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E-tail no match for ‘Master Merchants’

By Nancy Cohen

Edward R.S. Whitefield

LAS VEGAS — From mass merchandiser Wal-Mart to value brands like Ikea and fashion chain H&M, the retailers that are thriving — and will continue to do so in the face of new competition — all share a common commitment: to create a distinct brand, offer value in an exciting retail environment and develop a reputation for serving their customers well.

Those winning strategies were the subject of “The Master Merchants,” a general session presented by Edward R.S. Whitefield, chairman of Management Horizons Europe Ltd., a London-based retail consultancy.

While acknowledging the real, if nascent, threat of Internet commerce, Whitefield said that it can never compete against retailers that provide their customers with a satisfying, stimulating experience and carve out a distinct brand identity encompassing price, value, quality and selection. One example he cited was Zara, the Spanish apparel retailer that operates 800 stores under five brands, including its contemporary Zara signature stores and the trendy, youth-oriented Bershka chain. “They offer value, but don’t insult customers with a dowdy environment,” Whitefield said. “It’s snappy and youthful, and you can’t get this sensation over the Internet.”

In fact, he said, brick-and-mortar retailers have an expertise that will enable them to beat e-tailers at their own game. While Whitefield projected e-commerce sales to grow to $5 billion within five years, he expects the lion’s share of the market to go to retailers who have a presence in both the real and virtual marketplaces.

“Pursue multichannel access so no one channel is a threat,” Whitefield said. “It will be store-based retailers, with their infrastructures for handling customer service and processing returns, that will make up the substance” of e-commerce.

But they must still present customers with a compelling reason to visit their stores, he said.

Among retailers who have done just that, Whitefield cited “extra-value champions” such as Wal-Mart and Carrefour and value brands like Ikea, The Home Depot and PC World. In the “lifestyle brand” category, he applauded the efforts of Gap, which has created three distinct brands in Gap, Old Navy and Banana Republic; Zara; and Sweden’s H&M (SCT, June 2000) which offers trendy fashions, exciting stores, and prices so low they are “incredible to behold,” as Whitefield said.

Nonapparel retailers have similarly succeeded by redefining the shopping experience to create customer loyalty to their brands. Sephora, the French cosmetics chain, has revolutionized its industry by making all products available for shoppers to test, without sales assistance. FNAC, also from France, has gone beyond merely selling music, books and electronic equipment to offer customers a wide range of in-store entertainment and services, including performances, Internet access, coffee bars and travel packages.

Carphone Warehouse, a U.K.-based purveyor of mobile phones and services, provides another sterling example of how to reinvent a retail category to better meet customers’ needs.

“It demystifies the multitude of phone products and carefully explains the different tariffs” for mobile services, Whitefield said. But in addition to simplifying a complicated purchasing process, Carphone Warehouse has built tremendous trust by eliminating sales commissions, replacing broken phones without question and automatically sending customers a voucher if prices fall after they’ve made a purchase. The approach has built the chain — in the five years since its launch on a $9,000 investment — to 750 stores and $1 billion in sales, he said.

Like retailers, shopping centers must create a distinct identity and offer shoppers compelling reasons to visit, he said. One that has successfully done so is Bluewater, the Lend Lease development in southeastern England.

The center offers a host of customer services and abundant opportunities for rest and relaxation, both indoors and out. It is surrounded by seven lakes, bike paths, nature walks and children’s play spaces; entryways resemble hotel reception areas. It has redefined shopping “to encourage the customer to regard it as leisure, not just a chore,” Whitefield said.

At least as important as creating a differentiating brand identity is to clearly define a market position, he added.

That’s where Toys ‘R’ Us ran into trouble, he said: Squeezed by Wal-Mart on the value side, eToys on-line, and FAO Schwarz at the high end, it had no clear market to claim. The toy retailer saw its 1995 profit of $844 million slip within three years to a $132 million loss, he noted.

To avoid a similar fate, Whitefield said, retailers and centers must “identify market movements, surpass expectations, deliver choice and value, develop leadership brands and pursue multichannel access.”