Thoughts from Ken Kaufman

The Store Is Not Dead, but the Status Quo Is

the_store_is_not_dead_but_the_status_quo_is

2017 was rough on retail. Some are even calling it apocalyptic.

Retailers across the country shuttered a record estimated 9,000 stores, and the sector saw more than 660 bankruptcy filings, up 30 percent compared to the previous year. Thousands more closings are predicted for 2018.

Even so, “rumors of the death of the store are greatly exaggerated,” according to Scott Galloway, Clinical Professor of Marketing at New York University’s Stern Business School and author of “The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google.”

Stores are not obsolete, he says, they just need to evolve.

Numerous parallels can be drawn between retail and healthcare. Like healthcare, retail is beset by converging forces, including large-scale disruptive competitors, intense pricing pressures, and an ever-mounting need to optimize efficiencies. In the age of Amazon, consumers increasingly demand the lowest prices on the best products delivered right to their door.

For brick-and-mortar stores to survive, it’s no longer just about the products, but about the people, Galloway says. The same is true for healthcare.

The Online Holiday Shopping Surge

Despite a bleak year, retailers are declaring some victories as the dust settles from the 2017 holiday shopping season. Online sales spiked 18 percent during the season, compared to about 14 percent growth each of the three previous years. Overall retail sales beat analysts’ predictions, rising nearly 5 percent from Nov. 1 to Dec. 24 compared to the same period in 2016. It’s the industry’s largest increase in six years.

Yet e-commerce still makes up less than 10 percent of overall retail sales, according to the latest U.S. Census Bureau figures. That proportion will grow further, but it indicates a continued role for traditional retailers. Consumers still flock to brick-and-mortar stores for the opportunity to browse store aisles, touch and see products in person, and interact with knowledgeable salespeople.

A look at what some innovative retailers are doing to remain competitive in an evolving industry provides parallels to imperatives for traditional healthcare providers facing similar challenges in their own rapidly changing industry.

Focus on the Consumer

Enhancing the customer experience is essential for both healthcare and retail. Yet, neither industry is particularly good at this. In retail, Ulta Beauty, Nordstrom, and Apple are commonly cited examples of innovators in customer experience. Ulta Beauty is building customer loyalty by pairing merchandise sales with in-store services, such as hair stylists, facials, and "brow bars" for eyebrow waxes. The company has a robust loyalty program that collects customer data while offering personalized discounts for peoples’ preferred products. Ulta has opened more than 200 stores in the past two years, and plans to open 300 more by 2019.

Nordstrom has fortified its reputation through decades of superior customer service with a focus on selective hiring, personalized service, and employees empowered to find creative solutions to aid shoppers. The 117-year-old company continues to evolve, investing in mobile technology that allows in-store customers to pay for an item instantly instead of waiting for a cashier, and recently launching Nordstrom Local. This new concept is intended to capitalize on the company’s brand experience with small storefronts where customers can return, pick up, and try on online purchases. There is no dedicated inventory, but shoppers can consult personal stylists, have clothes tailored, or receive manicures while sipping wine, beer, espressos, or juices from a beverage bar.

Convenience also is critical. Many retailers are investing in building their online presence, and bridging the online and in-store experience to provide customers more shopping choices. Multichannel offerings proved effective this holiday season, with more than 64 million people shopping both online and in stores on Thanksgiving and Black Friday, according to the National Retail Federation.

Effective Pricing and Logistics

The 2017 holiday season provides evidence that an effective pricing strategy doesn’t necessarily require rock-bottom pricing. Retailers offered fewer discounts compared to years past. The average Black Friday discount was 45 percent in 2017 compared to 48 percent in 2016, and only three of eight major retailers offered deeper discounts than the year before.

Some retailers sought to preempt the Black Friday crush with earlier sales, and by rewarding in-store shoppers with lower prices on select items. Walmart tailored its online versus in-store offerings, with online sales on larger products that customers were likely to want shipped to their homes, and in-store deals on smaller items, such as DVDs and pajamas.

Retailers also credited improved inventory management as a contributor to holiday successes. Macy’s top executive said the department store chain avoided the “albatross of a lot of extra inventory” by using data from years past to better manage in-store stock.

Other retailers are focusing on streamlining manufacturing and minimizing merchandise available on shop floors to lower inventory risks. Zara has been a leader in “fast fashion” by locating its manufacturing operations close to its stores, allowing the company to design, produce, and deliver new styles to the sales floor much faster than typical clothiers. Zara produces new styles in limited quantities at first, and only offers them on a broader scale based on positive customer response.

Takeaways for Healthcare

The broader strategies outlined here are equally relevant to healthcare as they are to retail. Core to them all are the need to focus on consumers, and the need to identify and build upon your organization’s value proposition.

Just as Ulta Beauty and Nordstrom are working to capitalize on brand and optimize the customer experience, healthcare providers need to focus on improving the healthcare consumer experience. Hospitals and health systems should assess the organizational strengths that have made them cornerstones in their communities, and find ways to magnify those strengths for consumers’ benefit. Doing so will require building robust consumer data and insights, so that healthcare leaders can make sound, consumer-focused strategic decisions.

Just as retailers are investing in bridging online and in-store offerings, innovative healthcare organizations are investing in new technology and alternative delivery models and care sites to provide consumers greater access and more care options. From online appointment scheduling to virtual care services, healthcare consumers are demanding more choices and greater convenience.

And just as retailers like Macy’s and Zara are re-envisioning pricing and inventory management, healthcare organizations should take a hard look at how best to control costs, and ensure competitive pricing. They must optimize which services they offer, and where and how they offer them.

Leaders in both industries face tough roads ahead, but one thing is clear—maintaining the status quo is not an option. Hospitals and health systems may look very different in the years ahead, but—as with retail—bricks-and-mortar have a role yet to play in healthcare. Just as traditional retailers must broaden their focus to people not products, healthcare leaders must adapt now for the new consumer-focused healthcare era.

Your comments are welcome. I can be reached at mgrube@kaufmanhall.com.