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Introducing the Retail Brand Trust Index: Consumer Trust Perception of Major US Retail Brands

In late May and early June of this year, we fielded a proprietary survey (n = 1,920) to analyze how consumers think and feel about values-based retailing, about retail involvement in political and humanitarian issues, and to analyze the explicit and implicit elements that create trust (or distrust) in a brand. We examined how 17 national and large regional retailers stack up against each other. We also measured their performance compared to our 2011 survey. To quantitatively measure the level of consumers’ trust in a retailer brand and to track this trust belief over time, we have developed a proprietary Retail Brand Trust (RBT) methodology.

Methodology

The Retail Brand Trust Index (RBT) is calculated based on a national survey of consumers that are asked to rank, on a scale of 1 to 10 the extent to which they agree or disagree with the statement:  “I feel that I can trust this brand completely”.

  • Based on their responses to this question, we grouped participants into 3 buckets:
    1. Trust Advocates: respondents who rated a retailer 9 or 10 were placed in the Trust Advocates group
    2. Neutral: respondents who rated a retailer between 6 and 8 were placed in the Neutral group
    3. Brand Cynics: respondents who rated a retailer between 1 and 5 were placed in the Brand Cynics group
  • Finally, a Retail Brand Trust score was calculated for each retailer by subtracting the % of respondents falling in the Cynics bucket from the % of respondents in the Advocates bucket. Neutral respondents were omitted from the calculation.
  • The RBT methodology has a theoretical maximum score of 100 (100% of respondents are Advocates) and a theoretical minimum score of -100 (100% of the respondents are Cynics)
  • The 17 retailers measured ranged from a top score of 21 to a bottom score of -21
  • Additional survey questions probed implicit contributors to trust.
  • It is important to note that the 2020 fieldwork was conducted in the weeks surrounding coronavirus pandemic stay-at-home orders in many states and the first wave of protests against police brutality.

2020 Retailer Rankings by Retail Brand Trust

The stand-out retailer from this year’s study is Costco, followed by HEB, Aldi, Sam’s Club, and Publix. These results bode well for the value-minded retailers amongst the food/drug/mass set that also hold a strong community, employee, and customer service orientation.

Costco’s trust leadership is consistent with their leadership on policies that elevate the experience for their customers and employees alike. Compared to other retailers, respondents rated Costco favorably on their pricing and as a place they would miss if it were to disappear. Costco also scored toward the top for their treatment of employees and customers and their honesty as an organization. We noticed that these dimensions correlate highly with a strong RBT score, and are consistent with some of the policies Costco follows like providing employees with health care coverage and a confidential ethics hotline, their early moves to provide coronavirus protection and raises, and their ongoing steps towards becoming more environmentally-friendly.

Retailers with the lowest RBT score were Walmart, Instacart, Meijer, Safeway, and Walgreens. These bottom-performing retailers had poor scores across related dimensions such as employee treatment, importance of the customer, honesty, and providing a fun or joyful shopping experience.

Brand Trust Erosion Over The Last Decade

When compared to our 2011 survey results, every brand had an RBT decline.  Retailer performance has clearly not kept pace with Customer expectations for brand transparency, customer and employee experience.  The exception is Aldi:   although RBT declined slightly, Aldi moved from 8th place to 2nd over the 10 year period.

The downward shift in consumer perceptions toward all brands studied is observed amidst a period of unprecedented disruption and uncertainty and an increasingly connected world with greater access to information and demand for brand transparency than ever before. These results should be a wakeup call for all retailers and brands to go beyond lip-service and to create a true culture of trust, transparency, and care for employees and customers.

More Detailed Study Results – Coming Soon

In an upcoming whitepaper, we will be discussing the Retail Brand Study Trust Study 2020 results in further detail. Highlights will include a full breakdown of 2011 and 2020 RBT scores, an analysis of dimensions related to brand trust and which correlate most closely, RBT scores versus retailer financial performance, and how to use RBT as a complement to promoter and loyalty metrics.

For the latest industry news and insights from an expert perspective, connect with us.

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Recent Investments by Amazon and FreshDirect Highlight the Growing Importance of E-commerce Fulfillment Operations

In late July, FreshDirect announced that it would be partnering with Fabric Robotics to build a micro-fulfillment center (MFC) in Washington D.C., providing same-day delivery to area customers. The online-only grocer has traditionally only done next-day fulfillment, but is planning to expand same-day throughout the Northeast Corridor. This comes shortly after Amazon’s announcement that they have now converted 6 Whole Foods locations around the country into dark stores to support E-commerce fulfillment (via Retail Dive and Progressive Grocer). These are just 2 examples of retailers recognizing the shifting channel dynamics and making investments in dedicated E-commerce fulfillment centers to keep pace.

In a new whitepaper (free for download Here), we explore the growing importance of efficient E-commerce fulfillment in the grocery sector and discuss the pros and cons of the 4 most popular E-commerce fulfillment models. Highlights include:

  • We discuss the backdrop of the global coronavirus pandemic and how it has led to massive increases in at-home food consumption and in grocery E-commerce demand and penetration.
  • We discuss the 4 most popular fulfillment options that grocers are using when it comes to servicing their E-commerce customers: in-store picking, dark store models, micro-fulfillment centers, and centralized fulfillment centers.
  • We explore the current tradeoffs of each fulfillment model when it comes to picking and labor efficiency, the order volume one facility can service, the SKU selection supported, last-mile delivery efficiency and cost, and CapEx requirements.
  • We explore the latest profitability estimates for each fulfillment model, how to choose the best model for your business, and the growing number of tech advancements that will continue to revolutionize E-commerce fulfillment.

To download this free whitepaper, follow this link.

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Banking on B Corps

In recent years, consumers have begun to expect more from retailers in regard to environmental and social support. They are keeping track of green initiatives, actions taken to uplift the community and employees, and are making more of an effort to shop at stores that align with their beliefs. According to our recent proprietary survey of 1,920 consumers fielded in late May and early June of 2020, more than 2 in 5 American adults agree that finding a retailer whose values align with their own is critical to choosing where they shop. This has been especially evident lately as social media users have been calling to boycott companies. Many corporations are aware of heightened consumer demands and have thus started marketing their green practices and charitable donations. In a blog from early June, ACTION REQUIRED, we discussed several retailers’ responses or lack thereof to the Black Lives Matter Movement and consumers perceptions of them. Unfortunately, some companies do not practice what they preach or are participating in greenwashing, a practice in which companies use green marketing to deceive the customer. How then can a consumer trust that a company is actually environmentally and socially conscious? Luckily, there are a variety of certifications that validate these claims including the prominent Benefit Corporation (B Corp) Certification.

A Certified B Corp is a for profit company that has met the difficult standards of social and environmental performance, accountability, and transparency according to the nonprofit, B Lab. To become certified, the company must undergo a rigorous process in which they are evaluated on their impact on their workers, community, customers, and the environment. They must also provide documentation to support these claims and recertify every 3 years.

Our research indicates that people want to shop at stores that are socially and environmentally responsible, but have not yet connected those ideas to B Corps. In our survey, 64% agreed that brands have a responsibility to serve the local communities they operate in; when taking the B Impact Assessment, companies are evaluated on their contribution to the economic and social well-being of the communities they operate in by answering questions on diversity and inclusion, job creation, civic engagement and philanthropy, supply chain management, and more. Additionally, 62% of respondents agreed that retailers need to address the negative impact they have on the planet; Certified B Corps are evaluated on how they manage their environmental impact in areas such as climate, water use and sustainability, and impacts on land and life. Lastly, 74% agreed that retailers should ensure a positive and safe working environment for all qualified people regardless of age or disability, gender, race, religion, or sexual orientation; the B Impact Assessment evaluates companies based on how well they treat their employees, including their compensation practices, benefits, training, worker ownership and work environment. Despite the connections between stated consumer desires and Certified B Corps, only 54% of consumers indicated that attaining certification made a brand more appealing in their eyes.  However, some cohorts demonstrated greater receptivity toward B corps certification, such as those who identify as women, those living on the West Coast, urban residents, and those with a college or advanced degree. And, strikingly, 64% of younger consumers ages 18-24 felt that B corps certification made a retail brand more appealing.

The disconnect between consumer shopping preferences and the appeal of Certified B Corps lies in the lack of awareness and understanding of them. Despite the fact that there are over 2,500 Certified B Corps in 50 countries, many consumers are not aware of their existence. When customers buy a pint of Ben & Jerry’s ice cream, for example, they may know they are supporting a socially responsible company with flavors that highlight important causes like Pecan Resist which celebrates activists who resist oppression, harmful environmental practices and injustice. However, they may not know they are buying from a Certified B Corp because the logo is not displayed on their products.

Other Certified B Corps attempt to more publicly market their status such as Athleta, a women’s athleisure company that uses window space to explain their Certified B Corp status, or New Seasons Market, a grocery store chain in the Pacific Northwest that was the first grocery store to certify and displays a large sign outside each store displaying their pride. Despite these notable attempts, many shoppers do not take the time to stop and read the windows or signs. Even if a customer does see a company is a Certified B Corp, many of those we surveyed reported that they found the concept confusing and did not see why they should trust the certification. It is important that consumers understand the validity of B Lab, the nonprofit that certifies businesses, which was founded in 2006 with the goal of enabling businesses to use their power to solve problems like wealth inequality, climate change, and social unrest. Lastly, customers may shy away from Certified B Corps in fear they are more expensive, which may be true depending on the product; but the markup ensures that employees are being paid well, the products are being sourced responsibly, and the community is being supported.

A New Seasons Market employee proudly displays a sign highlighting B Corps. Image: Instagram

Along with B Corp Certifications, there are many other environmental and social certifications for companies and products including Fair Trade, Leaping Bunny, and EWG. Fair Trade is commonly used to certify coffee and chocolate products that are made according to rigorous social, environmental, and economic standards. The Leaping Bunny Certification, on the other hand, is used for cosmetics, personal care, household, and cleaning products and guarantees they are not tested on animals. Lastly, EWG Verified products are certified by toxicologists, chemists, and epidemiologists to not contain any ingredients that are harmful to people or the planet, to list all ingredients on the label, and to be safely manufactured. While all these certifications may overwhelm the consumer, B Corps are important to highlight as they certify the entire company as opposed to just a product.

Athleta’s window display explaining their B Corp status. Image: yelp.com

Consumers are more interested than ever in supporting companies that align with their values on social and environmental issues with 59% saying it is best for retailers to take an active part in social, environmental, and political issues. However, they have a hard time figuring out which brands are genuine. By increasing the awareness of Certified B Corps, customers can feel confident in their support of businesses. Certified B Corps are a nascent trend and are picking up speed among the younger, urban, and highly educated population. We predict that the number of consumers interested in supporting businesses that align with their values will continue to grow in the coming years and the support of Certified B Corps will follow.

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Retail Winners in the Time of COVID-19 and the Black Lives Matter Movement

It has been 130 days since California became the first state to order an official lockdown, causing non-essential businesses to shut their doors. As the months went on, cases continued to rise, and the murder of George Floyd led to the strengthening of the Black Lives Matter movement and an overwhelming demand for change. Now retailers are navigating the challenges of keeping people safe while also being held under increased scrutiny for their actions related to social and political issues. The winning retailers are those who are developing long-term solutions and committing to making lasting changes. In a blog from early June, “ACTION REQUIRED,” we noted that retailers needed to take a stand on current issues and in this blog, we will highlight a few leaders for their actions regarding COVID-19 and the Black Lives Matter movement.

Back in March, essential businesses began implementing informal social distancing by placing temporary pieces of tape 6 ft apart on the floor and handwritten signs on the doors at entrances. Other early actions included store hour adjustments, contactless delivery, extended return windows, free shipping, temporary pay increases for employees, and purchase limits on essential goods. When things had not improved by April, stores began enforcing more safety measures including plexiglass shields at checkout, one-way aisles, and capacity limits. Many businesses also took the initiative to help the greater community by donating money or food or using their warehouses to manufacture masks or hand sanitizer. Now in July, essential retailers and reopened non-essential businesses have made more permanent changes such as specialty designed floor decals, reimagined store layouts for social distancing, increased contactless services, and new partnerships. Those winning customer trust, however, have gone above and beyond to support their employees, keep their customers safe, and help the community.

American Eagle Outfitters

Since American Eagle Outfitters closed all its stores on March 17th, they have excelled at connecting with their customers from a distance. During late April, they launched “Come Together: At Home with AE” which consisted of 7 live Instagram concerts by popular musicians to benefit America’s Food Fund. The trendy clothing store also hosted a virtual prom on May 14th which brought together over 17,500 young adults who had missed out on theirs. After they began reopening their stores on May 7th, they have also become a leader in keeping shoppers safe through their on-brand floor decals with inspirational messages, a welcoming table offering masks and hand sanitizer, and a shoe cleaning mat at the entrance. More permanent changes they have made include curbside pickup, contactless return options, and redesigned store layouts featuring less merchandise. In response to the Black Lives Matter movement, American Eagle Outfitters has donated $500,000 to the NAACP Legal Defense and Educational Fund and promised to match associate donations up to $100,000. They also used their Instagram platform of 3.6 million followers to share their support and a variety of resources for the black community and allies.

Teens across the country come together for a virtual prom hosted by American Eagle Outfitters. Photo Credit: Instagram

CVS Pharmacy 

CVS has also become a leader in customer safety due to their newly offered contactless services. They have made it convenient and safe for customers to stay healthy by adding a telehealth option for Minute Clinic appointments, providing free home delivery of prescription medications, allowing for drive-thru pickup of essential items, and having drive-thru COVID-19 testing at over 1,000 locations across the country. Additionally, CVS is working towards a long-term solution by partnering with Nuro to test autonomous delivery services in Texas. As a response to the Black Lives Matter movement, they owned up to not having a very diverse leadership team and created an internal action plan to ensure black and brown employees have access to opportunities for advancement and development at all levels in the company. They also made a $600 million commitment to advance employee, community, and public policy initiatives that address inequality over the next five years.

A man returns his test sample at a CVS COVID-19 drive-thru test site. Photo Credit: Tampabay.com

H-E-B

As a longtime leader in community support, it is no surprise H-E-B scored high on our consumer trust study and was the top performer for stepping up to support the local community during the pandemic. The supermarket donated $1.2 million to support 18 food banks in Texas, along with 40 truckloads of food and household supplies. They also donated $500,000 to organizations that deliver meals to seniors and low-income families, $300,000 to Texas Biomedical Research Institute, and $1 million to local nonprofits. In addition, they supported local health care workers by delivering 80,000 meals, 10,000 bags of beauty products and grooming supplies, and 4,000 plants and flower bouquets to hospitals in Texas. Furthermore, they started selling ready-made meals from local restaurants with all proceeds going directly back to the restaurants. More permanent actions they have taken include the creation of a COVID Action Manager role, employee raises, and a partnership with Favor that allows seniors to have contactless, same day grocery delivery. To support the Black Lives Matter movement, they created a $1 million fund to help address racial inequalities and injustice as well as an online donation campaign where customers can support the movement. Combined with their history of celebrating Juneteenth by marching in parades and their virtual celebration this year, H-E-B has proven that they truly support the movement.

An H-E-B employee prepares to load donations into a truck. Photo Credit: Newsroom.heb.com

Retailers who are winning customer trust are those who are focusing on long-term changes in response to COVID-19 and the Black Lives Matter movement. They are taking actions that support their employees, customers, and community members. In this unprecedented time of COVID-19 and social unrest, retailers need to step up and make permanent changes to their operations to ensure customers feel safe and supported.

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Time Out Explores the Future of Customer Experience with Experience:NYC Small Business Festival

As New York City enters the fourth and final stage of the state’s reopening plan on Monday, indoor dining has yet to appear on the agenda.  For Time Out, that means their 24,000 square foot market, located in the heart of DUMBO, remains shuttered.  The New York location is the third installation of the concept space following markets in Lisbon and Miami; the space features 21 different eateries, 3 bars, a video installation wall and a demo cooking area. The company’s mission: showcase the best of New York City’s local cuisine all in one place.

The media company has since had to pivot in how it engages with its customers as the market has remained closed to accommodate safe social distancing, but their commitment to highlighting New York’s local businesses has not waned.  As a part of their ongoing Love Local Campaign, Time Out partnered with Instagram to host Experience:NYC, a two day festival highlighting small business from across all five boroughs.  The event was entirely virtual, taking place exclusively over Instagram live.  Here, 16 different small businesses with specialties ranging from candlemaking to Japanese mixology had one hour to showcase their wares to Time Out New York’s over 490,000 Instagram followers.

For CeCe’s Closet, a sister owned clothing brand that seeks to celebrate the beauty of West African prints, that experience provided a virtual fashion show in advance of the release of their newest collection.  The models walked through the bright, open air venue offering a final pose directly in front of the camera, while the host provided information about the garments’ construction, among other whimsical commentary. To close the show, the brand encouraged interaction from attendees, asking everyone to vote on their favorite look or send a reaction in the form of an emoji leveraging the comments feature built into Instagram live.  Finally, the brand promoted their own social channels for those interested in more content.

Models take a final walk on the runway during Cece’s Closet’s virtual fashion show

Sarah Paji Yoo, founder and CEO of Blueland, an eco-conscious cleaning product company, set up her broadcast from her Manhattan apartment.  After pinning a comment to let newcomers to the livestream know about the event’s description, she began to demonstrate different cleaning products in her kitchen, all while explaining her company’s mission to provide quality cleaning products with no plastic waste.  The demonstration took on the likes of a casual conversation, as viewers asked questions throughout, again utilizing the comments feature, as Yoo simultaneously shared her story and product recommendations with attendees.

Sarah Paji Yoo, founder and CEO of Blueland demonstrated different cleaning products from her NYC home

As the country gradually reopens with social distancing measures becoming the norm, the traditional customer experience, oftentimes rooted in crowded venues and shared spaces, is in jeopardy.  Many customers still remain apprehensive to return to in person shopping and digital tools such as Instagram and Zoom are continuously building out features to further support robust online interaction between event hosts and attendees, giving virtual events increasing promise. With customer safety top of mind, retailers will undoubtedly have to get creative in leveraging digital tools to connect and engage with their consumers, ultimately to prove that a meaningful and a digital customer experience are not mutually exclusive.

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The New Rules of Brand Trust – Examining Today’s Trust Champions

Consumers are re-examining their priorities, challenging existing norms, and calling on brands to take action that aligns with their values, supports their communities and advances social and racial equity in new and powerful ways. The pace of this change is accelerating as never before, with consumer pressure mounting on companies to take an active part in social, environmental, and political issues to address the evolving needs of today’s new consumer normal. Consumers are actively demanding name changes, proposing boycotts and rethinking where they shop and spend.  The news is filled with examples:  A logo change for Uncle Ben’s, renaming international brands at Trader Joe’s, and the trending hashtag #goyaway in response to Goya Foods CEO’s praises for President Trump at the height of a COVID crisis that’s hitting Latinx communities hard.   In this environment, brand trust with consumers has never been more important.

In this second of a weekly series of blog posts, we comment on which food, drug and mass brands are successfully building relationships with consumers by not only delivering value but appealing to their hearts.  The current analysis is based on a proprietary survey of 1,920 US consumers fielded between late May and early June of 2020. Critically, the survey fieldwork was conducted during the weeks surrounding the killing of George Floyd while in police custody, sparking nationwide protests against police brutality and racism.

Ten Years Measuring Trust

To understand how a brand’s stance and initiatives advancing social justice issues relates to consumer trust, we asked a series of questions about their attitudes, behaviors, loyalty and perceptions toward leading US food, drug and mass brands. We examined how 17 national and large regional retailers studied stack up against each other and against themselves since we last conducted our related Global Brand Trust study 10 years ago.  Like our Global Brand Study published in 2011, we questioned participants on dimensions of both explicit trust and implicit trust.  These dimensions included:

Brand Trust has Eroded Overall

The survey results should be a wakeup call for all retailers and brands.  The food, drug, mass retailers included in both the 2011 and 2020 studies received lower absolute scores across almost every dimension surveyed. Any number of factors could contribute to this meaningful decline in the perception of brand trust during the last 10 years.  The downward shift in consumer perceptions toward all brands studied is observed amidst of period of unprecedented disruption and uncertainty and an increasingly connected world with greater access to information and demand for brand transparency than ever before.

Today’s Leaders vs. Laggards  

The stand-out retailer from this year’s study is Costco, with the highest average score across all dimensions probed, followed by HEB, Aldi, Trader Joe’s, and Publix, rounding out the top five retailers rated. Costco and Trader Joe’s maintained their leadership as trust champions from our prior study in 2011, while Aldi replaced Whole Foods in the winner’s circle (HEB and Publix were not included in the previous study). These results bode well for the value-minded retailers amongst the food/drug/mass set as well as those with a strong community and customer service orientation.

Costco’s leadership on trust is consistent with their leadership on initiatives and policies that elevate the experience for their customers and employees alike. Shoppers love Costco for its friendly return policy, low-priced food court and the treasure-hunt-like experience. Moreover, in recent years, the retailer has stepped up its efforts related to sustainability and community-minded initiatives. A few standout examples of these efforts include a shift to 100% recycled boxes in 2019 and an investment in lighter-weight custom trucks that reduce fuel consumption. Costco also goes above and beyond for their employees. They operate a confidential employee ethics hotline, provide affordable health care coverage for full and part time employees and were early movers on recognizing and protecting store staff during the pandemic with temporary pay raises of $2/hour, masks and gloves provided, plexiglass shields and reduced store hours so that staff have time to rest.

The lowest scoring retailers overall were Wegmans, Walgreens, Safeway as well as Instacart and Walmart which tied for last place. Walmart was also a relatively poor performer in the 2011 study. Though trust and loyalty are not the only drivers to shop at Walmart, eroding trust during the pandemic appears to be top of mind for the company, preceding Walmart’s recent announcement of a chainwide mask mandate to keep customers, staff, and local communities safe. Instacart should also be particularly concerned about these results, far underperforming Amazon Fresh by comparison. The pandemic provided the delivery platform with a boost as they were thrust into “essential business” status during the pandemic, but with competing services nipping at their heels, sustained success will depend on their ability to improve consumer perceptions.

Customer Care = Employee Care

We have long believed that to deliver a truly exceptional customer experience, the employee experience cannot be overlooked. This correlation between customer care and employee care was affirmed in this year’s survey results as the same 4 retailers scored highest in “they care a lot about their customers / customers are very important to them” and “they work hard to treat their employees well.” Unsurprisingly, these 4 were also amongst the highest scoring retailers overall. They are Costco, Trader Joe’s, HEB and Publix. Whole Foods took another hit regarding perceived level of customer care. While they were one of the top 3 highest scoring retailers on this dimension in 2011, they were very middle of the road in 9th place based off this year’s results. It’s possible these results reflect a change in perception following the retailer’s acquisition by Amazon as well as their highly vocal and activist customer base.  Among all retailers studied, those who made a recent purchase at Whole Foods are the most likely to feel it would be best for the future if brands and retailers take an active part in social, environmental, or political issues, with 71% agreeing vs. only 29% who felt retailers and brands should stay out of these issues.

Responding to Consumer Demand for Action

A look back at the last 10 years of consumer data illustrates both subtle and seismic changes in how consumers perceive the role of brands in today’s social and political discourse.  Our survey results demonstrate a whopping 74% of consumers now agree it’s incumbent upon retailers to ensure a positive and safe working environment for all qualified people regardless of age or disability, gender, race, religion or sexual orientation. Another 59% of all consumers believe that consumer-driven companies should take an active part in advancing policy issues of the day.  In the coming weeks, we will continue to discuss consumer perceptions toward values-based retailing and the growth and consumer appetite for more mission-driven business models, including B corporations.

Jill Bromann and Alyson Fischer contributed to this article. Jill directs McMillanDoolittle’s consumer insights practice and is experienced in project management, research analysis and strategic planning. Jill leverages her cross-functional knowledge in quantitative and qualitative research techniques to tell unbiased stories through data that uncover insights and identify strategic solutions for her clients. Since joining the team in 2013, Jill has conducted extensive work in survey research, customer intercepts, focus group moderation and in-depth interviews to assist retailers and suppliers in North and South America, Europe and Oceania.

Alyson leads client projects from planning to completion and provides cross-functional support for the partners in the execution of business analysis, engagement management and strategic planning. Since joining the team in 2016, she has advised clients in North America, Europe, Asia, and Central America on both qualitative and quantitative techniques. Additional areas of expertise include merchandise planning, assortment strategy, inventory management, productivity analysis, competitive benchmarking, forecasting and data visualization.

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Lululemon: What A Difference A Year Makes

Lululemon opened their experiential flagship location in the Lincoln Park neighborhood of Chicago about a year ago.  A temple of sorts, the store was built to facilitate engagement between customer and brand with ample space dedicated to fostering shared experiences such as a meditation room, multiple fitness rooms, and a café (read more about our take on the Lincoln Park store in Retail Innovations and on our blog).

In what has been a rocky few months for retail, Lululemon has been one of the few that has taken the pandemic in stride, swiftly transitioning shuttered stores to ad-hoc fulfillment centers to support e-commerce operations and offering a menu of online classes such as dance, pilates, yoga, train and meditation. While not a replacement for the high level of customer engagement that takes place in stores, these stop-gaps certainly seem to be working; CEO Calvin McDonald reported that 170,000 customers tuned into these digital events during the first week of closures alone and Q1 earnings, reported this week, indicate a 70% jump in online sales.

With most locations now reopened, we were curious to see how the in-store experience had shifted to accommodate the new realities of retail.

What’s Changed?

Perhaps the biggest and most noticeable difference is capacity limits. What was once a beating heart, 20,000 square feet in size, is now carefully kept at an average volume of 20 customers at a time. Even during non-peak hours, the line of shoppers waiting to enter snakes outside of the building and a Lululemon associate sits diligently by a table full of hand sanitizer, allowing one person in as one person comes out.

With so few people allowed inside it is not difficult to keep your distance. Nevertheless, reminders are placed throughout store to keep 6 apart.

Another change is the new uniform of shoppers and staff alike; masks are required to be worn at all times by everyone inside the store.

Sadly, many of the amenities that made this location unique remain closed. The meditation room’s windows are dark as are the fitness studios. Though the café remains open, the co-working space has been removed and replaced by a table full of hand sanitizer and masks.

Anti-viral gear in the former co-working space.

What’s Stayed the Same?

Despite all these changes, the experience still feels distinctly Lululemon. Thoughtful details, such as a QR code taped to a street-facing window where guests can pull up the café menu while they wait, dedicated hours for high-risk shoppers and a 25% in-store discount for healthcare workers, make it clear that the brand is continuing to put wellness first. In addition, the space manages to foster a sense of community by continuing to showcase the talents of their local brand ambassadors such as Kofi Hughes, whose artwork graces the first floor in a pop-up exhibit.

Artwork by Lululemon Ambassador Kofi Hughes.

And finally, the store associates continue to rise to the challenges posed by this new retail environment and exceed customer expectations in a way that is authentically Lululemon.

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Trust in the Time of COVID

Today’s consumers are prioritizing values and holding brands accountable in new and powerful ways, especially as we face a period of uncertainty and ongoing fear stemming from the global COVID-19 pandemic.  In this first of a weekly series of blog posts, we comment on how the COVID-19 pandemic and retail initiatives addressing COVID-19 impacts are influencing consumer perceptions and trust.  Our analysis is based on a proprietary survey of 1,920 US consumers fielded between late May and early June of 2020. To understand how consumers are currently responding to and coping with the continuing pandemic, we asked a series of questions about their attitudes, behaviors, and outlook as it relates to shopping, brand loyalty and winning their trust. The broader study explores some of the key shifts in attitudes and consumer expectations toward values-based retailing and comments on strategies brands can adopt to succeed in winning their trust.

Divergent Consumer Responses to COVID-19

The COVID-19 pandemic is an unprecedented force that has been devastating the world for months, and US consumers remain split in their outlook and perceptions along demographic and political lines. But first and foremost, the data show COVID-19 has had a stunning impact on nearly all consumers, with more than 4 in 5 saying the global pandemic has at least slightly influenced their shopping attitudes and outlook for the future. The younger and more diverse generations of Millennials and Gen Z, parents with young children, self-reported Democrats, and those living in more urban settings are even more likely to cite being impacted by COVID-19.

And while a vast majority of consumers cite COVID-related changes to their shopping routines and outlook, key segments emerge from the data that reveal striking differences among cohorts:

  • The largest segment of consumers (30%) report changing up their shopping routines, adhering to social distancing and feeling cautiously optimistic about overcoming this challenging period. This “Hopeful at Home” cohort has shifted to doing more of their shopping from home. They tend to be younger, middle and upper-income, and urban. Hispanic consumers are over-represented in this segment compared to the total US population.
  • The second leading segment, representing just under 3 in 10 consumers (29%) cite taking fewer shopping trips, stocking up, and feeling worried about their family and the long-term effects of the crisis. These “Concerned Stockpilers” over-index for being above the age of 55, living in more suburban communities, and being empty nesters who may be at higher risk of virus-related complications. Along with the “Hopeful at Home” segment, “Concerned Stockpilers” are more likely to identify as Democrats compared to the sample average.
  • About 1 in 5 (20%) consumers surveyed report no significant changes to their shopping behaviors but feel anxious to get back to their normal everyday routines. These “Business as Usual” consumers are likelier to be male, white, live in smaller towns or rural communities, and to identify as Republicans. Their income tends be slightly polarized, with over-representation among both lower and higher income thresholds reported.
  • Finally, about 15% of consumers surveyed cluster in the “Tough Times Ahead” cohort. They report working hard to cut back their spending and are more likely than average to be Millennials who live in urban communities, to report lower to middle incomes and to identify as Democratic or Independent voters. This group is more likely to have kids at home and to be Black or Asian.
  • The remaining 5% of respondents opted not to self-report into statements probed.

Consumers Recognize Retailer Efforts to Address COVID Impacts

We explored which US food, drug and mass brands are winning with consumers and how a brand’s response to the pandemic relates to consumer trust. Encouragingly, about 2 in 3 consumers agree that stores, brands, and websites they shop at are doing the right amount to stem the spread of the coronavirus.  However, about 1 in 4 believe retail companies are not doing enough while only about 1 in 10 feel brands are doing too much.

  • Men are more likely than women to say companies are doing too much to address the spread of COVID-19, and males also made up a larger proportion of self-identified Republicans in our sample. The cohort least likely to say that stores and brands are not doing enough are Republicans.
  • On the other hand, consumers below the age of 35 in urban centers as well as those with young children at home are likelier to feel that brands and retailers are not doing enough to curb the coronavirus spread. These populations may be experiencing an outsize direct impact due to more virus exposure in densely populated communities, greater disruption to active lifestyles, and school closures affecting both current students and exasperated parents.

We further asked consumers to rate 17 large regional and national food, drug and mass retailers across the country to understand their perceptions toward trust, loyalty and the relationship with their perceived handling of the pandemic.

HEB Rated Tops for COVID Response Efforts and Net Promoter Score

HEB received the highest score across all retailers studied for stepping up to support the community during the pandemic. Critically, HEB also received the highest net promoter score (NPS), an important consumer metric reflecting an exceptional degree of loyalty and trust in this brand, among all retailers studied.  HEB did not rank #1 for any of the other attitudinal statements probed, but the company earned the #2 spot among consumers as a brand they trust completely.

Consumer recognition earning HEB the top spot for supporting the community during the pandemic comes in the wake of large-scale and highly publicized initiatives the company deployed since the pandemic began.  HEB actively contributed to and encouraged customers to participate in local food drives benefiting community organizations and hospitals. The company proactively instituted increased safety and sanitization measures, provided support for senior citizens, implemented safer in-store shopping procedures including more efficient ecommerce options, raised employee pay, and provided PPP and free meals for its employees.  It is also noteworthy that HEB was able to move quickly on its response by activating an action-plan developed in 2005 for the H1N1 virus as well as its emergency preparedness and agility honed during hurricane disaster relief efforts.

Pictured Above: HEB’s newest 130,000-square-foot store located in South Austin and featuring H-E-B Curbside and Home Delivery services, a large pharmacy with drive-thru lanes, and the city’s first True Texas BBQ with a drive thru. Source: HEB Newsroom.

Engaging Consumers During and Post-COVID

Never before have consumer lifestyles been so profoundly and universally influenced by a health crisis.  Nor have companies been so vocal about social activism, political issues, and values-based retailing. In the coming weeks, we will highlight both subtle and seismic changes in how consumers perceive the role of brands in today’s social and political discourse, looking back on 10 years of consumer data.  It’s never been more important for brands and retailers to deeply understand shifting consumer expectations toward brand values and to align their communications and their actions to establish consumer trust.     

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FAST: Future Proofing The Retail Food Industry

Understandably, the retail food industry has been consumed with responding to current events. With a global pandemic rocking the market, we have seen an unprecedented impact on the retail industry in general and the food industry in particular.

For years, I have focused on the chart below that measures “share of stomach”, the percentage of sales on food at home (generally retail food) and food away from home (generally foodservice). Not surprisingly, we have seen a long and steady march towards consuming more food away from home. Around 2011, the two lines diverged with food away from home pulling away from the pack. Busy lifestyles have led to the growth of foodservice and more convenient ways to consume food. Of course, supermarkets have gotten into the act, adding restaurant style food, leading to the growth of grocerant style formats from Whole Foods to Wegmans. With a minor blip during the last recession, this trend has held remarkably constant.

Figure 1: Jefferies USA April 2020

And then we had a pandemic. Restaurants shut down, most states issued shelter in place orders and improbably, we had a resurgence in food at home because, hey, it was the only option. Americans began cooking again, and there has been a surge in center store products like baking goods, fresh products (meat and produce) and canned foods. All of a sudden, our kitchens and our supermarkets were on trend.

For a period of time, this chart will likely remain inverted and there are estimates by the investment banker Jefferies that this trend could continue over the next 18 months. Health concerns, governmental regulations, and a recession could all come together to keep restaurant industry revenues suppressed with some estimates suggesting that 5-15% of restaurants will close due to the pandemic.

Seemingly great news for supermarkets but conditions are getting tougher there as well: restrictions have hampered supermarkets ability to sell prepared foods and bakery products, an important component of their sales mix and margins and e-commerce continues to rise, often at the expense of profitability.

Figure 2: Jefferies USA April 2020

FAST: The Development Of The E-Store

As a result, both restaurants and food retailers will need to reinvent themselves and start thinking about the future. I collaborated with Natalie Shmulik, who is CEO of Chicago-based The Hatchery, a food and beverage incubator. As Natalie suggests, “while the food community is severely challenged, it is also an opportunity for innovation and reinvention”.

FAST is an acronym that helps describe and explain what future-proofing the food business might look like:

Figure 3: The E-store as demonstrated by the FAST acronym

Every industry is going to be thinking about future-proofing their business concepts, especially those who have physical spaces. This is a unique opportunity for architects and designers to start carefully thinking about how every square foot is used and why.

Natalie introduces the concept of the “E -Store” to demonstrate the principles of FAST. This new classification will force an immense amount of rethinking and innovation. She also correctly notes that while “the food industry is uniquely positioned, other brick and mortars will be taking note. Other industries will begin exploring how to transform their space utilizing E-store protocols and we are likely going to see more beauty shops, fitness centers etc… including food products and transforming into holistic marketplaces”.

The E-store mindset will shift how we build, design and use food spaces now and in future. Every company will be thinking about how they can continue to function if and when essential business restrictions are enforced again in the future, or, if consumer patterns continue to shift and adopt to new behaviors.

What are some examples of companies who are adopting FAST principles?:

Flexible

A major lesson of the pandemic is the need to be able to change your business model quickly. Whatever we think we know about the future, it will inevitably change. Being able to flex, quickly, is paramount.

Farmers Fridge. Chicago-based Farmers Fridge was already an innovator, bringing consumers healthy and fresh food through high tech vending machines at major traffic areas like airports and office buildings. Practically overnight, as demand in traditional venues slowed dramatically, the company shifted to catering (they’ve done a remarkable job of servicing health care workers in hospitals) and home delivery.

Figure 4: Farmers Fridge pivoted from airports and office buildings to hospitals and home delivery

Alinea Group. This heavily Michelin-starred restaurant chain (Alinea, Next, Roister) had a problem—with dining rooms closed and a restaurant concept that relies heavily on a high touch, high service experience. One of the founders is a pioneer in restaurant technology (Tock Reservations) and was able to shift to a To Go experience early in the pandemic. Remarkably, they are serving significantly more customers (10-20x the number of customers previously) at prices that are a fraction of the dine-in experience.

Figure 5: Alinea preps for takeout orders

Agnostic

It should go without saying that being channel agnostic is a must have requirement for the future. For restaurants, this means lessening the reliance on any one channel (in-store dining, pick-up, delivery) and being able to build a flexible platform for consumer demand. For supermarkets, handling the surge in e-commerce requires a different type of fulfillment model than simply shopping in the aisles.

Raley’s. The Sacramento based grocery chain converted a closed unit to a “dark” store dedicated to e-commerce fulfillment. As e-commerce demand has risen 3-5x during the pandemic, in-store picking may no longer be the most viable solution to handle demand. Several other grocery retailers are employing robotic technology (micro-fulfillment centers) or adopting stores to become fulfillment centers. Amazon’s much anticipated first full grocery store in Woodland Hills has become a dark store as well.

Canlis. The Seattle institution went from a fine dining restaurant to creating a makeshift drive-thru, a bagel stand, and delivery of family meals. The homepage of their website says it all… In early March, we shut down our dining room. Fine dining is not what Seattle needs right now. Instead, we’re bringing the food to you. We’ve got this, Seattle.

Prairie.  In San Francisco, Prairie converted their restaurant into a general store.

What will be interesting is how much of this continues when normalcy returns. It is quite likely that many of these business options will remain viable in the future—less in-store seating and more ways to pick up and deliver.

Safe & Sustainable. One of the unfortunate consequences of the pandemic is that there are seemingly conflicting positions. Grocery stores stopped allowing customers to bring in their own bags and loose product is now being packaged. This seems to work counter to the long growing trend of sustainability.

The Wally Shop. This online grocer features bulk products shipped in reusable packaging which the consumer sends back when they are done.

Forager. Forager connects farmers with retailers to facilitate buying local. One of the saddest aspects of the pandemic is the slowdown in demand in restaurants which has led to significant food waste. This service establishes local connections between farmers and retailers, driving more food sustainability and keeping food dollars within the community.

The Dorian. This San Francisco restaurant uses compostable takeout containers in paper bags without utensils (unless requested) to reduce plastic use and repurposes unused fruit and fruit rinds and dehydrates them to use as garnishes for cocktails. With delivery and pick-up continuing to grow, retailers are going to need to rethink their approach to being both safe and sustainable.

Technology Focused

Technology will be the great enabler to power all of the trends above. Companies will need to find new ways to profitably serve customers and allow for flexibility, channel diversification and safe and sustainable practices. This likely means new ways to ensure safety and new ways and partnerships to facilitate the future.

Robots that check aisles for out of stocks, unattended pick-up stations (lockers of all sorts), and micro-fulfillment centers to drive better picking and better technology to facilitate pick-up and delivery are going to become the norms. As will new standards for safety and security. Expect salad bars to go away (for now) and for our samples to be packaged.

Magnolia Bakery.  A “cleanse portal” where customers stand under a UV light before entering the store has been installed at Magnolia Bakery.

Starbucks. Starbucks is rethinking its real estate strategy. Less in-store seating and more pick-up only locations facilitated by new technology. They have also partnered with Uber Eats to offer delivery.

Figure 6: Pick-up is prominently featured at Starbucks

The future of food will look very different than it does today. Being FAST will be the only way to future proof the business.

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Microsoft Exits Retail: What Are The Implications For Other Brands?

A bit lost amid the wave of bankruptcies and massive announced store closures are some notable brands who are exiting the retail business. Microsoft announced that they are closing all 83 of their retail stores, both in the US and around the world. They will be taking a $450 million charge associated with this move.

Earlier in the year, Bose made a similar announcement with the planned closure of 50 of their locations, essentially shutting down their physical retail presence. Bose stated that, at the time of opening in 1993, “it was a radical idea, but we focused on what our customers needed, and where they needed it – and we’re doing the same thing now,” essentially suggesting that on-line sales are now a better way to serve customers.

For Microsoft, the ambition was even greater. First opening in 2009, these stores were designed, explicitly, to compete against Apple, down to their location strategy and visual design cues. Besides mall-based retail, there are some massive Flagships in markets like New York and Sydney that match Apple’s physical grandeur. The challenge, then and now, was to define Microsoft, a far-ranging brand selling everything from xbox to operating systems to notebooks. Close your eyes and it is easy to envision what an Apple store should look like. This is a much harder exercise for Microsoft. And, to be fair, their brand portfolio is moving towards a greater digital offer away from physical products.

As physical retail still reels from a global pandemic, an open question is what is the future role of physical locations for brands? While these two brands are closing stores, others are doubling down on physical locations.  D2C brands, like Allbirds and Glossier are adding retail because it is an additional channel (and often a lower cost channel) for building brand awareness and customer acquisition.

Nike announced today that they are expanding their Nike Live small footprint concept to as many as 200 new locations across North America. Along with their House of Innovation Flagship stores, physical retail remains a core pillar of their “Consumer Direct Offense” strategy.  We expect to see other brands making similar moves – transitioning to smaller formats or shop in shops while building out Flagship experiences in a few high impact locations.

Steve Jobs told analysts back in 2001: “Retailing is hard.”  It’s much harder in 2020 with channel proliferation, a pandemic and rapidly escalating customer expectations. Yet Apple continues to view the physical retail locations as important consumer touchpoints to connect with the brand in its purest form.  Like Nike, they have invested in retail as a core growth platform along with the investment in talent and executive focus needed to make physical retail a success.

Rather than exiting physical retail completely, brands now need to reassess the role of stores including pop-ups, flagships, specialty formats and other emerging formats in their portfolio of options for growth. It is not unreasonable to expect that physical retail could re-merge for Microsoft, particularly focused around a particular sub-brand or product line.

Whether this particular announcement is related to the pandemic or specifically to the shift to a digital world, 2020 is shaping up to be the most volatile time for physical retail stores in history. Buckle up because more is likely to come.

 

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