Retail Upstarts

Redefining retailing for the 21st Century

It’s no secret that traditional brick-and-mortar retail channels are giving way to new retail channels and shopping paradigms. That’s why defining what “retailing” means is becoming more difficult, as the lines between “retailing” and “manufacturing” blur, and as manufacturers attempt to find new venues to reach consumers in a world of declining shelf space. The rise of mass-merchants, the decline of traditional department stores and the inclusion of the Web in consumers’ preferred shopping venues are all serving to redefine the concept of retail in the 21st Century.

It’s more important than ever for manufacturers and retailers to keep abreast of shifts in the retail landscape, watch where consumers are shopping today and prepare for where they might shop tomorrow. To contribute to a greater understanding of new and emerging retail channels, NPD’s Industry Experts reviewed the state of retailing in their respective industries to determine what effects these new and re-defined channels are having on retailing today – and what’s in store tomorrow.

Tightening Shelf Space Leads to New Retail Paradigms

“Consolidation, it seems, has become quite commonplace among retailers looking to level the playing field and improve efficiencies in this ultra-competitive landscape,” said NPD Houseworld President Peter Greene. “So far for this year, we have seen the union between Kmart and Sears, resulting in the creation of a near $60 billion retailer as well as the pending merger between retail giants Federated and May, whose combined sales would equal about $30 billion.”

This focus on retail consolidation has placed a premium on shelf space, which means distribution for new items at traditional retailers has become more difficult. In an age when fewer large retailers control inventories from fewer manufacturers, and as global product sourcing increases, it is often hard for small manufacturers to secure shelf presence. Sometimes even the larger manufacturers find it difficult to get the type of shelf presence they believe their products deserve.

In the toy industry, one outcome of this challenge is apparent: mass-market and discount retailers continue to gain share, which means some manufacturers are left out of the distribution gravy train by the biggest retail powerhouses. In order to sell their wares, NPD has noted many toy manufacturers are turning to such non-traditional outlets as gas stations, convenience stores, craft and hobby stores and even coffeehouses. In addition, so-called “experiential retailers” have also come on strong.

“Experiential retailers such as American Girl and Build-A-Bear Workshops – where consumers select from a menu to ‘build’ their own products – have successfully added play to the shopping trip to bring greater value to the shopper and build brand affinity,” said NPD Entertainment Industry Analyst Anita Frazier.

For the most part, though, mass merchants continue to reign in selling products for the home. According to Peter Greene, “we expect to hear of more industry consolidation among retailers looking to strengthen their positions in the marketplace, but we’ll also see a proliferation of highly focused specialty stores who will look to carve out profitable niches for themselves.”

Courting Consumer Convenience

In the apparel industry, part of the migration from traditional channels to emerging ones can be chalked up to a different reason: convenience. “Consumers never used to look for jeans during their grocery shopping trips or pick up underwear when waiting to pick up their prescriptions,” said NPD Chief Industry Analyst Marshal Cohen. “But in an age when time is such a precious commodity, the need for convenience has resulted in many items showing up in unexpected places.”

When looking at where consumers say they have purchased clothing and footwear in the past year, mainstream channels top the ranking. Almost three in four consumers report purchasing those items at discount stores. Over half say they buy at national chains and about one in three buy from specialty stores. But the data also shows new channels on the fashion scene – nearly as many consumers now report buying apparel or footwear at home improvement and drug stores as at upscale department stores in the past year.

Retail Channel Lines Blur

Change is an accepted part of the channel landscape in consumer technology. “In today’s world, all channels are emerging, changing, morphing to encompass the wide varieties of opportunities that exist to sell goods, services and content to the consumer,” said Stephen Baker, NPD director of industry analysis for the technology sector. “In fact, even the definition of retailer and channel are under fire as new supply-chain options emerge and as market penetration and retail opportunities grow more complicated.”

The blurring of the line between manufacturer and retailer can be seen clearly in the sports footwear and apparel market both in the U.S. and in Europe. In a sense, manufacturers and retailers appear to be trading roles. According to NPD Sports Tracking Europe Vice President Eva Dorobek, “to sustain brand awareness, a substantial number of retail outlets owned and operated by manufacturers have opened in many countries; conversely, many retailers have built very strong private label businesses that compete with manufacturers’ brands.”

In the automotive aftermarket world, NPD notes that traditional channel lines are also less defined. In the past, automotive service chains might have been known as brake specialists, tire stores, or muffler shops. But today, said NPD Senior Industry Analyst David Portalatin, “specialty service channels strive to diversify the range of automotive services they provide and increase service beyond their specialties. It’s very telling that the most frequently performed service in the brake and muffler specialty channel is now an oil change, not brake service.”

Caught in the Web

The Internet is one of the strongest emerging channels for many of the industries NPD monitors. For example, almost three in ten consumers say they have made an apparel purchase online in the past year or they are willing to shop the Web for clothing. For consumers, the Web has the multiple advantages of offering virtually every brand and style available, often at lower prices than in brick-and-mortar stores, and many times in a wider range of sizes – with the added convenience of shopping from wherever the home computer is located.

In Europe, as in the U.S., the Internet has come on strong as a retail channel that is increasingly trusted by consumers, especially in the U.K. Online toy sales, for example, have more than doubled during the past year: “Online retailers are now working the category in a more scientific way and have clear ambition to be among the top retailers,” said Frederique Tutt, NPD Eurotoys manager for the U.K.

A similar shift from brick-and-mortar sales to online sales is apparent from recent surveys of beauty product consumers. In fact, one in five women report that they intend to spend more over the Internet for beauty products over the next year than they have in the past, making it the number-one ranked channel for future beauty products purchases.

“What may be most surprising to many manufacturers and retailers is that the Internet has already surpassed many traditional channels for beauty products in terms of future purchase intent and self-reported spending compared to last year. Future purchase intent on the Internet is greater than fine department stores, mass merchandisers, specialty stores and even phone and mail order channels,” said NPD Beauty Senior Industry Analyst Karen Grant.

Top Five Reasons Women Will Buy More Beauty Products over the Web
Reasons	Percentage of Women
Easier to shop there	69%
More products I like	56%
Will purchase more beauty products in general	26%
Quality of products have increased	22%
Quality of services has increased	20%
Source: The NPD Group / NPD Beauty / Emerging Channels: Beauty Care Products on the Internet

Tracking Emerging Channels – An Ongoing Priority

Given the constant ebb and flow of retailing and the significance of today’s emerging channels, it’s critical for manufacturers and retailers in all segments of the marketplace to understand current consumer shopping trends. With a clear view of which channels are rising in popularity among consumers today, companies can take steps to plan for the impact these channels will have on retailing tomorrow.