sites, mobile apps, and social media also influence a large amount of in-store buying. It’s estimated that more than half of total U.S. retail sales are either transacted directly or influenced by online research. And an estimated 15 percent of all online sales now take place on mobile devices. Retailers of all kinds rely on social media to engage their buyer communities. For example, whereas McDonald’s leads among retailers in Facebook Likes, Nordstrom is tops in Pinterest followers. Starbucks leads in Twitter followers. And Victoria’s Secret has the most YouTube subscribers and Instagram followers.27

The spurt in online, mobile, and social media retailing is both a blessing and a curse to store retailers. Although it gives them new channels for engaging and selling to customers, it also creates more competition from online-only retailers. Many shoppers now check out merchandise at physical-store showrooms but then buy it online using a computer or mobile device, sometimes while in the store—a process called showrooming. These days, 90 percent of smartphone-carrying shoppers use their phones while shopping in stores. And as many as half of all shoppers who buy products online check them out first at a traditional store.28 Store retailers such as Target, Walmart, Best Buy, Bed Bath & Beyond, and Toys“R”Us have been hit hard by showrooming.

Today, however, many store retailers are developing effective strategies to counter showrooming. Others are even embracing it as an opportunity to highlight the advantages of shopping in stores versus online-only retailers. The flip side of showrooming is webrooming, by which consumers first check out merchandise online, then buy it in a store. The key for store retailers is to convert showrooming shoppers into buyers when they visit the store.

The boundaries between in-store and online retailing are rapidly blurring. For most customers, it’s no longer a matter of deciding whether to shop in a store or to shop online. The ­internet and digital devices have spawned a whole new breed of shopper and way of shopping. Today’s omni-channel buyers shift seamlessly across online and in-store channels throughout the buying process. They’ve gotten used to researching and buying anywhere, anytime—whether it’s in the store, online, on the go, or even online while in the store. To meet the needs of these omni-channel buyers, store retailers must master omni-channel retailing, integrating store and online channels into a single shopper experience (see Real Marketing 13.2).

An increasing share of the growth in online sales is being captured by omni-channel retailers who successfully merge the virtual and physical worlds. Physical store operators are experiencing considerable digital success, while online merchants—including Amazon—are expanding with showrooms, pop-up shops, and other ways of meeting shoppers face-to-face. “Omnichannel is the new reality for all retailers whether they engage or not. If you’re available where and when consumers look for you, great. If not, you lose to someone who is,” says an analyst. “Online-only retailers lack the high engagement that only the in-store experience can deliver. Offline-only retailers don’t deliver the comfortable and ­information-browsing experience that consumers utilize to make their shopping itineraries.”29

For example, Macy’s found that customers who shop across channels are eight times more valuable than those who shop in a single channel. Macy’s has become so committed to pushing beyond bricks-and-mortar—where it lately has been downsizing—that it opened an Idea Lab in San Francisco to produce new ideas on online shopping technology. And it has opened a giant 1.3 million-square-foot fulfillment center in Tulsa, Oklahoma, that can ship 325,000 orders a day. Macy’s also recently introduced an image-search extension to its mobile application, and the retailer’s 300,000 followers can shop directly via Instagram. Macy’s even offers same-day delivery in 17 markets nationwide. Says the Chief Omnichannel Officer for Macy’s, “Our goal is to provide our shopper with the best experience in whatever way she chooses to interact with us: mobile, desktop, store, or all of them together.”30

Growing Importance of Retail Technology

As omni-channel shopping becomes the norm, retail technologies have become critically important as competitive tools. Progressive retailers are using advanced information technology and software systems to produce better forecasts, control inventory costs, interact electronically with suppliers, send information between stores, and even sell to customers within stores. They have adopted sophisticated systems for checkout scanning, RFID inventory tracking, merchandise handling, information sharing, and customer interactions.

Perhaps the most startling advances in retail technology concern the ways in which retailers are connecting with consumers. As the surge in online and mobile shopping has changed retail customer behaviors and expectations, a wide range of store retailers are merging the physical and digital worlds to create new-age experiential retailing environments. For example, at AT&T’s new flagship store in Chicago, customers can sit at any of dozens of stations, sampling the latest phone apps and electronic gadgetry. Enthusiastic, iPad-wielding associates mingle with customers, talking tech and dispensing hands-on help and advice. With 130 digital screens and an 18-foot video wall, every aspect of the open space is designed to engage customers about future wireless technologies and ­services and let them experience the impact of AT&T’s devices and services on their lives. It’s “like walking into a website,” says AT&T’s president of retail.31

Many other advanced technologies are finding their way into retail showrooms. One is beacon technology, Bluetooth connections that greet and engage customers via their smartphones as they shop around in stores. For example, when opted-in customers enter a Macy’s store, a beacon signal wakes up an app on their smartphone or tablet, which welcomes them and alerts them to location-specific rewards, deals, discounts, and personalized product recommendations within the store. The technology can also link in-store and at-home browsing; if the customer “likes” a specific product online, the app can remind them where to find it in the store, pop up a brief product video, and maybe pass along a for-you-only deal. The goal is to engage Macy’s tech-savvy and social customers as a trusted companion and to personalize their ­in-store shopping experience.32

Other retailers are experimenting with virtual reality to enhance the in-store shopping experience. For example, customers at North Face’s Manhattan store can don virtual-reality headsets that transport them to remote hiking, climbing, or even base-jumping locations where they can experience gutsy jumps off a 420-foot cliff, all while using North Face gear. Marriott guests can put on ­virtual-reality goggles for up-close tours of destinations such as Hawaii or London. Intel has developed a “smart” dressing room in which shoppers can change outfits and colors with a wave of the hand. And automaker Audi is testing a virtual reality in dealer showrooms. Customers use iPads to select any Audi model and then customize each element, from engine type and wheels to paint color and interior seats. They then put on a headset and earphones to experience the sights and sounds of their customized car in virtual reality. They can move around the outside of the car, open the trunk and doors, check under the hood, and even sit in the driver’s seat. Although virtual reality technologies are difficult and expensive to implement now, they hold interesting promise for the future.33

Green Retailing

Today’s retailers are increasingly adopting environmentally sustainable practices. They are greening up their stores and operations, promoting more environmentally responsible products, launching programs to help customers be more responsible, and working with channel partners to reduce their environmental impact.

At the most basic level, most large retailers are making their stores more environmentally friendly through sustainable building design, construction, and operations. For example, under its “People & Planet Positive” sustainability strategy, home furnishings retailer IKEA’s long-term goal is to become 100 percent sustainable:34

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The “People & Planet Positive” strategy begins with making IKEA’s 328 giant stores in 28 countries more energy independent and efficient. To power its stores, IKEA has committed to owning and operating 224 wind turbines and has installed 700,000 solar panels—90 percent of its U.S. stores have solar panels. By 2020, IKEA will generate as much energy as it uses from renewable sources. Inside its stores, IKEA uses only energy-efficient LED lighting. Most stores also sort food waste from in-store customer restaurants for composting or send it to treatment centers where it is turned into animal feed or biogas to fuel cars and buses. Some IKEAs offer customer recycling centers for products such as plastic, paper, CFL lightbulbs, batteries, and even end-of-life appliances.

Retailers are also greening up their product assortments. For example, IKEA now sells only LED lighting products in its stores, and a growing proportion of the home furnishing products it sells are made from sustainable and renewable cotton, wood, and other resources. IKEA suppliers must adhere to the retailer’s IWAY supplier code of conduct sustainability standards. IKEA’s goal is have all of its home furnishings made from renewable, recyclable, or recycled materials. “At IKEA, sustainability is central to our business,” says the company, “to ensure that we have a positive impact on people and the planet.”

Many retailers have also launched programs that help consumers make more environmentally responsible decisions. Staples’s Easy on the Planet program “makes it easier to make a difference” by helping customers to identify green products sold in its stores and to recycle printer cartridges, mobile phones, computers, and other office technology products. Staples recycles some 30 ­million printer cartridges and 10 million pounds of old technology each year.35

Finally, many large retailers are joining forces with suppliers and distributors to create more sustainable products, packaging, and distribution systems. For example, Amazon.com works closely with the producers of many of the products it sells to reduce and simplify their packaging. And beyond its own substantial sustainability initiatives, Walmart wields its huge buying power to urge its army of suppliers to improve their environmental impact and practices. The retailer has even developed a worldwide Sustainable Product Index by which it rates suppliers. It plans to translate the index into a simple rating for consumers to help them make more sustainable buying choices.

Green retailing yields both top- and bottom-line benefits. Sustainable practices lift a retailer’s top line by attracting consumers looking to support environmentally friendly sellers and products. They also help the bottom line by reducing costs. For example, Amazon.com’s reduced-packaging efforts increase customer convenience and eliminate “wrap rage” while at the same time saving packaging costs. And IKEA’s more energy-efficient buildings not only appeal to customers and help save the planet but also cost less to operate.