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Optical illusions: When a retailer’s scale is not as it seems

Social media has made it easy for a SME business to give consumers an impression of scale and depth, while increasingly, multi-nationals have borrowed marketing and design tricks from the indies to make their outlets resemble stand-alone retailers. Sarah Dunn wonders if customers are convinced.

By Sarah Dunn | April 4, 2019 | News

When American direct-to-consumer ecommerce mattress retailer Casper launched in 2014, it went to market with a single style of foam mattress sold in six US sizes and compressed into a box for easy shipping. The team had manufactured 150 mattresses by launch day, but within the company’s first few hours of trading, 193 had already sold.

The company had sales of US$1 million in the first month; US$100 million in 2015; and US$300 million in 2017. Casper was selling product like a medium to large company from day one, but co-founder Jeff Chapin says it took two years for the start-up to get on top of its back-orders.

On the other hand, everyone’s favourite global corporate, Starbucks, has since the late noughts been implementing a turnaround strategy by taking design cues from independent cafes. The premium ‘Roastery’ concept store it launched in Seattle during 2014 was the forerunner in this strategy, later followed by the similar Reserve concept stores, and up to 20 percent of the total 17,000-plus store portfolio is expected to have a Reserve bar in the future.

While Starbucks is still rolling out original recipe stores at a rapid rate – it plans to open 2100 in 2019 – these high-end outlets are intended to combat what former chief executive Howard Schultz in a 2007 leaked memo once described as “the watering down of the Starbucks experience, and, what some might call the commoditisation of our brand.”

“One of the results [of streamlining store design to gain efficiencies of scale] has been stores that no longer have the soul of the past and reflect a chain of stores versus the warm feeling of a neighborhood store,” Schultz then said. “Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee.”

The Roastery and Reserve project is considered so important to Starbucks’ future that Schultz stepped down as chief executive in 2018 to oversee them.

With start-ups sporting websites and social media strategies that rival those of global companies, and corporates increasingly inspired by SME retailers’ ground-breaking creativity, it’s increasingly tricky to tell the size of a retailer at a glance.

Objects in mirror are closer than they appear

Massey University professor of retail management, Dr Jonathan Elms, says digital platforms are a relatively cheap mechanism for retailers of any size to reach a wider populace. He recalls chatting with a UK businessperson who, at the very beginning of ecommerce adoption in the 1990s, had been surprised to receive an online order from South Africa. This businessperson had intended their website to service their local area only, and hadn’t understood the breadth of the online market.

“Absolutely, you can look a lot bigger [than you are] as long as your products are nailing it,” Elms says.

Online, he explains, customers can only see what they’re presented, so slick presentation can go a long way – especially on social media. He cites the story of AUT fashion graduate Holly Marbeck, who began making resin and clay jewellery under the brand Mars as a hobby in her final year of study.

In 2017, she told Idealog she sold the products to friends informally before being encouraged by industry mentors to start an Instagram page, which saw the business snowball. Mars products were featured in UK magazine Grazia, where they caught the eye of international singer, songwriter and actress Solange Knowles and were propelled onto the global stage.

Any SME retailer wanting to bend perceptions online must be prepared to live up to the customer expectations it creates by delivering at scale and doing it fast, Elms says. Growth can happen quickly, and it’s dangerous to over-promise and not deliver – disorganisation and overloaded systems can lead to brand-damaging drops in quality, poor customer experiences, complaints and even lawsuits.

Elms notes that the difficulties associated with scaling up rapidly can actually work in the favour of some kinds of retail businesses, such as a fashion label. In these cases, limited stock will preserve the brand and contribute towards further hype around the product.

“It’s got to be managed carefully,” he says.

Paccing a punch

Jacob Engelbrecht is fully aware of the power of the internet. He’s the co-founder of SME retailer Fannypac, which sells festival-appropriate fanny packs. The online portion of the business is based out of Engelbrecht’s home in the Auckland suburb of Mt Roskill, but around 70 percent of its sales are made at festivals out of its stall, The Fanny Shack.

The business started in December 2017, when Engelbrecht approached co-founder Matt Brown with an idea to sell “festival survival packs” at events like Splore. The fanny packs contain everything a festival-goer might need – earplugs, a rain poncho, condoms, novelty sunglasses – and as a bonus, allow for hands-free dancing.

He and Brown still have full-time day jobs, but the business is growing steadily with the rise of fanny packs as a fashion trend. According to market research firm NPD Group, fanny packs were responsible for nearly 25 percent of the US fashion accessory sector’s growth in the first 10 months of 2018.

At Fannypac’s first event, in February of 2018, Engelbrecht says fanny packs weren’t much in evidence among the festival-goers, but by December, the trend was “hugely trending”.

“I always joke with Matt that we started fanny packs in New Zealand,” says Engelbrecht. “I think we just got it right, to be honest.”

Fannypac’s internet presence was a priority from the start, Engelbrecht says: “And then I realised the power of Instagram, and giving away free stuff.”

The company’s year-old Instagram account has around 1200 followers, who are highly engaged. It encourages Instagram users to tag the brand in their photos of product, and returns the favour by giving them a “shout out” in its channels, creating a cycle where both the brand and the user have their profile boosted.

Like many other retailers, Fannypac also holds giveaways, which Instagram users enter by tagging friends in response to Fannypac’s post. Those tagged are effectively introduced to Fannypac, and a percentage will go on to follow the brand on social media.

The one tricky aspect is finding good photographers and “people who can make product look good”, says Engelbrecht. He’s been doing all the social media photography himself so far.

He’s aware Fannypac’s website still needs work, and awake to the possibility of it potentially getting overloaded. As he’s learned through experience, the key is to keep a close eye on the number of stock listed for sale online so as not to disappoint customers.

He’s ready for it to possibly take off: “If it happens, then I’ve just got to do more, you know?”

Fannypac is currently considering going down the pop-up route by collaborating with an independent boutique with premises on Karangahape Rd in 2019. Engelbrecht and Brown hired some friends to work over summer as staff, and invested in more stock.

Depth perception

Many consumers aren’t aware of the concentrated ownership across brands they regularly interact with, Elms says. Giving Foodstuffs as an example, Elms says its corporate structure isn’t widely understood by shoppers: “A lot of New Zealanders believe [New World, Pak’n Save and Four Square] are very, very different businesses [that are] owned and operated by different entities.”

He says separating a new concept from a company’s main brand gives the company room to experiment without risking damage to the flagship, and to manage its brands to target different markets. For example, Elms says, Inditex will commonly experiment with new brands to tap into different trends. Distancing them from core brand Zara means they can be quietly shuttered if they fail.

“It provides the organisation more leverage to do things they couldn’t do with their main brand,” says Elms. “It’s about maximising returns and minimising risk.”’

“Appearing small, from a retailer’s point of view, is an opportunity to do things differently, be nimble.”

It’s important to note that the above tactics aren’t a conspiracy intended to pull the wool over customers’ eyes, but sensible brand management, Elms says. Clear brand identities benefit the retailer, but they also serve the customer by flagging what’s appropriate for each customer segment.

Many smaller firms would simply not be around if there wasn’t bigger businesses standing behind them in support, and of course, many customers aren’t concerned with who they do business with as long as the product, price and service is right.

“A lot of it won’t matter to some consumers,” Elms says. “Big business can be very slow, so appearing small would suggest a faster pace, more customer-centric decisions.”

The internet allows smaller companies to reach the same number of consumers as a larger company, if not more, Elms says. Social media favours those who are customer-centric and know their market, which tend to be smaller businesses.

“I think the size of the business is arbitrary,” Elms says. “It’s the ideas, the ability to read the market, the entrepreneurial spirit, and the key is that they’re able to deliver at the end of the day.”

Best of both worlds

The beginnings of the 10-store Huckleberry brand’s current strategy lies in Grey Lynn specialty supermarket Harvest Wholefoods, says chief executive Richard Lees.

Huckleberry was founded in Greenlane in the early 1990s and is now owned by former Ebos Group directors Peter Kraus and Barry Wallace’s investment company, Whyte Adder, which also owns Ecostore and Chantal Organics.

After Huckleberry purchased Harvest Wholefoods, it was rebranded to Harvest by Huckleberry in 2015.

Lees says Huckleberry wanted to retain the Grey Lynn outlet’s name as “most customers know it as Harvest”. Other stores which have been purchased but retain their identities include Wild Earth Organics in Tauranga and the Wild Herbs dispensary next door.

“We kept that as that brand because it worked,” Lees says.

Now-defunct gourmet supermarket brand Nosh had to go when Huckleberry took over the Mt Maunganui outlet, though. Troubled Nosh circled the drain for a number of years, incurring multiple brand-damaging complications before finally going into receivership in 2017. Huckleberry rebranded the outlet but kept its “quirkiness”, Lees says.

Besides retaining the branding of purchased stores where appropriate, Huckleberry has also used design tricks to retain the local flavour of each store so as to not alienate its existing customer base. Most sites are landlord-owned but Huckleberry must “tweak [the site] to suit our personality in each environment.”

The company works with Spaceworks to localise its design and make sure sites are user-friendly, says Lees.

The Huckleberry team is still experimenting with design to find out what its customers are looking for. The Brown’s Bay store is a newer concept with a walk-in produce chiller. This and three other stores sport play areas for children designed for Huckleberry.

The Parnell outlet has its own distinctive flavour. It’s the last of the small-format stores trialled a few years ago, with its dimensions and fit-out dictated by the heritage building it’s located in.

“We know who our customer is and it’s about giving them an opportunity to come and enjoy the space,” Lees says.

Huckleberry knows its point of difference against conventional supermarkets. Lees says supermarkets are about speed, and Huckleberry stores are about an experience - the key is finding the balance. Its current strategy is to test lots and roll out new ideas with each store.

In the future, Lees says, Huckleberry may be able to “simplify the boutiqueness”: “There is a lot of tailoring going in, you do have to experiment.”

A trick of the light

As many senior retailers know, customers are fundamentally focused on product and price. Branding and company values are a bigger part of the picture than they used to be, but that doesn’t necessarily mean any given shopper wants to be walked through the often-complicated ownership structure of the business they’re shopping with before they can make their purchase.

Retailers shouldn’t seek to deceive shoppers or conceal their business’s scale from shoppers, but it seems that to customers, scale is less relevant than strategy.

Barkers uses indie-style design to get back to basics

When New Zealand menswear retailer Barkers sold to its current owners, Barkers chief executive Glenn Cracknell says, it had “lost its way” and needed to draw inspiration from its early days as a SME to revitilise the brand. He says the team wanted to remind consumers that “Hey, Barkers is still here, it has everything that you thought was lost.”

The award-winning individualistic store personalisation policy that arose from this thinking emerged in 2011, when the company had the opportunity to go into Te Rapa’s The Base.

“We felt that Barkers’ stores were very vanilla, sort of cookie-cutter.”

The company then had no outlets in Hamilton, and wanted a new store format that would help it connect with locals. The Barkers team came up with a concept inspired by “a bloke’s garage, motor racing, petrol heads.”

Taking cues from this, they created the store now known as The Garage at Te Awa. As well as Barkers’ standardised fit-out furniture, it features elements like dismantled engines and a historic gallery of images.

Barkers’ Auckland flagship at 1 High St involved different considerations as it’s in a building with heritage restrictions. The building was used as a bar for many years, which has informed its current speakeasy-inspired theme. As well as retail, it offers barber-style services at the Groom Room and a café, Burrs & Grind.

Cracknell says Barkers will also consider what resonates with the brand itself. Its Albany store, Yacht Club, is “a salute to Ray and Dean’s love of yachting”. Raymond Barker founded the brand in 1972.

To create the stores, the Barkers design and designer Adrian Nancekivell brainstorm ideas about what defines the premises’ local community. Cracknell says the team generally looks for something the community is famous for, such as a big industry or an activity. Once that’s decided, it will be refined into a retail concept which can be expressed through props and interior design.

The stores are merchandised from a central location, but Barkers’ furniture is made in Auckland. The stores themselves are typically laid out with corners for shoppers to explore: “We don’t usually do a big square box.”

Unlike shoppers in other sectors, Cracknell says menswear shoppers often respond negatively to change. They don’t tend to shop across multiple stores, but consistency of experience is an important factor in helping them enjoy their shopping trip: “They’re petrified of shopping, a lot of them.”

Barkers achieves this crucial consistency by running the business fairly centrally. This also allows it to track progress: “Otherwise it becomes a nightmare to measure anything.”

It’s experimented with new formats at several smaller locations, the most exciting of which is Good Company in Auckland’s Ponsonby, a Bonobos-style “guide store”. This store is a collaboration between Barkers, its Groom Room barber brand, and Archies Café.

The idea behind it was to convince customers that, after trying on and purchasing product in-store, they could have it shipped to their home and carry on shopping unencumbered by bags. Cracknell says this behavioural change was a tough sell, however: “It’s been a really, really hard thing to convince people to do.”

Unusually, the store manager at Good Company has full independence to merchandise their store as they see fit. Cracknell says this is because the site has such a small footprint that they need “more creative license”.

The Groom Room aspect of the Good Company proposition has worked well, however, and barber services are now part of nine or 10 Barkers stores around the country. These are about loyalty and brand engagement, Cracknell says.

“Once a guy finds a good barber, he’ll go back there for the rest of his life.”

Cracknell says Barkers will persevere with the guide store concept. The next experiment will be a very small footprint at emerging Auckland shopping centre Commercial Bay, where Barkers has exclusivity across barbering. Cracknell’s team is currently deciding between a Good Company-style showroom or a very limited range aimed at corporate shoppers.

Cracknell thinks there may be a percentage of older consumers in provincial areas who may believe Barkers is an independent retailer, but it isn’t trying to fool anyone. Rather than mimicking the independent retail experience, Cracknell says it intends to take inspiration from the best while offering the consistency and support of a national retail structure.

He agrees that if a company gets too big, shoppers don’t want to engage with it, but thinks they’re more interested in the overall experience than any perception of size.

“We want to give people an independent experience at every store.”

This story originally appeared in NZ Retail issue 760 February/March 2019

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