How These Popular Retailers Succeed Without eCommerce

Photo of a Primark store
 

By Tricia McKinnon

With eCommerce taking off in 2020 it’s hard to imagine how to succeed without a robust online  presence. But there are a number of retailers which have succeeded without trying to become the next Amazon. From Costco to Trader Joe’s to Dollar General these retailers know how to get customers into their stores. So why aren’t these retailers prioritizing eCommerce and how do they get customers coming back for more? 

A large part of the hesitancy towards offering eCommerce is because it’s expensive. Jill Standish, Accenture’s Global Head of Retail has said: “if you had done 15% of your business online and now all of a sudden you’re doing 50% of your business online, boy, that’s a cost of doing business that you didn’t plan for. You might see a lot of volume, but you’re not going to see a lot of profitability.”

Profitability issues are especially at the forefront for retailers that sell inexpensive merchandise. Take fast fashion retailer Primark. Primark sells clothing at rock bottom prices. Go shopping at a Primark and you will find sweatshirts for as low as $9.00 and tank tops for under $2.00. With those prices there isn’t a lot of margin to cover the costs of eCommerce whether its picking and packing merchandise, delivery costs or returns. "The cost to support home delivery can't be supported with our price points," says John Bason, Finance Director of Primark’s parent company Associated British Foods.

Primark has maintained this position even though it lost an estimated £1.1 billion ($1.5 billion) in sales due to store closures because of the COVID-19 pandemic. Still bullish on brick and mortar retail, Primark plans to add 700,000 sq. ft of retail selling space in its 2021 fiscal year.

Similarly, lockdowns did not force Trader Joe’s to go down the path towards eCommerce either. Trader Joe’s defends its decision by saying: "customers are asking if given current circumstances, we're planning on offering delivery or curbside pickup," says Tara Miller, Trader Joe's Marketing Director. "We understand the impulse, and we know that some other retailers are offering these services. We also know those offerings don't always translate into positive results." 

"While other retailers were cutting staff and adding things like self-checkout, curbside pickup, and outsourcing delivery options, we were hiring more crew and we continue to do that. We know that this period of distancing will end, and when it does, our crew will be in our stores to help you find our next great product just as they've always been.”

Since Trader Joe’s and others aren't focusing on eCommerce here’s how they keep you making the trip, sometimes weekly, to their stores.

1. Focus on value

Trader Joe’s, which is one of the most beloved grocery retailers in the United States focuses on value to get customers coming back for more. As Trader Joe’s writes on its website: “we understood then, as we do today, that maintaining our everyday focus on value is vital, which is why we don’t have sales, loyalty programs, membership fees, or any other gimmicks. Instead, here is what we do:

  • We buy direct from suppliers whenever possible, we bargain hard to get the best price, and then pass the savings on to you.

  • If an item doesn’t pull its weight in our stores, it goes away to make way for something else.

  • We buy in volume and contract early to get the best prices

  • Most grocers charge their suppliers fees for putting an item on the shelf. This results in higher prices... so we don’t do it.

  • We keep our costs low—because every penny we save is a penny you save.”

Many retailers use their pricing strategy as a way to lure customers in their doors if eCommerce is not an option or if its only offered on a small selection of merchandise. Take Dollar General. Most of its merchandise is priced below $10.00. If you are one of the millions of Americans living paycheck to paycheck then you are going to make the trip to a Dollar General. This same principle applies to fast fashion retailer Primark as well as off price retailers like Ross Stores.

By offering rock bottom prices Primark knows that it’s hard for its young customers to find to find a better deal anywhere, even online. “Although it lacks a transactional digital offer, we think Primark’s prices act as a barrier to entry versus online competitors, and we see an opportunity for it to accelerate U.S. expansion. That being said, Primark remains impacted in the short term, whilst stores are shut, by its lack of online offset,” says the Royal Bank of Canada.

When there is no eCommerce then there needs to be a fairly compelling reason to get customers in the door. And with many households taking a financial hit due to the pandemic retailers that target price conscious consumers are in demand more than ever. Discount retailers are so in demand that Dollar General plans to open 1,050 stores in 2021 after opening over 700 stores last year.  

2. Provide excellent customer service

Not only does Trader Joe’s appeal to price conscious consumers it also provides excellent customer service. Trader Joe’s employees are empowered to do what it takes to ensure customers are happy. Mark Gardiner, author of the book Build a Brand Like Trader Joe’s, took a job as an entry level employee at Trader Joe’s for a year to gain insight into why the retailer is so successful. 

Reflecting on his experience Gardiner said: “even as a new crew member (the lowest-level employee) I was empowered to do almost anything for a customer. Spend 15 minutes in the storeroom looking for a $5 item at a customer’s request? No problem. If I encountered a customer who seemed to be having a bad day, I could give her a bouquet of flowers on my own initiative. Any time a customer asked, “What are these like?” I could open a package and give them a free sample.” Perhaps a retailer could have gotten away with substandard customer service before. But now with so many alternatives for consumers to choose from, great customer service is often what keeps one business afloat versus another. 

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3. Offer high quality private label brands

Trader Joe’s has best in class private branded products meaning that you have to go to a Trader Joe’s store to buy Trader Joe’s Dark Chocolate Peanut Butter Cups or Trader Joe’s Reduced Gilt Mac and Cheese. In 1972 when Trader Joe’s introduced its first private label product, a brand of granola, Trader Joe’s Founder, Joe Coulombe, called it a “game changer” for the retailer. Today, approximately 80% of Trader Joe’s products are private label which allows the retailer to charge lower prices than national brands as it cuts out the middleman and goes directly to suppliers. 

As Trader Joe’s writes on its website: “focusing on private label (products with “Trader Joe’s” name on them) simplified a lot of things, and removed a lot of costs – no more slotting fees, marketing fees, middlemen fees… We passed along those savings to our customers (still do), because the value of Value is invaluable. And to us, “Value” means offering the best quality products for the best, everyday prices.”

With approximately only 6% of Costco’s sales coming from eCommerce it is another retailer that has found success by focusing on brick and mortar. “Our e-commerce business growth, domestically and internationally, has also increased our sales but it generally has a lower gross margin percentage relative to our warehouse business,” says Costco in its 2020 annual report. With higher margins in Costco’s brick and mortar business it has an incentive to get you in its doors.

Similar to Trader Joe’s, Costco also has a strong private brand portfolio that gets customers to shop there. In 2020 the Kirkland Signature brand generated more than $52 billion in sales for Costco, up 7% from 2019. That is more sales than what Gap, Starbucks and Nordstrom make combined. Kirkland Signature is a key source of revenue for Costco, compromising approximately 32% of Costco’s total sales. Kirkland Signature branded products are typically 20% cheaper than the national brands sold at Costco. 

4. Have the right product assortment

Costco has figured out the type of assortment most likely to increase the frequency of customer visits. For example, groceries are one of the most frequently purchased categories and 93% of Costco members shop at Costco for groceries and more than half of Costco’s revenues come from grocery sales. Costco also sells gas, an item requiring frequent trips, at some of the cheapest prices in the United States. 

Another method Costco uses to get you in the door is its food courts. Costco sold 151 million hot dog and soda combos in 2019 and its food courts generate over $1 billion. Costco’s hotdog combo at $1.50 is actually the same price it was in 1985. Speaking about this Bob Nelson, Senior Vice President of Financial Planning and Investor Relations at Costco said: Costco generates “very little money” on the combo deal, but “we get so much more mileage out of it than we would by raising the price to $1.60 and making a few more million dollars.”  These are deliberate merchandising choices, including offering tasty free samples, get customers into Costco stores. 

5. Provide an in-store experience you can’t get online

Costco is one of many retailers which has found success by offering customers a “treasure hunt” offline shopping experience. Costco offers many limited time deals and products enticing customers to go back to Costco often to see what is new and exciting and to make sure they don’t miss out. Retailers like Ross Stores and Dollar General also employ a similar strategy and it’s working. 

Human beings crave novelty and not knowing what you are going to encounter when entering a Costco store has helped the retailer to remain successful. "We still want you to come in. You're going to buy more stuff when you come in," said Costco’s CFO Richard Galanti.

Tricia McKinnonStrategy & GrowthComment