Redefining Multi-Channel Retailing to Get Results

Health care is top of mind for lots of folks, these days as health care reform seems hopelessly bogged down in Congress. Meanwhile, costs continue to escalate. It's well-documented that providing home care is far less costly, more comfortable and potentially more effective than caring for patients in the hospital. And effective home care for chronic conditions can even help to avoid hospitalization entirely. Home care has been a fragmented industry about which information on effectiveness, patient satisfaction and comparison pricing has been hard to get.

Enter Walgreens. I've written before about the drugstore chain's move to provide in-store clinics for walk-in patients as well as clinics that operate at company workplaces, like Disney World in Orlando and Harrah’s in Las Vegas. In a throw-back to the days when doctors made housecalls, Walgreens is now offering home health services.

Through its acquisition of OptionCare, Walgreens delivers home infusion, respiratory/oxygen and medical equipment services through more than 100 accredited home care facilities in 36 states. The extension into home care means Walgreens can meet its customers' OTC and prescription needs, as well as their needs for infusion services, respiratory therapies and durable medical equipment.

In some ways, the move parallels Best Buy's acquisition of the Geek Squad, which extended the retailer into helping customers make their consumer electronics work. This is a new type of multi-channel retailing. It's not just about store, mail, web and phone orders.

Best Buy's in-home services represent a move out of consumer electronics retailing and into home integration or simply into making stuff work. Similarly, Walgreens in-home services represent a move out of the drugstore category and into longevity or independent living.

Which retailer will be next to see the opportunity to redefine multi-channel and transcend their category?

Being Big and Local – An Exercise in Creativity

My in-laws once owned a drugstore in Seaside, California, where my father-in-law was the pharmacist and chief merchant. He used to special-order merchandise for his customers, and knew them by name and their orders by heart. Back then, big chain stores and department stores did the same thing, and each store was run by a powerful store manager.

Over the last two decades, most retailers have been wresting that control away from store managers and shifting it to centralized departments in the name of cost controls and consistency of experience, but something may have been lost in the process.

In previous posts, I’ve speculated about the challenges facing big brands at a time when consumers want their shopping experiences to feel “special” and not mass-produced. That was before the economy took a nose-dive. Now, I think people are outright scared, and they want to know that the people they deal with understand and care about them. At the same time, leading retailers are pursuing initiatives to “get local."

So, is the pendulum swinging back in favor of store managers? It surprises me to say so, but I have to answer "maybe."

Macy’s recently announced its My Macy’s initiative to "design and merchandise stores to reflect local tastes. The program will shift more decision-making to the local level, tapping ideas from customers and sales associates." According to a Chicago Sun-Times story last week, in Chicago the initiative aims to woo back loyal Marshall-Fields customers, lost when Federated acquired their favorite retailer and retired the brand. In Pittsburgh, it’s aimed at reengaging fans of Kauffman’s, which was also obliterated by acquisition, according to a September story in the Pittsburgh Tribune-Review.

Keeping those names may have been the best way to retain loyal customers in those markets. It’s an expensive proposition to bring in local merchandising managers and buy and warehouse region-specific inventory to recreate the home-town feeling those brands gave customers.

In a variation on this theme, some retailers will introduce a few high-profile items into their assortment to speak to local tastes and needs. That’s one direction Origins is exploring. As I mentioned in a story last month, Origins has created unique products that address the effects of Denver’s mile-high atmosphere on a woman’s skin and is testing them in a few of its company-owned Denver stores. If they test well, Origins could offer them to area retail accounts to help them get local, or keep them for itself to give customers in Denver a reason to come to their stores.

What can retailers do to go local without incurring the inventory and personnel costs of store or market level merchandising and logistics?

Best Buy recently opened a store-within-a-store focused on musical instruments and music lessons. The concept could do a lot to promote the company’s "local-ness," depending on how it’s implemented.

The company has a great opportunity to get local across a whole host of categories by becoming a channel for local instructors. Some instructors might even choose to sell instruments or teach in the store. The key to appealing to them is to acknowledge they are small business owners with a passion for their area of expertise and arguably less interest or ability in marketing.

This approach could apply to several categories of current Best Buy merchandise – from cooking to computer programming to web design classes. And it could make the music lessons idea work, too. In the way it supports and showcases local class providers and promotes their connection to Best Buy, the company could ensure that the providers’ “local-ness” rubs off on its own brand.

The beauty of this approach is that it does not involve payroll or inventory expenses. It hinges on a creative approach to execution. And that should be music to any CFO's ears!

Best Buy Looking to Musical Instruments & Lessons for Growth

In my house, we have a lot of stuff from Best Buy. In the last year alone, we bought a red Samsung front-loading washer and dryer, a floor model 72” Mitsubishi TV, wireless routers, storage drives, Go-Phones, a car stereo, and countless XBOX 360 and PS3 video games there. (Actually got the game players at Costco and Amazon.) We’ve also had the Geek Squad to our house a few times.

Besides the fact that we have too much stuff, what are the common themes here? We go to Best Buy for electronics, convenience, somewhat technical stuff and/or when an in-person comparison of alternatives, a live demonstration, or the opportunity for techie questions and answers is important.

So, where does a big brand that dominates its traditional category look for growth? In Best Buy’s case, probably lots of places within (e.g., airport kiosks, as E-commerce Times reported in August, for one) and outside the cut-throat consumer electronics category.

The South Florida Sun-Sentinel reported today that Best Buy is opening the first of six 2,500 square foot store-within-a-stores in South Florida carrying more than 1,000 guitars, bass drums, keyboards, recording equipment and other instruments and accessories. The current plan is to sell instruments and teach music in a total of 85 Best Buy stores.

How big a stretch is it to parlay Best Buy's business selling mostly consumer electronics and accessories, including home-recording equipment and pre-recorded music, to selling and servicing musical instruments and offering music lessons in the store? Our work in the music category suggests that while the business is ripe for consolidation, this is a pretty big stretch for the Best Buy brand.

About 10% of adults and kids took music lessons last year. When asked what makes a class great, most people say it’s the instructor, and 65% of people say the best way to find an instructor is through word of mouth. All of this makes the business of selling instruments and classes look like an interesting place for a roll up. No doubt, that’s what attracted Best Buy when scanning the landscape for growth opportunities.

In our house, we have a collection of six electric and acoustic guitars and a mandolin (in the picture), mostly from Guitar Center and Bananas, and everyone in our family plays. My kids take lessons from Jesse – he comes to our house. He’s a musician, a friend, a teacher, and a lot of fun to be around. Importantly for my teenage kids, they think he's cool.

Will Best Buy be able to attract the great local guitar teachers, like Jesse, who tend to be musicians themselves? Will consumers buy classes and instruments through mass channels that are not steeped in music cred already? Will they take music lessons in the store? Or will Best Buy have to become a referral service for local instructors who teach away from the store? How would they mitigate the inherent liabilities?

The homogeneous consumer electronics big box experience is not a good fit with the personality-driven business of musicians who teach and wanna-be musicians who take classes. The store-within-a-store is essential to any chance of success. Probably needs a separate entrance, too – like Macy’s Herald Square is considering for it’s teen business as reported by Fortune last week.

I think it’s a long shot that Best Buy will be successful on the music instruction end, and it’s the instructors that give the store selling instruments its authenticity. I’m all for experimentation – and they can’t all be hits. Though I don’t like betting against Best Buy, this is one idea I think will be a miss.

Scrambled Merchandising

You've seen it all around you - now there's a term for it. Scrambled Merchandising refers to a practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise. It occurs when a retailer adds goods and services that are unrelated to each other and to the firm's original business.

It used to be that you went to a drug store for drugs, hardware store for hardware, a pet store for pet food and a grocery store for groceries. Now you can buy groceries at the drug store, find pet food at the hardware store and get anything you want at Wal-Mart or Target, not to mention Zappos or Amazon.

The Consumer Electronics Association presented at RetailVision results from a recent consumer survey about buying preferences: 25% would be willing to buy consumer electronics products from Starbucks, 30% from Ikea, 40% from Bed, Bath & Beyond and almost 60% from Home Depot. What does this mean for category leader Best Buy? For Radio Shack? For Circuit City? How can any retailer facing inroads from non- traditional competition protect its turf and retain its customers?

The answer lies in understanding how people make decisions about where to shop. Our research says there are generally two main considerations: the likelihood that the store will satisfy the requirements (i.e., Selection) and the availability of knowledgeable help (i.e., Expertise). Price, location, and loyalty are usually secondary. Last year in researching the home center market we learned that people go to Home Depot when they feel pretty confident about what they're doing because Home Depot has the best selection. Conversely, when help is needed, consumers will trade off a little selection to make sure they can talk to a real person who knows what they are talking about. In category after category, we have seen this same basic tradeoff.

So, should Best Buy be worried about Home Depot moving into electronics? Hardly. For Home Depot to make a go of it, they'll have to change a lot. Top priority would be to get more employees in the stores to answer people's questions. The folks at Home Depot are friendly enough and if you can find them, they are actually helpful. Problem is, for cost reasons, employees are few and far between at most Home Depots. Even though we're comfortable buying CE, we still have questions, or unique situations that require talking to someone. As long Best Buy keeps innovating the customer experience, they should be able to defend against scrambled merchandising.

Where We’re Comfortable Buying Consumer Electronics Now

Americans have a lot of consumer electronics in our homes! NPD reported at RetailVision last week that 85% of households now have Home DVD players and printers, 84% have desktop PCs, over half have MP3 players and flat-panel TVs, and just under half have a notebook PC. The data show consumer electronics have become fairly ubiquitous in today’s American homes. And as technology has become more pervasive, we have become more comfortable owning and buying it.

At the same event, the Consumer Electronics Association presented results from a recent survey about consumer buying preferences. They found that 25 % of people would be willing to buy consumer electronics products from Starbucks, 30% from Ikea, 40% from Bed, Bath and Beyond and almost 60% from Home Depot. So, what does this mean for category leader Best Buy? It means increased competition.

Last year in researching the home center market we learned that people go to Home Depot when they feel pretty confident about what they’re doing. Given the high household penetration of many consumer electronics products, it’s not surprising that most consumers would buy CE products from Home Depot.

Should Best Buy be worried? Hardly. For Home Depot to make a go of it, they’ll have to change a lot. Top priority would be to get more employees in the stores to answer people’s questions. The folks at Home Depot are friendly enough and if you can find them, they are actually helpful. Problem is, for cost reasons, employees are few and far between at most Home Depots. Even though we’re comfortable buying CE, we still have questions, or unique situations that require talking to someone.

And like a good category leader, Best Buy isn’t standing still. Earlier this month, they announced plans to open 8 Best Buy Express kiosks (CE vending machines) in September at major airports around the country.

Look for them to continue innovating the customer experience.

Where have all the store employees gone?

While a big part of the Internet’s appeal is that customers can use it anytime anyplace, that doesn’t mean all retail should be self-service. In pursuit of lower costs or eliminating customer lines or wait times, some retailers have hollowed out their stores to the point where there are virtually no employees.

Home Depot has customers doing their own check out. Macy’s installed scanners so customers can do their own price checks on the sales floor. At Target, the digital camera desk is frequently unmanned, and there's no staff in the electronics aisles. Each decision has its own logic, and makes sense in isolation. However...

... As a Best Buy district manager told USA Today, "A lot of this [consumer electronics] stuff is commoditized. So what is the difference? It's our people. It's got to be…As the economy tightens, everyone is going to be lowering price to the lowest possible point, so service becomes the most important differentiator between retailers. It's the reason why a consumer would choose to shop at one over another."

Whether or not you like Best Buy, you gotta give them credit for understanding that shopping in a store is a social experience, and an opportunity for a retailer to strengthen its relationship with its customers.