L.E.K. Report Addresses Driving Brand Growth in a Fast-Changing Retail Ecosystem
BOSTON, MA (October 24, 2019) – In almost all consumer product categories, customers are making fewer trips to brick-and-mortar stores. This reduction in physical interaction with brands matters. When consumers see brands and products in a store, and touch, feel and learn about them, awareness and buying increase. As that exposure decreases, brands feel the pain of lost sales, according to a new L.E.K. Consulting report.
“When a physical store closes, we often see only a very low percentage of a brand’s sales directly transfer to the brand online, mobile or other digital channels,” says Jon Weber, Managing Director at L.E.K. and coauthor of How Brands Can Seize Growth as the Channel Ecosystem Changes. “And as digital technologies continue to transform the way consumers interact with brands, and continue to reduce the amount of physical brand exposure to consumers, brand managers struggle just to stop the associated sales leakage, let alone find ways to grow brand sales.”
So, what can brands and retailers do to mitigate these “lost sales” as distribution moves from physical to digital? L.E.K. points to four key strategies to drive brand growth in this rapidly changing retail ecosystem:
- Adopt a “demand creation” approach. “With fewer opportunities to meet the consumer in a physical retail environment, the reality is that the brand’s own channels need to be even more productive,” says Rob Haslehurst, Managing Director at L.E.K. and report coauthor. “Brands can’t just rely on being on the shelf anymore to drive consumer consideration. They must go on the offensive to create material demand via actions outside the store. This demand can then be pulled through any channel the consumer prefers.” New strategies must advance brand awareness among target consumers, the brand’s desirability over other brands, and presence in the daily lives of consumers.
- Drive a much greater portion of sales via digital direct-to-consumer (DTC) channels. There is much more potential today to capture meaningful sales on a brand’s own website than ever before, as consumers are both increasingly engaging directly with brands and more willing to buy right from brands’ website or physical store. And when done right, DTC can be a truly thriving channel for a brand. For example, Under Armour captured 35% of its 2018 global sales through its online and owned stores. Forty-five percent of Crocs’ 2018 sales were DTC through its retail stores and ecommerce. And DTC accounts for about a third of sales for VF Corp. (parent company of Vans, The North Face and others), with goals to grow to over 50% of total company revenues by 2021.
- Dramatically improve your digital merchandising. “In a physical store, the best ways to get your product in front of customers are well understood. Shelf placement, end cap displays, shops-in-shops, packaging, signage and other visual merchandising techniques are all well-known,” says Noor Abdel-Samed, report coauthor and Managing Director at L.E.K. “But that’s not quite the case yet with the digital world. It’s an area with which most brands have struggled to adapt.”
To excel in digital merchandising, brands need to work strategically with digital channel partners to devise the right online content and strategies. This often has little to no overlap with traditional in-store merchandising best practices. It involves, at a minimum, making sure products are affiliated with the right categories and searches, and are appropriately featured and promoted on retail websites.
- Win with Amazon. Odds are high that if Amazon isn’t already a meaningful sales channel for a brand, it will be at some point in the future. About half of all product searches already begin on Amazon, according to industry research, and consumers are becoming more accepting of purchasing premium brands on the site. Further, brands’ ability to achieve higher-quality brand positioning on Amazon will continue to improve.
Anker, which makes and sells phone and power accessories, has built a nearly $600 million business in seven years selling almost exclusively on Amazon. It started with a simple set of core products, carefully expanded its line, burnished its credibility via quality and strong reviews and thus embraced the exposure Amazon gives partners that deliver top-notch products on time ― all while employing many digital merchandising best practices.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,400 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.