If you’re a regular reader of Startup Launchpad or attend our shows and events, you already know that having a physical retail presence is important. We heavily emphasize the importance of distribution. This message may seem counter-intuitive to those new to the industry thanks to all the negative news about store closures and e-commerce eating away at brick-and-mortar locations. The actual picture of physical retail isn’t so gloomy, though.
Data compiled in a new eMarketer report shows that more than 14,000 retail locations will open this year, surpassing the 10,000 locations expected to close. Sales at these physical locations also continue to grow at a rate of 2.8 percent. This isn’t as good as total retail sales growth of 3.8 percent, but we are certainly not witnessing the demise of physical retail.
The market is shifting, though. The way startups approach retail and distribution can impact success, so founders will want to make sure they have these three things covered as they grow their startups.
Make unique, high-end products
Competing on price these days is a quick way to be rendered irrelevant. Even if the strategy works in the short run, Chinese manufacturers will eventually out-maneuver foreign startups on costs.
Currently, mid-tier stores and products are facing the biggest squeeze in retail. Low- and high-end retailers are “doing fine,” Deloitte Consulting told eMarketer. Competing in the low end of the market is brutal, though. Margins are already lower than ever for hardware and retail outlets are feeling this, too.
Building a sustainable business these days relies on building high-quality products under a brand consumers trust. Younger consumers especially prefer brands with which they believe they share values. This means a startup must be able to tell a brand’s story and tell it well.
Fortunately, once a brand is established with good values and a relatable story, it’s easier to sell high-end products with higher margins. Many startups with weak brands will continue to struggle if they find themselves getting into price wars with overseas companies.
Make the most of omni-channel retail
It should never be hard for a consumer to buy a product. Though most shopping still happens offline, online retail has changed consumer expectations. They want to be able to get any product at the best price in any location.
The retailers seeing the most success are those that have effectively merged their e-commerce and brick-and-mortar strategies. Best Buy survived the Amazon onslaught by making some smart retail decisions like matching online prices and allowing people to buy and receive products anywhere. Best Buy consumers can buy online and pick the product up at a nearby store, or they can buy out-of-stock items in a store and have them delivered at home. This is the kind of flexibility that all large retailers will need in the future.
Until recently, one of the biggest fears for retailers like Best Buy was “showrooming.” Best Buy didn’t want people testing products in their stores before buying them on Amazon. Matching prices helped with this, but Best Buy has also started renting out space to other brands so they can show off their latest devices, turning that challenge into an asset. Now even Amazon is building its own physical locations.
Like larger brands, startups need retail outlets like Best Buy to be showrooms for their products. Most consumers don’t like to gamble on product they’ve never seen. If consumer buy the product in store, it’s not as profitable for the brand, of course. This is why startups need a strong online retail strategy and a way to funnel the most interestested and excited fans to the company’s own website. A company may be able to get away with charging lower prices on its own website while maintaining higher margins.
Offer localized experiences
Just as e-commerce has changed consumer expectations, the internet has also changed expectations for marketing and messaging. Startups must quickly adapt to new markets in order to grow, and that includes localization and personalization that helps connect a startup’s brand and products to new consumers.
Most people today are familiar with the drive towards personalized advertising, but surprisingly few businesses are prepared for the future in this regard. A survey from Monetate showed that by the end of 2016, only 6 percent of senior marketers believed they had an advanced personalization strategy. However, more than 50 percent said they were in the process of rolling out such a strategy.
Facebook and Google make it easy to target advertising, but it’s up to the company to decide which aspects of their brand’s story resonates with which demographics. Part of this messaging includes where and how the company’s products are displayed, as well.
Retailers are already in the process of localization. This doesn’t just mean Walmart is pursuing a different strategy in China than in the U.S. Depending on the neighborhood, a retailer’s stock will vary based on the demographics of the area.
All startups should think early on about target demographics, where those people live and how they want to buy products. A company is global as soon as it starts selling online, but proper expansion overseas requires proper localization. Working with local distributors can help with this process. They will also know which techniques work across different markets, something Hardware Heroes speaker Peter Xie has discussed in relation to the Asia-Pacific region.
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