Why Some Retailers Succeed Despite Big Disruptions

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Wharton’s Barbara Kahn speaks with Brett LoGiurato from Wharton School Press about how some retailers have succeeded despite big disruptions like the pandemic.

The retail industry was already in the midst of unparalleled disruption. Then came COVID-19.

Wharton marketing professor Barbara Kahn is the author of The Shopping Revolution: How Retailers Succeed in an Era of Endless Disruption Accelerated by COVID-19. In a newly released updated and expanded edition, Kahn examines the companies that have been most successful during a tsunami of change in the industry.

Brett LoGiurato, senior editor at Wharton School Press, sat down with Kahn to talk about her book. Kahn discussed the growth of “new retail” in China, how Amazon has emerged even stronger from the pandemic, how Lululemon has had great success continuing to pivot in an ever-changing retail world, and much more. 

An edited transcript of the conversation appears below.

Brett LoGiurato: Congratulations on the publication of an updated and expanded edition of your book The Shopping Revolution. You wrote the first edition back in 2017, and that was a tough year for the retail industry, but now it pales in comparison to what happened in 2020. Where do you think the industry as a whole will emerge from the pandemic and COVID-19?

Barbara Kahn: In the year of the retail apocalypse, 8,600 stores closed. Of course, in March, April, and May of 2020, when something like 250,000 stores closed, it made the retail apocalypse pale [in comparison]. By the end of 2020, 12,000 stores had officially closed. But I still have the same position I had then, which is that physical retail is not going away; bad retail is going away. And what the pandemic has done is accelerate trends that we already saw happening.

What’s interesting is even with 12,000 stores closing at the end of the year 2020, Amazon is opening up stores. Everybody is talking about the acceleration to e-commerce, to digital shopping, and Amazon is opening stores. They opened up their first Amazon Fresh and now they already have as many as eight, and they’re still opening. They’re opening up Amazon Go stores, too. So what does that mean? What do we think the industry will look like? I believe retailing is moving to what I’m calling a “customer-centric, omnichannel experience.”

“Physical retail is not going away; bad retail is going away.” –Barbara Kahn

What that means is it’s not online or offline. It’s a seamless integration between, or among, those two channels, and it is all looked at from a customer perspective. Perhaps the best example, that the pandemic absolutely accelerated, was this idea of “buy online, pick up in the store.” That idea is that you’ll shop online, you’ll search online, and you’ll order what you want to order. Then you’ll go to the store and pick it up in your car, very conveniently.

To me, that’s an example of the seamless integration, omnichannel experience from the customer perspective, and that’s what is going to emerge when we come out of the pandemic.

LoGiurato: You talked about Amazon, and I did want to discuss some of the seven forces that you say are transforming retail. First, as you describe it, Amazon’s dominance of the market and especially coming out of 2020: How has it fast-tracked over the past year, and where do you see Amazon continuing to innovate?

Kahn: Amazon, when the pandemic hit, was in a much better position than many other retailers to deal with some of the changes that were fostered by the pandemic. But even Amazon had some issues in the beginning when they were trying to step up to the demand due to the pandemic. What Amazon is doing is capitalizing for sure on e-commerce and all the things they had done before the pandemic. What has happened now is they have accelerated to this concept of “new retail.” You’re seeing that as they open up the stores.

Again, the stores are moving to this notion of omnichannel. What does that mean in terms of a physical store? When you go into a physical store in new retail, you have the customer experience in the store, but you also facilitate online shopping, if necessary, and you can use the store somewhat as a distribution center. A lot of their stores now are being moved to be very efficient, so you can shop as conveniently as you want. There is a lot of use of technology in the new stores that they’re opening up. There’s the use of Alexa. They’re capitalizing on Amazon Prime. The shopping they’re doing through Whole Foods also capitalizes on Amazon Prime. They are moving to this notion of new retailing, which integrates what we know about online shopping and facilitates it through a physical environment.

Also, Amazon is being pushed to make sure they ensure better products and better brands. One of the indictments against Amazon is that they weren’t monitoring the quality of their products; people were complaining about counterfeit products, or they were starting to not trust the delivery of Amazon products. That’s bad for Amazon, and they’re trying to ensure that you can trust a product, even if you buy it from a third-party seller on Amazon. They’re also obviously emphasizing technology. They’re going to do a lot with Alexa, with voice technology, with automation, and they’ve always been data kings, so they’ll be doing more and more using machine learning and optimizing their data so that they can provide the best experience to the consumer.

LoGiurato: Another trend you talk about is Generation Z consumers and how they’ve come into their own over the past several years. How are they different from other generations, and how are retailers competing to win them over?

“Amazon … was in a much better position than many other retailers to deal with some of the changes that were fostered by the pandemic.” –Barbara Kahn

Kahn: Generation Z consumers are significantly different from other generations. They are similar to millennials in that they’re digital natives, and that means they’re very comfortable with mobile technology, very comfortable shopping online, and very comfortable with this notion of an omnichannel experience. They are also big users of social media. What we’re seeing in retail is what’s called “shoppertainment,” where you use live streaming and big influencers — and sometimes in the U.S., celebrities. In other parts of the world, they’re called KOLs, key opinion leaders — who are not necessarily celebrities, but people who have influence. The shopping experience is merging between social media, live streaming, video, v-blogs, and real shopping into this new world where you can buy something through the influence of somebody you admire. One-click shopping will get you to buy what they’re suggesting you buy, or you go into the store, or you use your phone in the store. That whole notion of the blurring of channels involving all sorts of different media — that kind of shopping is very much a Gen Z thing.

The last thing that differentiates Gen Z from other generations — and we saw this with millennials, too, but it’s much stronger with Gen Z — is the importance of social responsibility and brands or retailers taking a stand, doing the right thing, and standing for something. It’s not OK to just push products out. You also need to be a citizen of the world, and you need to have responsibility for society.

LoGiurato: The book is rife with different examples and case studies, and we talked about a few of them so far. I was wondering if there is one company in particular or brand that you would point to as exceptionally innovative in this new era.

Kahn: As you can imagine, Amazon, Target, and Walmart have done very well during the pandemic. In the early times of the pandemic, they had advantages, in that they were still operating, where many other retailers were closed.

What is super interesting is how well Lululemon has done. Lululemon was in the right place at the right time for some reasons. Obviously, as everybody is working at home and people are wearing more athleisure clothing, Lulu is selling the right clothing. Lulu had built such strong customer loyalty and such deep belief in their brand that when the pandemic came, people stayed with Lulu, and they very, very quickly pivoted — not only [in terms of] the physical experience that their stores had always been. They pivoted to digital in a big way, and they could answer the demand their customers were requiring from them. They were providing very strong product, which they always had, but they were now ratcheting themselves up to the digital experience, as well.

Then, in a very interesting move, they recently purchased MIRROR, which is a way to take their in-store experience — where they used to have their ambassadors and run classes and create a community — and now do that through a digital interface. They can truly move to an omnichannel experience. This is an example of a retailer that had been primarily physical embracing the notion of omnichannel by stepping up their digital game.

LoGiurato: A feature of the updated and expanded edition of the book is a new chapter that explores what we talked about as “new retail,” and especially in China, profiling companies like Alibaba, JD.com, and Taobao. What trends there do you see becoming more broadly accepted across the industry?

Kahn: A lot of analysts — and I agree with this — think Chinese retail is way ahead of U.S. retail. What the pandemic has done is, again, accelerate all these trends that we had already seen happening and make them even more important in the U.S. These trends that we started to see in the U.S. were far advanced in China.

“What the pandemic has done is … accelerate all these trends that we had already seen happening and make them even more important in the U.S.” –Barbara Kahn

There are a couple that stand out. One is this notion of new retailing — and you see it with Alibaba. They’ve opened up these physical stores called Hema in China, and they are fully integrated omnichannel experiences. You go into that store. It’s a frictionless payment process. You can pay on your phone easily. You can have a real-time customer experience there, buy fresh fish, do whatever you want. But the store also serves as a distribution center. If you buy online, you’ll see automation picking out products, delivering products. Part of the store is set up for the distribution channel. When you order online, anything can be distributed within a certain radius of 30 minutes, so you can either go into the store, buy something there or order online, have it delivered, and pick it up in the store. This blurring between what’s online and what’s physical retail is complete. It’s completely integrated, and the physical retail shows that.

That idea of “new retail” is very advanced in China through Alibaba, and as I said, Amazon is starting to do that. You’re starting to see Walmart do that in the U.S.

The other thing that’s big in China is this idea of “shoppertainment” and the importance of key opinion leaders and now even “key opinion customers,” where you have these massive influencers who spend time on video blogs and live streaming, and they authentically sell out products. They have incredibly loyal consumers or followers who watch what they do on their videos, and a lot of shopping is through this live streaming event.

China is also way ahead of the U.S. on frictionless payment. There are two big payment streams there, either WeChat or Alipay, which is 90% of the transactions in China. They are completely independent universes, but these payment systems are Uber apps. It’s not only that you can pay, but you can also order a car. You can access social media. You can pay attention to the shoppertainment. All of this is done in one app, and that integrates all of these processes into this seamless retailing experience. We’ll start to see some of that come to the U.S.

LoGiurato: When I was reading the book, I was fascinated by the concept of Singles Day and was wondering if you could explain it and how it drives the broader shoppertainment experience.

Kahn: Singles Day started in 2009 on 11/11, and the idea was to encourage single people to shop for themselves. It was an antidote to Valentine’s Day. Alibaba started it as an enticement to encourage shoppers to shop on their platform Taobao. And what’s happened is it grew like crazy.

It was so popular that every year it grew, and other retailers started participating in it also. It became a huge day to shop, to get amazing discounts and amazing entertainment.

In 2019, $38 billion was generated on Singles Day in gross merchandise value. That’s more than twice as much as Black Friday, Cyber Monday, and Amazon Prime Day combined in 2018. That is a huge amount of transactions. In 2019, Kim Kardashian participated with a key opinion leader named Viya, who is big in China. Within minutes, she sold 15,000 bottles of her new perfume. It’s incredible. It’s projecting out — live stream, shopping, and excitement — and generating incredible participation by Chinese consumers and shoppers. The one caveat I put there is that it focuses on price sensitivity, and so it does bring into focus this emphasis on competing on price.

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