Back in Balance, Retail Hits its Stride

By Lee Carpenter, CEO of Interbrand North America, and Dirk Defenbaugh, Managing Director, Interbrand Design Forum

“While e-commerce sales continue to grow 10 percent each year, questions about the role of brick and mortar seem to be largely resolved. The store is now a brand experience that drives revenues across all channels."

Rebounding from five years of economic turmoil, technology changes and altered consumer behaviors, North America’s leading retailers are still recovering their balance, making major moves to reassert their relevance. The mad race to throw money at e-commerce, apps, QR codes, and interactive screens has come to an end. “Omnichannel” is already an old buzzword. This new reality has led to a rise in “connected stores for connected customers” as evidenced by our top 50 North American brands.

This year, the total value of the top 50 North American retail brands is up slightly, by USD $18 billion, with striking increases in value by Macy’s and Whole Foods Market. The threshold for the league table rose only 11 percent compared to last year.

While e-commerce sales continue to grow 10 percent each year, questions about the role of brick and mortar seem to be largely resolved. The store is now a brand experience that drives revenues across all channels.

Digital is no longer a separate conversation

The North American retail brand with the greatest percentage increase in brand value this year is a master at achieving relevance at scale. Macy’s is recognized as something of a hybrid superstar. With bona fides in both digital and brick and mortar, it has set the standard for highly personalized shopping, harnessing some of Amazon’s key strengths while heightening the in-store experience.

Amazon itself continues its relentless growth to become “the everything store.” While CEO Jeff Bezos considers his brand to be without competitors, most retailers have come to see they are locked in battle with the e-commerce juggernaut. Analysts predict Amazon will soon carry more than 85 percent of the product sold at leading retailers, at better prices, with more delivery methods and payment options.

Today a fully functional mobile presence is a given for every brand. Knowing this, The Home Depot has armed its store associates with handheld technology to help them track inventory, aid shoppers, and share new problem-solving tips both in the store and online as a result of that shopper interaction. It conveys the “more doing” brand essence while adapting to a customer’s particular needs in real time. The Home Depot remains ahead of Amazon in brand value this year.

Drugstores must become health care providers

In the U.S., health clinics inside retail chain stores have doubled over the last six years led by CVS/pharmacy, the pioneering cigarette-quitting pharmacy giant that plans to have 1,500 in 35 states by 2017. Walgreens, meanwhile, is projecting double-digit growth, confident that simple care delivered by licensed pharmacists and nurse practitioners will increase trips and spend.

The Patient Protection and Affordable Care Act drove this year’s retail expansion plans in the U.S. As more consumers obtain insurance coverage, an inevitable shortage of physicians, in conjunction with the convenience of store hours, makes retail an attractive alternative to slow traditional systems. Even in Canada where residents have received publicly financed health care since the 1960s, Walmart Canada targets shoppers through its nearly 30 retail health clinics, anticipating a need for easier access to convenient medical care as the population ages.

Fashionable mass merchant Target also houses retail health clinics in about 70 of its stores in the U.S. Target stopped selling cigarettes in 1996 without crippling its bottom line, which suggests that CVS will recover from the USD $2 billion loss it expects after removing tobacco from its stores this year. The move will strengthen CVS’s image as a healthcare retailer. Pressure is now certainly on Walgreens, with its “Happy & Healthy” brand promise, to do the same.

Increased cross-border activity

Target arrived in Canada this past year, with Nordstrom planning its own cross-border activity beginning in the fall of 2014. Canadian retail icon The Hudson’s Bay Co. will bring Saks Fifth Avenue north in late 2015, making some of America’s favorite brands more continental than national. Within Canada’s borders, grocery giant Loblaw Companies Ltd. shook up the retail scene by paying USD $12.4 billion to acquire Shoppers Drug Mart's 1,250+ stores, many of them in profitable urban locations.

It was once said there were only three kinds of retailers: those that compete on price, those that compete with a unique experience, and those that can’t compete. Now even dollar stores are improving their environments with offerings that are meaningful and relevant. For the brands on our list, actions based on lessons learned from the last five years are paying off. There’s a greater understanding of the complex and challenging relationships between analog and digital, retail and the shopper. Judging from the overall increase in brand value, consumers are rewarding those actions.

Retail trends and challenges in the North American region

  • Online retail is rapidly taking share in many retail categories, led by Amazon
  • A mobile presence is a must; the new omnichannel reality has given way to “connected stores for connected customers”
  • Health clinics inside retail chain stores have doubled over the last six years, with CVS—which, notably, will drop tobacco from its stores—leading the trend
  • Electronics retailers are facing increased pressure due to showrooming; department stores are facing challenges—but increased cross-border activity may lead to gains for brands like Target

EMERGING TRENDS

  • Amazon continues its relentless growth to become “the everything store.” Analysts predict Amazon will soon carry more than 85 percent of the product sold at leading retailers—including groceries with Amazon Fresh—at better prices, with more delivery methods and payment options.
  • A fully functional mobile presence is a given for every brand; the new omnichannel reality has led to a rise in “connected stores for connected customers.”
  • Health clinics inside retail chain stores have doubled over the last six years led by CVS, which, in a move to strengthen its image as a healthcare retailer, will remove tobacco from its stores this year.
  • Increased cross-border activity (e.g., Target arrived in Canada this past year; Saks Fifth Avenue will go north in 2015).

CHALLENGES AND RISKS

  • Electronics retailers are facing increased pressure due to showrooming.
  • The general merchandise department store is facing challenges; Sears and JCPenney are in decline.
  • North American brands with an overabundance of stores may not be able to withstand declining top-line revenue growth for long.
  • Online retail is rapidly taking share in many retail categories.
  • As one of the highest consumption, high output regions in the world, sustainability must be a priority.

Lessons for all

  • While e-commerce sales continue to grow 10 percent each year, questions about the role of brick and mortar seem to be largely resolved.
  • The store is now a brand experience that drives revenues across all channels.
  • Nearly all North American retail brands on our list this year offer competitive pricing, convenient purchasing and payment options, a pleasant shopping experience, offerings that are meaningful and relevant, and demonstrate that they understand the complex and challenging relationships between analog and digital, retail and the shopper.