How Mass Merchants Are Waging the Battle for Brick-and-Mortar Share

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\"\"It’s no secret that people are shopping less in physical stores. Walk through any mall on most days and you are struck by a noticeable lack of shoppers. Shrinking crowds are a well-documented phenomenon, a result of double-digit e-commerce growth that, although it has slowed, has been outpacing brick-and-mortar sales increases for the last several years.

But to write off physical retail would be premature, and a big mistake. People are social beings. We like to go out. And we are more demanding than ever regarding the products we buy, so we want to see, feel and interact with them before purchasing.

Data from NPD’s Checkout Tracking℠ service shows that the impact of the decline in physical store shopping varies by channel. One group of retailers that has had surprising success in this area—mass merchants—have found that by tweaking an already-winning formula of value and convenience they can maintain or improve their share of customer spend.

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How Much Shopping Happens in Physical Stores?

Checkout Tracking℠ data indicate that in the 12 months ending Oct. 31, 2016, U.S. consumers made on average nine fewer in-store purchases in the top retail channels compared with the same period a year earlier.

The number of purchases made by shoppers varied by channel, however. The biggest increase was at-home hardware stores, thanks to a strong housing market and low interest rates. Warehouse clubs and off-pricers also saw an uptick in purchase frequency in the past year, as stores like Costco and TJ Maxx became even more skilled at providing their intoxicating “treasure hunts.” In department stores, purchases per consumer remained virtually flat.

Mass merchants, the second-most-frequented channel in the retail market after grocery stores, suffered the biggest decrease in purchases in the past year, falling by 4.5 purchases.

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Looking at the dollar value of the average purchase tells a slightly different story, however. Mass merchants, even though they suffered a big drop in the number of transactions, enjoyed a significant jump in dollars per order. That’s an indication that shopping trips to these stores have become more purposeful and productive.

Andy Mantis, president of NPD’s Checkout Tracking℠, underscored the importance of looking at transaction size to understand what’s happening at mass merchants. “Given the importance of this channel and the frequency with which consumers transact at these stores, the average purchase size increase, although small, allowed mass merchants to grow their brick-and-mortar sales and maintain share in the past year.”

What Are Mass Merchants Doing Right?

Mass merchants have been gradually transforming themselves from being merely the “low-cost suppliers” of retail to the go-to channel for value, selection, convenience and, yes, customer experience. Their secret sauce has always been the ability to offer one-stop shopping in an easy-to-navigate store with a broad array of products at low prices. But the bars to convenience, value, design and quality have being raised by competitors in channels ranging from online to off-price. Mass merchants have had to improve on many fronts, from in-store environments and technology-enhanced customer service to improved merchandise.

Walmart has been refreshing its fleet of stores, reducing SKUs, widening aisles, improving sight lines and more to make the locations more attractive and easier to shop. The company also has plans to roll out a mobile payments system to streamline checkout. In a departure from its focus on supercenters, the company is opening its smaller Neighborhood Market stores in larger geographic areas.

Target, which just opened its first store in Manhattan, is expanding its fleet of smaller stores to appeal to urban consumers. The company reports that these stores enjoy sales per square foot that are two to three times that of the average Target store.

Dollar store Five Below has become a go-to source for party and craft supplies, books, gifts, home décor, toys and other products for young families. Everything in the store is priced at $5 or less, and its meteoric sales growth is proof that even kids and teens love a treasure hunt.

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Mass Merchandise Upgrades

One of the most transformative areas for mass merchants, however, has been with the merchandise itself. The home décor department at Target rivals that of any mid-tier department store, while offering better value, and the exciting activewear department has terrific value with brands like Champion’s C9 and Soybu’s Tulah, putting many sporting goods stores to shame. Target has enjoyed particular success with health and beauty products, offering brands such as The Honest Company, Burt’s Bees and Essie, which appeal to younger consumers.

Meanwhile, Walmart has expanded its offerings of fresh food and ensured that store associates maintain product presentation, shifting from private label to exclusive or branded product in many of its top categories. Apparel shoppers can find more Lee, Levi\’s, Danskin, Hanes and other national brands than ever before.

Dollar Tree and Dollar General have upgraded their products by stocking more branded grocery items and other consumables while keeping prices at rock-bottom levels.

These initiatives have helped mass merchants enjoy increased average consumer spending in some key categories. Grocery has seen the biggest improvement in the past year, with an average increase of $36 per consumer. Health and beauty were next, with a $20 increase, followed by toys and apparel at $12 each. “By luring customers into stores with the promise of a better shopping experience and appealing products, and using high-frequency purchases like groceries and health and beauty products, mass merchants have been able to drive increased purchases of high-margin categories like apparel accessories, fashion and home goods, technology and toys,” said NPD’s Mantis.

The Importance of Omnichannel

Brick-and-mortar purchases no longer happen in a vacuum. Today’s battle for consumer mindshare begins long before the shopping trip. Most consumers, armed with a supercomputer in their pockets, do their pre-shopping research before leaving home, reducing the number of store trips but potentially making each one more productive. The winning merchants are seamlessly integrating their physical and digital stores to continuously engage with their customers, providing information, experience and the products they want, when and where they want them.

Free shipping, returns, buy-online/pickup-in-store, order in-store/ship-to-home, competitive price matching, and other conveniences have become the price of entry for any retailer who wants to keep its customers loyal, and help stem the share loss to pure-plays like Amazon.

Target views its fleet of smaller urban stores as additional pickup points for online orders. And Walmart recently closed a $3 billion deal to acquire Jet.com, the game-changing retail technology company that many think will help the veteran seller be more competitive online.

If they do things right, many mass merchants may soon find their fleets of thousands of physical store locations to be a key competitive advantage in the battle to gain share not only from other brick-and-mortar retailers, but from Amazon as well.

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