the democratization of retail - hubba · the democratization of retail : how the power of community...

The Democratizationof Retail

How the Power of Community and Connections is Reshaping Commerce

Thanks JD.

Only two things I see .. capitize the r in reshaping on title page

The blocks image...should be �ipped so it stars straight and ends as a grouping of smaller blocks rather than starting big and unraveling

The Democratization of Retail : How the Power of Community and Connections is reshaping Commerce

Table of Contents1 Introduction 3

2 Current Retail Landscape 4

3 Brick & Mortar Retail - A Thing of the Past? 6

4 How Modern Consumers Are Buying - Unique is new Common 7

5 Power of Community Connections Drive Commerce 8

6 Emergence of Craft Brands 9

7 How to Meet & Exceed Consumer Demands 10

8 Conclusion 11

2

The Democratization of Retail : How the Power of Community and Connections is reshaping Commerce 3

With thousands of store closures across the US in 2016, and thousands more expected in 2017, many have predicted the demise of retail. However, these claims ignore the reality that the commerce of creating, selling and purchasing products is not going anywhere. A more nuanced interpretation of recent headlines reveals that the current shakeup more closely resembles a natural cycle of creative destruction.

Long tail theory predicts that as purchasing behaviors shift towards niche consumerism, this shake up is creating a new democratization phase of retail. Thisdemocratization is fueling thousands new opportunities and leading to a thriving undercurrent of commerce led by independent companies, taking the reigns from traditional heavyweights.

As the Baby Boomer generation, who control 70 percent1 of the national disposable income2, pass the spending torch to Millennials and Gen-Z3, the largest pillar of the United States GDP is undergoing massive disruption. This phase is sure to create headline grabbing failures, however, thousands of unique opportunities are emerging in their wake. Our research shows that these opportunities will more than replace the revenue displaced by current store closures. Importantly, if the current crop of retailers want to capture this opportunity, they will have to learn quickly to play in this new space and appeal to the values of this emerging class of consumers.

The brands and retailers who are maintaining and even building their market share are those considered authentic and differentiate on quality not price. Brand

trust is more important than ever and when a brand can actually appeal to their customer’s values, contribute to their happiness, and inspire passion they leverage this trust into dollars.

It is absurd to point to large retail stores closures and claim it as retail’s deathly tipping point. It is much more accurate to say that this represents the shake up of an industry that has resisted change for too long. With a lowering of total shelf space across the US and an increase in urban and smaller store locations, retailers who win will differentiate on their ability to provide a individualized and well managed assortment. Combine this with the ability to take a “pull” mind-set where product selection is driven by customer demand and you begin to get the full picture of what it will take to be competitive in retail’s new world order.

The democratization of retail means different things to different players. To retailers, it means they will haveto embrace less traditional models and channels and focus on selling less things to a smaller audience at a higher margin. For brands, it means they will be forced to define their customer and build a relationship with an audience that is increasingly fickle but significantly more powerful than they were just 5 to 10 years ago.For consumers, the power is in their hands and a shakeup is to be expected. This shakeup will have winners and losers and retail will change but it certainly won’t die.

1 "Millennials: Breaking the Myths." Millennials: Breaking the Myths . N.p., n.d. Web. 18 Dec. 2016.2 Stanley, Morgan. "Morgan StanleyVoice: Generations Change How Spending Is Trending." Forbes . Forbes Magazine, 18 Oct. 2016. Web. 1 Jan. 2017.3 Fry, Richard. "Millennials overtake Baby Boomers as America's largest generation." Pew Research Center . N.p., 25 Apr. 2016. Web. 7 Dec. 2016.

Introduction


Small businesses make up 99.7 percent of American companies4, with 550,000 new entrepreneurs joining every month. 5Small retail trade businesses account for over 3.56 million of these companies. The industryis no longer formulaic - it’s collaborative, and with multiple paths to success. As product possibilities are endless, SMB businesses account for the majority of companies, and independent retail businesses account for 95 percent of retail trade.

The number of packagedgood introduced each year has more than doubled over the past 10-15 years. OnHubba alone, thousandsof new products are listedand launched on its digitalcommerce community each month.

Technology has increased efficiency and broken down barriers of entry aiding to optimize product creation and production. It used to take millions of dollars, and potentially years, to create a product and take itto market, with industry gatekeepers along the way. Now small and medium-sized business are co-manu-facturing everything. They do not need to carry inventory because of on-demand products. The result means

that more brands are entering the market. Consider the average grocery store now carries 50 times more products than two generations ago, and the number of packaged good introduced each year has more than doubled over the past 10-15 years. On Hubba alone, thousands of new products are listed and launched on its digital commerce community each month.

It has never been easier for niche brands and retailers to break into the mainstream, inspiring new business models that are contributing to the growth of retail and fueling the success of commerce. New business models such as pop-up stores, are contributing about $50 billion to the total annual US sales figures, and the subscription economy is estimated to generate $5 billion annually, growing at a rate of 200 percent per year.

The gatekeepers are gone, and navigating the new community of commerce is key to creating the relationships necessary for success. Telling the storyof a product or business that fits into the consumer’s story is reported to result in purchases 55% of thetime, and when asked 65% of brands say that they finda direct correlation between experiential marketing and increased sales. Personalization and customizationare key to next generation of commerce, both with customers and business partners, and those who adapt will have access to enormous opportunity.

4 "2016 Small Business Profiles for the States and Territories | The U.S. Small Business Administration." 2016 Small Business Profiles for the States and Territories | The U.S. Small Business Administration | SBA.gov . N.p., n.d. Web. 06 Feb. 2017.5 State of Entrepreneurship 2015 Address . Rep. The Kauffman Index, n.d. Web. 5 Feb. 2017

Current Retail Landscape


In this next generation of commerce, craft or inde-pendent, brands are in demand like never before, and retailers partnering with these unique products are differentiating themselves in their markets and winning new customers. Wayfair, the biggest American online seller of home goods, credit their success to focusing on niche products that customers could not find on Amazon. 6 The founders saw that consumers values were shifting, and found their success in curating products for the modern consumer.

It has never been easier for niche brands and retailers to break into the mainstream,inspiring new business models that are contributing to the growth of retail and fuelingthe success of commerce.

Maintaining a craft product’s high quality can be challenging as production increases, however many successful craft brand owner suggests that it is better to be No. 1 in some stores than No. 10 in 100 stores.7 This is possible with the advent of digital business communities creating new networking opportunitiesto showcase unique product, after products, get attention from the right retailers while maintaininga product’s integrity.

Part of the beauty of the next generation of retail is that it includes a commerce community where every buyer there is a seller. Is your passion creating uniquecaffeinated soap, or frozen yogurt for dogs? There isa market for that. 8 63 percent of online marketplace retailers only sell on marketplaces, as they offer more affordable and flexible solutions than brick and mortar stores. 55 percent of these sellers have a profit margin above 20 percent, yet 29 percent are not satisfied with their channel management software. 9 Others, find success in click-and-mortar retail format and are able to run a lucrative local independent retail shop, because they are able to support a specialized e-commerce site that is an extension of their shopfor a global customer base.

6 Peterson, Hayley. "Here's The Story Behind Wayfair, The Oddly Named $3 Billion Home Goods Retailer That Just Went Public." Business Insider . N.p., 02 Oct. 2014. Web. 07 Feb. 2017.7 Strom, Stephanie. "Small Food Brands, Big Successes." The New York Times . N.p., 26 Aug. 2015. Web. 20 Jan. 2017. <https://www.nytimes.com/2015/08/26/din-ing/start-up-food-business-changing-appetites.html?_r=0>.8 "Bath Buzz Caffeinated Soap." Amazon.com : Bath Buzz Caffeinated Soap : Shower Shock Caffeinated Soap : Beauty . N.p., n.d. Web. 13 Jan. 2017.9 "10 Statistics from the Online Marketplace Seller Survey." Web Retailer Blog . N.p., 22 Dec. 2016. Web. 3 Dec. 2016.


While 94 percent of total sales are still generated in brick and mortar stores, accounting for $3.9 trillionof sales, half of brick and mortar retailers are now“showrooming”. 10 This is an example of forward thinking retailers that are paying attention to what Millennials and Gen-Z expect – a full experience, not just a product. Millennials prefer to get their information online, in fact, 45 percent spend more than an hour a day looking at retail-oriented websites, but they often still crave the in-store experience - they want to touch a product, smell it, and pick it up. 68 percent of Millennials demand an integrated, seamless experience regardless of the channel. 11

The UN predicts that two thirds of world’s population will live in urban areas by 2060, up from 54 percentin 2014; there will be a rise in mega cities. While urbanization drives consumption, it will have major implications with regards to store location, store footprint, and omni-channel strategies.12 The retail industry is evolving towards smaller, urban, alternative formats with a reliance on multi-format portfolios to capture future growth. Growth in urban areas was greater than suburbs in 33/51 of the largest cities. 13

Big-box retailers are increasingly becoming multichannel retailers, and have fewer and smaller stores. Target, Walmart, and Best Buy already have developedsmaller prototypes focused on the urban core, whileat the same time closing some of their suburban stores.14 Walmart is closing 269 stores, including 154 US locations, to focus on Walmart Supercenters and smaller Neighborhood Market stores. 15

As shopping patterns change, large retail spaces, and stores in malls are in the wrong place at the wrong time. When an anchor store like Sears, whois scheduled to shut down 150 stores in 201716, closes, shopping malls not only lose the anchor stores income, but the closure also triggers co-tenancy clauses allowing other retailers to terminate or renegotiate their leases on better terms. Around 200 shopping malls will be at risk of shutting downif Sears continues to close shops.17

10 "Retail’s Main Event: Brick & Mortar vs. Online." RetailNext . N.p., n.d. Web. 27 Dec. 2016.11 "Who are the Millennial shoppers? And what do they really want?" Accenture Outlook . N.p., n.d. Web. 18 Dec. 2016.12 "Think Smaller for Big Growth: How to Thrive in the New Retail Landscape." Think Smaller for Big Growth: How to Thrive in the New Retail Landscape . N.p., n.d. Web. 20 Dec. 2016.13 "Millennials & Retail - Will They Put Down Their Phones To Shop?" Millennials & Retail - Will They Put Down Their Phones To Shop? - Cushman & Wakefield . N.p., n.d. Web. 28 Dec. 2016.14 Bricks and Clicks: Rethinking Retail Real Estate in the E-Commerce Era . Rep. N.p., n.d. Web. 16 Dec. 2016.15 Peterson, Hayley. "Walmart is closing hundreds of stores and laying off thousands of employees." Business Insider . Business Insider, 15 Jan. 2016. Web. 08 Feb. 2017.16 Peterson, Hayley. "Sears is closing 150 stores - here's the full list." Business Insider . Business Insider, 04 Jan. 2017. Web. 06 Feb. 2017.17 Peterson, Hayley. "Walmart is closing hundreds of stores and laying off thousands of employees." Business Insider . Business Insider, 15 Jan. 2016. Web. 08 Feb. 2017.

Brick & Mortar Retail- A Thing of the Past?


Millennials control over $600 billion in spendingpower, and by 2020 are projected to spend $1.4trillion annually and represent 30 percent of total retail sales.18 Many retailers are missing the mark when it comes to today’s customers, and missing opportunities to grow their business. The buying cycle for all consumers breaks down into three stages: awareness, consideration, and purchase. Unlike previous generational shoppers, it is not longer enough to simply offer the lowest price as perceived value is playing a dominant role in all stages of the buying cycle. Consumers, especially Millennials and Gen-Z, want curation, personalization, and they want special. The products they buy are reflections and extensionof themselves and part of their identity.

Traditional buying seasons are progressing and today retailers need to be able to respond quicker to consumer trends that are less predictable and changing often. 49 percent of retailers said that it is difficult or very difficult to predict how their customers will spend over the next 12 months.19 As consumer’spurchasing behaviors change, so must the traditional buying patterns of retailers. Where buyers were typically focused on a six month plan, 51 percent are now looking to outside influencers to help predictcustomer wants throughout the year.

Many retailers are missingthe mark when it comes to today’s customers, andmissing opportunities to grow their business.

Retail purchasing involves three main phases: identification, ordering, and post-ordering. Retailers are focusing on the crucial identification phase to hit the mark with evolving consumers. 20 Too many retail businesses are waiting for Millennials’ purchasing habits to revert back to the wellunderstood and traditional retail powered buying. 21 Retailers need to embrace change, embrace technology, and get personal with Millennialsto win over their buying power. 22

18 "Who are the Millennial shoppers? And what do they really want?" Accenture Outlook . N.p., n.d. Web. 18 Dec. 2016.19 "Making Sense of New Buying Habits." Inside Retail . N.p., 18 July 2016. Web. 24 Jan. 2017.20 Wawasan Open University. BLC 304/05 Procurement Management . N.p.: Wawasan Open U, 2009. Web. 24 Jan. 2017.21 "The Real Reason Why Millennials' Buying Behavior Is Difficult to Influence – Shopify." Enterprise Ecommerce Blog - Enterprise Business Marketing, News, Tips & More . N.p., n.d. Web. 05 Feb. 2017.

How Modern Consumersare Buying - Unique isthe New Common


Millennial shoppers are more informed than ever, they want experience and to be understood for their individuality, and value the opinion of others. 84 percent of consumers purchasing decisions are influenced by recommendations from someone they trust, be it friends, family or social influencers they consider experts. 63 percent report that online reviews have an influence on what they buy. 23 GenZers, Millennials successors, similarly value and trust each other more than brands. 24

Retailers can get into the Millennial “friend zone” by creating a total brand experience or lifestyle that is attractive to their current and future customers byprojecting the good life, or inspiring happiness. 25 There has been an 85 percent year over year growthin retailers looking to engage directly with influencers to grow their business, finding that recommendations from micro-influencers are two times more effective than paid advertising.

Revolution happens in evolutionary ways - and today retail and commerce must evolve and keep pace to the new consumer buying behavior or risk falling behind.Where traditional retail buyers once dictated the market trends, today they find themselves following the trends and pace set by customers. 26 To stay connected with consumer demands, retail buyers need to have their finger on the pulse of the wants

and needs of consumers. No longer are buyers creating the demands. Technology allows customersto search online for products and information 24/7 and with that has shifted the power away from retailers.27 Buyers need to adapt and meet consumer motivations to stay competitive in today’s market. The digital revolution has created the endless aisle, and is forcing retail buyers to buy stock more frequently and at times reactively throughout the year. Traditional buying seasons and patterns can no longer be set rigidly. 28

The power switch from buyers to consumers forces buyers to think objectively, creatively and become customer focused. 29 The most successful retailers today are doing that by offering unique products developed by independent brands, in their quest to offer the right product for the right customer at the right time through the right channel.

Technology gives brands greater flexibility than they had in years past, facilitating retailers ability to shift their buying schedule to one that is more fluid to keep on trend with consumers. The buying decisions, which traditionally took place almost a year in advance, are moving closer to real-time consumer allocating, with over 50 percent of retailers reporting to be spending over 50 percent of their annual budget closer to thecustomer’s buying season. 30

22 "Connecting Retail Innovation and Millennials." Millennial Marketing . Web. 03 Feb. 2017.23 "Fifth annual eCommerce assessment | Deloitte US | Retail & Distribution." Deloitte United States . N.p., 24 Nov. 2014. Web. 15 Dec. 2016.24 "Three Ways Gen Z Will Change Retail." Chain Store Age . N.p., n.d. Web. 08 Feb. 2017.25 "Millennials and Marketing: Why Brands are Getting it So, So Wrong." Social Media Week . N.p., 04 Apr. 2016. Web. 04 Feb. 2017.26 "Gaining The Attention Of Buyers In A Hyper-Connected World." #BuyerPersona - Tony Zambito . N.p., 09 Sept. 2016. Web. 20 Jan. 2017.27 Carpenter, Gregory. Rise of the Consumer Focused Enterprise . Rep. N.p., n.d. Web. 24 Jan. 2017. <http://www.reviewtrackers.com/wp-content/up-loads/Rise-of-the-Consumer-Focused-Enterprise-1.pdf>.28 The Seasonal Buying Report . Rep. Inside Retail, n.d. Web. 19 Jan. 2017.29 "Retail Purchasing: Buying For Retail Stores." Retail Purchasing: Buying For Retail Stores | Retail Buying | Retail Purchase . N.p., n.d. Web. 23 Jan. 2017.30 The Seasonal Buying Report . Rep. Inside Retail, n.d. Web. 19 Jan. 2017.

Power of CommunityConnections DrivingCommerce


From 2011 to 2015 large consumer packaged goods (CPG) companies lost nearly three percentage points of market share in America. CPG industry growth in2014 was 2.1 percent, up from 1.6 percent in 2013. Small and midsize companies gained 0.7 share points, worth $4.5 billion, from their larger competitors. 31 The U.S. CPG industry had its strongest growth in four years in 2015, due to the rise of small and midsize producers entering the market.

In 2015, small companies (less than $1 billion in sales) and midsized companies ($1 billion to $5 billion) accounted for 46.4 percent of total CPG sales in the United States. 32 From 2010 to 2015, major brandslost market share in 42 of 54 CPG categories, as new products gained. 33 That is an $18 billion shift in market share in four years, which demonstrates the success small and midsized brands can enjoy. The $300 million baby care industry in the United States for exampleis controlled by companies with a market share ofless than 2.5 percent. 34 This demonstrates that craft products have been gaining market share, and based on consumer trends, can expect to see more success in the future.

Data suggests that if a customer wants a basic product they will usually go to big discount retailer, but for a quality, less one off products, they are turning more and more to unique, craft brands. Shoppers trust smaller brands more than established ones. One-third of surveyed consumers say that they would pay at least 10 percent more for a craft product, a larger amount than they would pay for added convenience or innovation.

31 "Large Companies Cede Further Share in U.S. Consumer Packaged Goods Market." N.p., n.d. Web. 23 Jan. 2017.32 "The 2015 American Pantry Study | Deloitte US | Consumer Products." Deloitte United States . N.p., 07 Nov. 2016. Web. 1 Dec. 2016.33 Strom, Stephanie. "Small Food Brands, Big Successes." The New York Times . N.p., 26 Aug. 2015. Web. 20 Jan. 2017. <https://www.nytimes.com/2015/08/26/din-ing/start-up-food-business-changing-appetites.html?_r=0>.34 "Making Sense of New Buying Habits." Inside Retail . N.p., 18 July 2016. Web. 24 Jan. 2017.

Emergence of Craft Brands


Consumers want retailers’ service, not just their products. As Millennials and Gen-Z gain more control over spending with increased disposable income, retailers need to shift their focus from products to experiences to maintain a competitive edge. More than 95 percent of Millennials said that they want brandsto court them actively, whether that is reaching out through email, responding on social networks or mailing information directly to their homes. 35

42 percent of consumers are interested in technology to customize products, and 19 percent indicate a willingness to pay a 10 percent price premium to customize or personalize products they purchase. 36 Traditional, large retailers in the packaged goods market approach offer a few high-volume SKUs. When looking to personalize, retailers should lookto technologies like digital commerce, additive manufacturing, and artificial intelligence. 37

In seeking the total sales experience, Millennials and Gen-Zs, are more likely to choose businesses that give back to society, as it close ly reflects what they care about. Beyond the demographics of your customer base, it is important to know the psychographicsand values of the consumers you are trying to attract and reflect those qualitative values through your products and your in-store or e-commerce site experi-

ence. To unlock the opportunity fully, successful brands and retailers are engaging in two-way conversations with their customers. 33 percent of consumers are choosing to buy from brands that they believe are doing good. 45 percent of consumers are swayed to purchase products from companies with a commitment to the environment, and 43 perfect of consumers value a brand’s commitment to society. 38 They also expect the brand to have a positive and environmental impact. 21 percent of consumers said they are more likely to buy a product if their charitable credentials are on the packaging or marketing. 39 Salesof consumer goods from brands who give back are up 4 percent, while those who do not grew less than 1 percent. 40 This trend is similar across other categories where brands and retailers take note ofthe social and economic issues their customers care about.

35 "Who are the Millennial shoppers? And what do they really want?" Accenture Outlook . N.p., n.d. Web. 18 Dec. 2016.36 "The 2015 American Pantry Study | Deloitte US | Consumer Products." Deloitte United States . N.p., 07 Nov. 2016. Web. 1 Dec. 2016.37 "Consumer product trends - Navigating 2020 | Deloitte UK." Deloitte United Kingdom . N.p., 07 June 2016. Web. 3 Dec. 201638 "Consumer-Goods' Brands That Demonstrate Commitment to Sustainability Outperform Those That Don't." Consumer-Goods' Brands That Demonstrate Commitment to Sustainability Outperform Those That Don't . N.p., 10 Dec. 2015. Web. 04 Feb. 2017.39 "Report shows a third of consumers prefer sustainable brands." Unilever global company website . N.p., n.d. Web. 12 Jan. 201740 "Consumer-Goods' Brands That Demonstrate Commitment to Sustainability Outperform Those That Don't." Consumer-Goods' Brands That Demonstrate Commitment to Sustainability Outperform Those That Don't . N.p., 10 Dec. 2015. Web. 04 Feb. 2017..

How to Meet and ExceedConsumer Demands


By 2025 Millennials will account for 75 percent of the global workforce, includingleadership, and buying, roles in the retail industry .

New purchasing behaviors and adoption of technology has leveled the playing field in the retail industry and continue to create new opportunities for commerce led by independent brands and retailers. Millennials and Gen-Zs will continue to reshape the industry and, as they enter career phase of their life, apply their decision making habits and expectations to their own businesses and leadership roles. Millennials, bornbetween 1982 and 2000, account for more than one quarter of the United State’s population with numbers exceeding 83.1 million. 41 The oldest of the group are only now entering their mid thirties, and with that, the opportunity for brands and retailers to engage with this new group of consumers is still at early stagesand growing.

By 2025 Millennials will account for 75 percent of the global workforce, including leadership, and buying, roles in the retail industry. Understanding Millennials and Gen-Zs shopping behavior is a look into the understanding the future of retail and the directionthe industry is going. Retailers today must stay on the pulse and keep pace to meet the supply demands of the engaged consumer. Offering unique products to meet customer’s demand for specialized or personal-ized products, reflecting the values that are important to Millennials, and engaging in the commerce commu-nity at all levels of business, retailers can stay ahead of the curve and stay relevant through the evolution to the next generation of commerce.

The democratization of retail means different things to different players. This shakeup will have winners and losers and retail will change but it certainly won’t die.

41 Millennials Outnumber Baby Boomers and Are Far More Diverse. (2015, June 25). Retrieved January 02, 2017, from http://www.census.gov/newsroom/press-releas-es/2015/cb15-113.html

Conclusion

the democratization of retail - hubba · the democratization of retail : how the power of community...

Documents