How Three Retailers Charge Up Shopping

Investor's Business Daily

With e-commerce growing rapidly, traditional retailers are adapting to a fast-changing landscape by luring shoppers into their stores with experiences they can't get in the virtual world — and by making the most of the space they have.

"Brick-and-mortar retailers are transforming to meet new customer expectations at every stage of the shopping process," said Alden Lury, a retail strategist at consulting firm Kurt Salmon. "They're trying to create compelling experiences that take advantage of their physical presence.

Experiential retailing is helping propel growth at many retailers. It comes in different forms:• Walk into outfitter Cabela's (CAB) and you'll get an outdoorlike experience — with mountain replicas, wildlife displays, an aquarium and a library of antique firearms. You'll also find a restaurant and thousands of outdoor products.

These features give customers a reason to come in, spend time and enjoy themselves as they shop, says spokesman Wes Remmer. The strategy has helped Cabela's build a very loyal customer base. Dedicated shoppers travel long distances — sometimes hours — to while away an afternoon at Cabela's. The store chain also employs people passionate about the outdoors.

Piper Jaffray analyst Sean Naughton says the company's approach is working well, enhancing the brand and building on its authenticity. The profitability of Cabela's stores has improved significantly over the past couple of years, he adds, amid increased store productivity.

Cabela's has enjoyed double-digit earnings growth for eight straight quarters. In the first quarter, earnings popped 75%. Revenue surged 29% from a year ago, the biggest quarterly gain in years.

Macy's is for multichannel — though technically the giant department store operator calls its approach to enhance the customer experience "omnichannel.

The omnichannel strategy means its namesake Macy's and Bloomingdale's stores, websites and mobile apps all work in unison — and seamlessly behind the scenes — to the benefit of the customer, says spokesman Jim Sluzewski.

Broadly that means Macy's (M) is driving store customers online and online customers into the stores, he says. And it's using mobile to feed both stores and online.

Order fulfillment tactics are key to this omnichannel strategy. In 2012 the company equipped 292 Macy's stores as mini-distribution centers, to fulfill orders placed online or at other stores that may have been sold out of a particular item. This was up from 23 fulfillment stores in 2011. Sluzewski says the company will add roughly 208 more stores to the mix to bring the total to 500 by the end of the year.

Typically the order rooms are a few hundred square feet carved out of existing stockroom space, Sluzewski notes. He says by making its entire assortment available to every customer, Macy's can drive incremental sales, increase inventory turns and improve gross margins.

Macy's earnings growth has outpaced the rest of the department store segment since the first quarter of 2011, says Ken Perkins, president of Retail Metrics. He attributes Macy's standout performance to initiatives such as its omnichannel strategy, where he says it's "very much ahead of the curve.

Team player Dick's Sporting Goods (DKS) enjoys brand partnerships with Nike (NKE), the North Face (owned by VF Corp. (VFC) and Under Armour (UA) through which the sporting goods retailer can differentiate the in-store shopping experience and make the most of its real estate. It uses features such as brand-labeled shops-in-shops.

The shops showcase the products inside the store to provide ideas for customers and create that "aspirational" type of purchase, Naughton says. At the end of 2012, Dick's had Nike Field House shops in 171 stores, Under Armour shops in 107 and North Face shops in 91.

Dick's was enjoying double-digit sales and profit gains until the first quarter when growth slowed. Operating profit was about flat year over year, as unseasonably cold weather made sales challenging, Naughton says, and dampened spending at many retailers. Now Dick's looks to brighten sales via remodeling.

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