In 2002 I was a consultant working on Customer Experience Design for Commonwealth Bank, the largest retail bank in Australia. At that time they were keeping up with their peers to do what seemed to be the “bleeding obvious”, cut costs out of the service delivery by migrating customers from face to face channels to digital channels. Everyone seemed confident that the customers would be thrilled with the savings in the leaner digital channel…that is obvious, right?
Only a couple of years later, Commonwealth Bank once again joined their peers in re opening those branches they closed down. There are many reasons why face to face contact was important to their profitability. One reason that has surfaced in Hearts and Minds research into retail banking is the baby boomers. In their mind, there was an X factor, in the personal relationship, that a digital connection could never replicate. But as the Gen X and Gen Y grew in their share of customers, so to, retail bankings stake in online banking grew.
And, by extrapolating that logic, we could expect disruptive online technologies to continue to be games changers, redefining the way value is created in the market. In banking we can see disruptive technologies continue to radically redefine banking on nearly every front…like the new and emerging banking entities such as Simple bank, the imminent arrival of the mobile wallet, and the explosion of peer to peer banking models, offering micro lending (such as http://www.kiva.org). With all this activity, it would be easy to once again presume that retail bricks and mortar channels are a concept that has had its day.
Just as we get comfortable with new insight about our changing marketplace, there are these stellar anomalies that are defying these trends. These anomalies, just happen to be those businesses achieving breakthrough growth in the market, and my favourite case studies (if you follow this blog, forgive me for banging on about these brands).
What these retail success stories teach us, is the power of the people connection, specifically a visceral connection, the physical sense of being together.
Zara shop fronts are where the people are
Take for instance Zara, in 2011 they had a 12% increase in profit and a 10% net sale gain. Firstly they opened more stores and are now in 49 markets, in prime real estate in established shopping corridors. They also developed tailored retail strategies that pitched seasonally perfect ranges across different latitudes of the globe. The core value of Zara’s brand comes from its pillars of fast fashion (high turn around designs due to their short supply chain) and affordable quality. ( Source Forbes)
Lululemon’s retail employees embody the brands spiritual ethos
Lululemon, the retail phenomenon is all about being seen and like Zara, creates a call to action through its fashion meets well being proposition. The retailer’s revenue grew 57 percent last year, to about $712 million…revenue for fiscal 2011 may increase as much as 33 percent to $950 million. Lululemon’s retail strategy rests on its people, who take the brand into community networks and embody the brand’s spiritual ethos. Lululemon continues to crash through the ceiling of what is possible in the retail space, at a time when other retailers have fallen victim to their leaner online competitors. (Source Bloomberg)
Apple stores are a people magnet
Apple is one of the world’s highest performing bricks and mortar retailers, soaring from 172 stores 5 years ago, when the iphone launched, to 361 today. What is even more amazing is that during this period its employment of retail staff went from 6,400 to 42,200.* (Source Harvard Business Blog).
There has been another interesting shift that has coincided with increase of Apple retail employees, that is, the stores have become more interactive, with displays of Apple product people can just walk in and use. The net effect has been to fill the Apple store with people, and the results have been amazing, with Apple stores achieving seventeen times better performance than the average retailer, http://www.asymco.com/2012/04/18/apple-stores-have-seventeen-times-better-performance-than-the-average-retailer/ ( Thanks to Horace Dediu for this link).
So it begs the question, “Why in the digital age are these bricks and mortar retail channels winning big?”
Maybe there is another factor at play here, and I would bet big on it, that the increase in the digital interface has created a yearning for people to just be together, not digitally, but viscerally, where their body, their gut and all their senses are connected to the physical presence of another.
Hearts and Minds
Founder Thought Leaders Circle
*Why is Apple Hiring So Many Retail Employees? – Horace Dediu – Harvard Business Review