Retailers reduce friction through their ecosystems

July 29, 2019
Industry News
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BrandZ Top 100 Most Valuable Global Brands 2019

Digitization transforms the shopping experience

To meet—and shape—consumer expectations for frictionless shopping, retailers rebalanced and integrated their online and offline operations. Walmart, with
a legacy of physical stores, invested in improving online presence, and e-commerce leaders Amazon and Alibaba added physical locations.

Amazon, which invented e-commerce, doubled down on Whole Foods, the grocery chain that it purchased in 2017. Amazon announced that it would open more Whole Foods stores, lower prices, and introduce the free rapid delivery that it already offers to Prime members in certain cities. Whole Foods operated around 500 stores, primarily in the US. Amazon also continued the slow rollout of Amazon Go, its food stores with technology that eliminates checkout. 

The online and offline retail worlds converged most rapidly in China, where Alibaba and JD have acquired or affiliated with chains of physical stores. To advance its notion of New Retail, Alibaba incorporated the digital shopping experience of its Hema supermarket into the roughly 400 RT-Mart and Auchan hypermarkets that it purchased in 2017.

At the same time, the disruptors themselves, Alibaba and JD, experienced some disruption with the appearance of new price competition. Pinduoduo, an online site known to Chinese consumers for group purchasing at discount prices, was expected to gain around 7 percent of the e-commerce market this year, according to Kantar. The brand successfully listed on NASDAQ during the summer of 2018. 

A 25% increase in value made retail the second-fastest rising category in the BrandZ™ Global Top 100 ranking.

Western retailers learn from China

The growth of e-commerce and the shift in consumer shopping habits continued to impact the hypermarket chains. Operators struggled to keep up with changing consumer expectations of convenience, which hypermarkets first satisfied with giant, well-assorted stores, and then modified by adding smaller locations closer to where people live. 

In China, some hypermarkets partnered with e-commerce giants and divided the footprint of their stores into a reduced retail area and a distribution centre. This development improved the productivity of the retail space and enabled the e-commerce partners to shift from a hub-and-spoke distribution model to a constellation of smaller centres located closer to the customer.

France’s Carrefour partnered with Alibaba competitor Tencent, China’s giant online platform, to open a supermarket similar to Alibaba’s Hema. Hema is a supermarket, primarily devoted to fresh foods, that also serves as the distribution centre for delivery orders. Customers can shop and check out using their mobile phones. Because the store inventory is perpetually updated, they can also receive real-time promotions.

To gain better economies of scale, Carrefour also formed a global buying alliance with UK-based Tesco. Tesco revamped its range, in part to sharpen price points and better compete with the hard discounters, ALDI and Lidl, both Germany-based chains. Although the hard discounters were best known for their sharp pricing on narrow ranges of merchandise, often private label, they also excelled at fresh food.

Excellence in fresh food was an important competitive advantage because of the current consumer preference for healthier eating. Tesco launched a chain called Jack’s, which imitated the deep discounters in size, limited range, minimum merchandising, and emphasis on freshness. China provided a distinctive example of meeting the need for fresh foods with the Hema chain of supermarkets known for the freshness of its fish, meat, and produce.

Competitive pressure

Competitive pressure increased for non-food retailers.  Although IKEA enjoyed protection from the growth of e-commerce and continued to depend on its enormous physical stores, to align better with rapid shifts in culture and customer expectations, especially the desire for greater convenience, IKEA announced changes. Like some other large-footprint stores, IKEA plans to repurpose some of its space to serve as a distribution point for local deliveries. Having grown into a chain of almost 400 stores, mostly in suburban locations, IKEA expects to follow the migration back to cities with smaller, design stores.

Also reflecting the way young urban people live today, sometimes preferring sharing over ownership, clicking for an Uber rather than driving a car, IKEA tested a furniture rental program. The move into rental also reflects the brand’s intent to advance sustainability with improvements to its stores, products, and production processes. To increase convenience, IKEA will expand delivery. It operates an installation service, having acquired TaskRabbit, an online services marketplace, and it owns a major stake in the North American kitchen installer Traemand.

Meaningful Difference

In the increasingly complicated retail category, the BrandZ™ Retail Top 20 were positioned at the intersection of Meaningful (meeting needs in relevant ways) and Difference (being unlike competitors, setting trends), and they achieved Meaningful Difference in one of two ways, according to Kantar.

The most successful retailers have achieved a balance of low friction and high engagement, which is an imperative in a category transformed by Amazon and Alibaba, Nos. 1 and 2 in brand value in the BrandZ™ Retail Top 20. 

In another broader theme, many retailers are becoming more complicated financial entities, engaged in business across categories. Amazon, which has grown 1,382 percent in value of the past decade, according to BrandZ™ analysis, derived significant revenue from AWS, its market-leading cloud computing company. The purchase of the insurance company Aetna moved CVS deeper into health care.

Ultimately, retailers are attempting to be everywhere, online and offline. A new illustration of this phenomenon appeared as a four-story store called Showfields in a trendy area of downtown New York. In a marriage of a traditional, even troubled branch of retail, the department store, with the serendipity of online shopping, Showfields has created a space where consumers can experience online products, and direct-to-consumer brands can be seen, shopped, and photographed for Instagram.

  1. Have a Purpose
  2. Leverage the Physical Stores
  3. Be Reachable and Relevant
  4. Remove all Friction
  5. Make some Bets
  6. Be Present at the Moment of Truth


About Kantar
Kantar is the world’s leading data, insights and consulting company. We understand more about how people think, feel, shop, share, vote and view than anyone else. Combining our expertise in human understanding with advanced technologies, Kantar’s 30,000 people help the world’s leading organisations succeed and grow.