Delivering on the brand promise with an O2O strategy
This year, Hang Seng Bank expects Hong Kong's retail sector to grow by less than two per cent. Moody's forecasts that overall US retail sales will increase slightly in 2017, while moderate growth will be seen in other advanced countries and in China. But this refers to overall growth, and if we look at the picture a little closer, growth will not be evenly applied across every retail segment.
In Hong Kong for example, apparel will almost certainly not enjoy as much growth as more stable segments like personal care products and daily staples. At the same time, supermarket chains face enormous pressures from spiraling operating costs like rent and wage increases which will impact prices and profits. Retailers' confidence in continued economic growth is uncertain, given the looming potential changes in international trade policies and the mainland's continuing economic transition.
Pressure on retail
In this environment, major retailers are left wondering whether to focus on starting and growing online sales or to concentrate on their network of physical stores. While every brand has different needs, this question has a simple answer: 'both'. Online and offline sales are both vitally important - there is no either/or scenario in 2017.
Brands absolutely have to strike a balance between in-store sales and online sales. Opening physical stores requires significant investment - an outlay which is not necessarily repaid in profit from that location. Instead, retail stores are increasingly becoming places where people physically engage with brands - they see and handle merchandise, talk with sales staff and brand ambassadors and attend fun events in addition to shopping for items. These functions will always be vital to the success of a brand.
At the same time, the incredible convenience of shopping online is something that consumers have embraced - being able to shop from your mobile phone or a laptop at home has become an indispensable part of 21st century life. Being able to see products on screen, watching videos of people wearing or using them, purchasing items with a couple of clicks and receiving them in a few hours or days is extremely liberating. Online retailers also have the luxury of running their business with significantly less overhead.
Blending retail with online
One solution that combines a physical presence with the convenience and reduced cost of online is the small but mighty pop up store. Some years ago, pop up stores' main function was a marketing tool to launch new products, but these days, they play a wider variety of roles - they can take many forms in many locations: launching new skin care products, a thematic café, or portable kiosks within a larger store or a mall. Most importantly, they are operating in tandem with online promotions.
Crucially, pop up stores also provide an affordable and effective O2O solution. Well planned and creatively branded stores can combine digital marketing, social media and a physical presence with great effect - creating both awareness and footfall. We are seeing a notable increase in pop up stores being used as part of an O2O strategy. When executed successfully, these stores generate more revenue at a higher margin.
We are already seeing a significant increase in clients seeking pop up store activations - we recently created a pop up store for Dyson in Lab Concept, a new fashion destination in Queensway, Hong Kong. The shop focuses on a new product, the Dyson Supersonic, and its main purpose is to encourage customers to engage with the product by testing it in real-life situations. We are also starting to provide pop up strategies for Mercedes-Benz dealerships in China.
Today, effective omni-channel management is essential to brands that want to offer a seamless, consistent customer experience which delivers on the brand promise. To create true success and capture the enormous potential of today's interconnected world, retail brands need a 360-degree marketing strategy that embraces both physical and digital elements.
Brands seeking continuing prosperity must develop unique strategies that allow them to travel both these roads at the same time.