Another one bites the dust.
If you were born in the ‘80s, odds are you still know the Toys “R” Us jingle. It was the place to get toys, with no real competitors in sight. But, on September 19, Toys “R” Us filed for bankruptcy.
Is Toys “R” Us dead? Not necessarily. Chapter 11 bankruptcy was a sensible decision for the company, one that doesn’t always spell the end of a business, and chief executive Dave Brandon claims that this is merely a new beginning that will “ensure that the iconic Toys ‘R’ Us and Babies ‘R’ Us brands live on for many generations.”
That may or may not be true, but the fact that the company accumulated $5 billion in long-term debt is instructive and indicative of the future of retail.
A sinkhole opened beneath the Toys “R” Us section of the market, one that threatens many if not all big retail brands.
The central issue was that the company was filling a gap in the market that no longer existed. When one-stop shops like Walmart began their catastrophic shakeup to the marketplace in the ‘90s, Toys “R” Us was already in trouble. Consumers could buy toys where they bought their groceries. But niche-specific retailers like Toys “R” Us still had an edge: a broader selection than a general store could offer.
But the rise of ecommerce robbed big brand retailers like Toys “R” Us of precisely that advantage. The selection available online would dwarf any retailer. Niche-specific big retailers could once claim convenience over the online marketplace, with mistrust of online payment and the inconvenience of shipping being two major obstacles. But with Amazon becoming a trusted seller with renowned customer service and a growing infrastructure that puts them in a position where overnight shipping and same day shipping are a reality, niche-specific retailers are caught between a rock called Walmart and a hard place called Amazon.
The Sky Is Falling
Toys “R” Us is hardly the first casualty. Circuit City, Borders, Blockbuster Video, and Sports Authority are all big brand retailers that died or declared bankruptcy in the past decade, familiar names that once seemed like titans of industry that could never fall.
And others are in serious trouble. Sears, which recently negotiated to delay a $500 million loan, holds $1.6 billion in debt and -$3.6 billion in equity. Sears Holding Company also owns Kmart, and the two companies will be closing 43 stores soon, which has essentially been business as usual for the company. Macy’s will be closing at least 68 stores in 2017, and Payless Shoes will be closing 800.
These are not anomalies or examples of businesses that made exceptionally bad business decisions, either.
Forbes points out that 75 percent of last decade’s Fortune 1000 are no longer on the list, and estimates that more than half of the current Fortune 500 companies will go out of business in the next decade.
The American mall itself is also dying. Analysts expect one out of four malls to be shut down by 2022. A full 8,600 stores are expected to close this year. Many present-day malls are technically alive but half of the spaces are empty. Department stores have lost 448,000 jobs since 2002, a 25 percent loss.
Was this an inevitable market correction? There are good reasons to believe so. After all, there are 26 square feet of retail for every US citizen, compared with just 2.5 square feet for every European. America’s retail bubble has been slowly exhaling for well over a decade now, and I’m sorry, but there’s no rosy way to look at this if you are a big retail brand. There will be more retail casualties. It is inevitable, and most of the brands that will fail can’t even be accused of doing anything wrong, per se.
Is there hope? For some, yes. But big retailers will need to face the “retail apocalypse” with open eyes and accept the changes in culture, shopping habits, and technology that led us to this point.
A Way Forward
Toys “R” Us CEO David Brandon admitted to USA Today “Some organizations recognize faster than others there are shifts in the ways customers want to be communicated with and the way customers want to purchase products…It probably took us a while.”
It wasn’t just Amazon that had a strong and easy to use online toy presence to compete with the Toys “R” Us retail space. Retailers like Walmart and Target also developed robust online presences before Toys “R” Us moved into the space.
Neil Saunders of research firm GlobalData Retail told Business Insider that “Toys R Us has lost out in the digital space.” Despite investing in their online presence, the company is still losing market share online due to what Sanders feels is an insufficient website.
Sanders also told Business Insider that continuing to invest in oversized stores was another fatal error. Demand for physical space simply doesn’t exist in the same way that it used to. Cozy stores with a very precise set of unique products cost less to run and generate more revenue per square foot. The excess of retail square footage in America versus Europe seems to be at play here.
But to say that retail stores are dying because they aren’t ecommerce sites sounds dismissive, obvious, and unhelpful. It’s simple arithmetic to realize that if US incomes aren’t changing much, but 80 percent of Americans shop online at least once a month, there will be less money going to physical retail.
Investing in a digital presence is an important move, but it’s far from enough. After all, big digital brands are far from immune. Twitter’s user base is shrinking, for example.
More importantly, most big retailers are by now well aware of the need to make the jump to ecommerce, and even more telling, Toys “R” Us was already one of them.
Successfully adapting to new technologies and market trends is going to depend on a great deal more than shrinking retail space and expanding online presence. Those are merely prerequisites to stay in the game.
Finding a Unique Selling Proposition (USP)
The need for a USP is Business 101 stuff, but big retailers will be facing it in a way that they never have before as retail makes the transition online.
Online shoppers need a reason to visit a marketplace alternative to Amazon, and that is a tough nut to crack. Amazon has built trust with its review system, a familiar layout, and the loyalty earned by its Prime membership.
Competing marketplaces face the problem of building a review system that users will trust equally, and building the kind of loyalty that will lead to repeat sales. They also face a dilemma: should their layout mimic Amazon’s to capitalize on familiarity, in which case they have little to differentiate themselves, or should they invest in innovative layouts that could enhance their unique presence but also potentially confuse shoppers?
Ultimately, most ecommerce sites simply will not be able to compete on interface, with a few exceptions for exceptionally novel ideas.
The majority of ecommerce sites have only two roads forward: to invest in building a unique product line, or to invest in building customer loyalty.
Loyalty in the Digital Era
The age of “loyalty programs” is coming to an end.
This isn’t to say that sales and deals aren’t a great way to get customers in the door and through the shopping cart. But it does mean that loyalty programs alone will fail to build loyalty in the way that they once did.
There is a very simple reason for this. Amazon operates on razor thin margins, and uses economies of scale to cut costs. They need to invest relatively little in marketing because of the dominance of their market share, and this only adds to the disparity.
Put simply, competing on price against Amazon is next to impossible, except in those cases where you own the manufacturing infrastructure itself.
And that means that if you are operating on a marketplace model, your loyalty programs are a joke compared to Amazon’s everyday prices.
To earn loyalty from customers, you will need to invest in something entirely different: a relationship.
Content Marketing for Ecommerce Sites
The primary goal of content marketing is this: create demand.
Content marketing creates demand through the simple principles of trust and reciprocity. If you do something well, and consistently, for your audience, they will be more likely to trust you, and as a result, more likely to reciprocate your actions by making a purchase, recommending you to a friend, and becoming a brand advocate.
This is the fundamental shift that everybody is missing. The big retail brands are failing not just because they don’t have an online presence. In fact, many of them do and are wondering just why that online presence isn’t producing any revenue for them.
They are failing because there has been a fundamental shift in the way that consumers interact with brands.
The modern consumer is, in general, far more skeptical of brands than in the past. In the online world, they always have the option of hitting the back button, whereas in the physical world, walking back out into the parking lot and driving somewhere else was quite a bit more inconvenient. They are, at the same time, more frequently exposed to negative press about big brands and scams, since these stories tend to spread through social media for more rapidly than any “viral marketing” campaign. Consumers can also readily find negative reviews and warnings from others when researching a purchase and are less prone to impulse buys as a result.
The primary thing any brand needs to do in order to overcome this rise in skepticism is foster trust, and the only way to do that is to make a positive impact on that consumer as early in the process as possible, use that to foster trust until the point of purchase, to deliver on promises reliably, and to offer solid customer service to deal with any issues that may arise afterward.
Content marketing is the first step in that process. Through content marketing, you offer a solution to a consumer who is dealing with a problem, and you do so before they are even willing to make a purchase. You build trust with people who are dealing with problems related to the products you are selling, and you capitalize on that trust to build a business relationship.
Building an Audience
“Buying” audiences is expensive. Most brands do it to some extent, and should. We have extensive experience with pay-per-click advertising, display ads, remarketing, you name it, and all of these paid channels are valuable. But they are also not where the majority of our client’s get their sales.
Retail brands will not stay in business if they focus on buying audiences. In the past, a major portion of their income relied on their physical proximity to the customer. The analogue of that online is simple: how convenient is it for a consumer to find you? Are you in their inbox, their search results, and their social media feed? If not, you’ve built your big box retail store in the Sahara.
The key point of strategy I want to stress is this: cumulative growth.
If you want to grow, you don’t invest in thing that pay you today and stop paying you when you stop investing. You invest in strategies that will continue to pay you even if you stop investing. That is how your bottom line continues to grow.
And this is the crux of inbound marketing: search engine optimization, content marketing, social media marketing, and list building. It makes up the bulk of what we do. That’s of necessity, I should add, because nothing else produces ROI in the same way.
How do you build an audience?
Your email list is your lifeblood. We talk about this extensively in our guide to subscriber-focused content marketing. Email open rates are 25 percent, compared with social media “reach” rates that typically hover closer to 2 percent, and aren’t as valuable as email opens at that.
There are two prerequisites for building an email list. You need traffic, and you need a way to convert that traffic into a list of subscribers.
There is only one tried and true way to build email subscriptions: offer them something worth giving up an email for. That could be an eBook, a resource, a deal, a course, a video, a calculator, a quiz, a template, a tool, or essentially anything else valuable enough to be perceived as a “product” that you can offer to consumers to help them solve a problem that is related to products you are selling.
What about traffic?
There’s a lot that goes into that, and it’s our bread and butter here at E2M:
- Use in-depth keyword research to identify phrases that searchers are typing with competition you can outperform
- Use professional copywriting, keen networking skills, and relationship building to get yourself published in authoritative places where you will earn inbound links that send traffic and search engine authority
- Develop assets that are more valuable than anything else on the web for a given vertical, then reach out to the people who promoted the original and tactfully let them know about your new resource
- Involve influential people in the creation of your assets
- Use your existing audience to multiply your reach by providing them with easy to share assets
- Keep producing content: it’s one of the most reliable ways to add to your monthly traffic in cumulative fashion
- Get yourself listed in resource lists that people use
- Produce assets designed to appeal to very specific communities
- Produce assets designed to appeal to very specific influential internet “celebrities”
- Create long-form content that comprehensively answers questions about a topic that others aren’t addressing in full in order to draw in “long tail” search engine traffic
Leveraging Your Audience
While content marketing can overcome the skepticism of the modern consumer, it is a skepticism that dies hard…and is prone to resurrection.
While building an email list should be a central part of your strategy, it is absolutely crucial that you do not abuse the trust you have built by using your email list cynically.
You should use your email list to let your audience know about deals and offers, yes, but you should also use it to continue offering content that continues to foster trust.
Another key piece of the puzzle: email targeting.
In the modern landscape, it’s rarely acceptable for a big brand, especially an ecommerce marketplace, to use a one-size-fits-all email marketing strategy.
You must target audiences by their interests, whether that is based explicitly on which lists they have opted into, or based on their behaviors, such as which emails they have opened, which products they have bought, and which pages on your website they have visited.
Relevance is absolutely key. Most consumers think they hate marketing, but that’s only because they don’t see relevant marketing as marketing. Offer a consumer exactly what they need exactly when they need it and they will thank you for it. This is why the modern ecommerce business must invest in targeted, personalized email marketing.
The Future of Physical Retail
It would be disingenuous to end this post without addressing what has traditionally been the most important part of the retail industry: the physical store.
What is the future of the physical store? Is reducing the square footage devoted to retail really the way to go?
The answer to that question is complex, and to answer it, I feel we should return to that center of physical commerce, the one I previously said was dying: The American mall.
It’s true that the mall as we know it has been dying for quite some time. But not all malls are dying. In fact, some of them are thriving. And if we can understand why, we can understand the future of physical retail, and how it relates to changes in the digital and technological landscape.
The highest performing malls are actually doing better than ever. The best performing malls are seeing double digit increases in revenue over the past five years, in stark contrast with most big retailers.
The highest performing malls tend to exist in affluent areas, economic hubs, and in tourist areas. They also invest more heavily in upgrading and staying more novel.
The Westfield Oculus is one example of a highly successful mall and one look at its interior clarifies why. Like other successful malls, it shifts attention away from acting as a place to buy things and toward a place to serve as a social hub. By including high end brands, ethnic shops, and play centers, it acts as a mixed use location that is as much about experience as retail. The mall’s slogan “Shop. Eat. Drink. Play.” says it all.
In essence, we are seeing online expectations bleed into physical retail. Online customers expect a more helpful, service-oriented effort from online brands, and as a result, they are expecting more from their visits to physical retail spaces.
The convenience of shopping online means that physical retailers will need to use their spaces in more innovative ways, acting as social hubs as much as shopping centers. Retailers who fail to adapt to this expectation will continue to lose out to Walmart in the physical retail space.
Retail Is Dead, Long Live Retail
If brands like Toys “R” Us hope to survive, they will need to reinvent themselves as social hubs with strong online presences and trust-oriented content marketing.
Retail has historically been a game of being at the most convenient location, with the best prices, or the most luxurious items. But online shopping has fundamentally altered this paradigm. Modern retailers must focus on unique product lines, customer loyalty built through trust and relationships, content marketing, and event marketing. It is fundamentally about creating a memorable brand experience, one worth sharing and advocating for, with email lists people want to be on.
The internet and physical space are cross-pollinating like never before. Online reviews and press factor into local search results, which consumers use to find local businesses. Physical locations are given star reviews online. Social hubs attract positive reviews because they stop being a place to buy consumer products and start becoming your go-to place for meeting with friends, making memories, even finding romantic partners. This is the fundamental shift that every big retail brand needs to recognize.
The game of competing over price and convenience is over. Service and experience have arrived as their replacements. This is a change the modern retailer will face or die.
If your retail brand is struggling to thrive in the digital era, let’s talk. We can help you transform your digital strategy and run sales-focused content marketing campaigns, which ultimately serve to increase revenue and profits.