PSFK Tracker Proves DTC Takes Spotlight Across Industry Verticals
Consumer sentiment analysis shows that digitally native brands are taking prime spots in apparel, grocery and beyond
In our latest results from our Retail Innovation Tracker, PSFK researchers found that that direct-to consumer brands have outpaced a majority of the market, and solidified their spots as industry leaders at the top of our survey that ranks experts’ perceptions of 150+ well-known consumer-facing brands.
Meanwhile, the study, conducted in September, shows companies at the bottom of the list seem to be at high risk of being displaced, or even replaced, in their sectors.
The above chart shows the highest ranked companies on our Retail Innovation Tracker, ranging from Tesla (92) to online grocery brand Brandless (70), and all of which have DTC-related strategies. Out of the mix, 60% of the companies (Tesla, IKEA, Airbnb, Warby Parker, Casper and Brandless) are definitively DTC brands, while 20% of the companies (Amazon and Alibaba) are e-commerce brands, and the remaining 20% (Nike and Apple) are legacy brands that have implemented elements of DTC strategies. As a result, it’s evident that DTC upstart brands are rapidly gaining market share, as well as having a major influence on traditional retailers’ strategies.
PSFK’s latest report, Future of Retail 2019: A DTC Playbook For Owning The Retail Life Cycle, unpacks the DTC opportunity by examining key trends and presents strategies that all brands and retailers can implement in order to own the entire retail life cycle.
When analyzing these industries from a larger scope, we can clearly see some major movements—or rather, pure disruption—taking place in each industry and across the board.
On average, respondents perceived the following industries to be most innovative:
Now in our sixth iteration of the retail innovation tracker survey, we are clearly seeing how different verticals stratify on our chart.
For September, here’s a topline analysis for key sectors in order of their overall innovative rank:
Ranked most innovative (once again), the eCommerce industry showed similar results to August’s survey, with Amazon (91) far ahead of market competitors Alibaba (76), Zappos.com (62), and Jet.com (59). Last month, we did a deep dive into the eCommerce industry, where we explored how Amazon and Alibaba are innovating at key points across the customer experience, particularly in last-mile delivery and payment efficiencies.
Since then, we’ve seen Amazon’s latest move: opening its New York Store, called ‘Amazon 4-Star,’ which uses online consumer data to curate wares in the brick-and-mortar store. The store will feature items that are trending online, top additions from customers’ wish lists, as well as popular items and products that are specific to a New York market.
By using local customers’ data to rotate merchandise selection, companies are able to give customers the same sense of authenticity, intimacy and community appeal that local markets offer, while still functioning as large organizations. In this way, brands have a better opportunity to offer customers elevated experiences that not only saves them time, but also gives them a feeling of underlying connection to other customers.
In order for Alibaba to compete with the likes of Amazon, it will need to continue to expand its footprint not only in other markets, such as digital health services, but also into physical spaces that use data from its online presence to accommodate customers in a forward-thinking approach to service.
Survey results for the Sports/Fitness- Lifestyle industry show close distribution among key players. With Nike (87) leading the way, ranked 3 points ahead of Adidas (84), we’ve been seeing the brand take some major steps to differentiate itself from its long-time close competitor. As Nike continues to unveil its latest innovations through its Nike by Melrose concept store in Los Angeles and Shanghai House of Innovation location, as well as its NYC Flagship Store opening in 2019, it is likely we’ll see a jump in its score that will solidify its top spot even further.
PSFK’s Future of Retail 2019 spotlights Nike’s latest innovations, especially the brand’s DTC strategy, which uses data to not only inform store design, but also incorporate localized services and select product stock in its L.A. store called Nike by Melrose, which curates the merchandise using data based on locals’ tastes and shopping behaviors.
The spotlight also showcases Nike’s effort to bring its customer experience to life through its mobile app, which offers customers everything from lifestyle inspiration, community and expert assistance to exclusive access to products and events. However, what sets Nike’s app apart from its competitors is that the mobile experience extends to the retail locations, creating a shopping ecosystem that empowers shoppers to take control, with minimal, yet more efficient, assistance from store associates. Shoppers can pre-plan visits through the mobile app, making an appointment for an expert consultation with a store associate or reserving products for in-store try on, enabling them to have more seamless, informed and personalized shopping experiences.
In many ways, Adidas is behind Nike when it comes to offering a personalized shopping experience and service-oriented ecosystem via the brick-and mortar experience. However, in terms of digital competition, Adidas is making moves to compete with Nike. In July, Adidas announced that it will integrate its two apps into one optimized user experience, which will make the shopping experience even more convenient.
The latest update of the Retail Innovation Tracker shows the Grocery industry ranked third most innovative, with Whole Foods (68) sustaining its top spot and Trader Joe’s (59) superseding Ocado (55). On average, the industry rankings showed strong potential among competition in the market, with a great deal of opportunity for innovation, as an increasing number of food brands and grocery retailers are leveraging technologies, such as mobile-app payment, facial recognition, and advanced delivery strategies, to give consumers convenient, seamless and flexible delivery experiences.
Earlier this year, Amazon invested in the June oven, an AI-enabled, multifunctional appliance designed to streamline cooking. Now the e-tailer is connecting the oven to Whole Foods, another one of its investments, to enable specific cooking instructions for the grocer’s branded items.
Meanwhile, Trader Joe’s, owned by parent company Aldi, is taking an authentic approach towards connecting with customers, by using transparent storytelling to share its brand narrative. Through its podcast, called Inside Trader Joe’s, the grocery retailer brings customers behind the scenes to learn how the company operates. The five-part series involves employees from store crew members to the President and COO of the company, and provides information on products, contests and future plans.
Both Amazon/Whole Foods and Trader Joe’s recent innovations signify efforts to make CPG products more engaging and appealing for consumers to cook, as a way to overcome shifts in consumer buying behaviors. However, they will need to do a bit more than just engagement around packaging, in order to compete with consumer-centric on-demand meal companies and DTC food brands like Brandless (70) that are rapidly gaining market share.
Next month, PSFK will take a deep dive into these strategies in our Last-Mile Delivery Debrief.
Department Store & Big Box Retailers
The latest update of the Retail Innovation Tracker shows IKEA (82) retained its spot as the key player in the Department Store & Big Box Retailer category, scoring nearly twice as high as the industry average of 42, among the eleven players competing in the space.
While we took a look at how IKEA has been moving ahead on all fronts in the August post, some of its latest innovations include the opening of its IKEA Planning Studio in central London, which is a smaller-format store dedicated to kitchen and bath, where shoppers can book an appointment to receive one-on-one consultation sessions from experts in order to help them with their home renovation projects. This move to power one-to-one relationships and offer expertise at every stage reflects part IKEA’s DTC-driven strategy to take the brand from a low-cost furniture store warehouse to an expert lifestyle curation and home design brand.
Additionally, IKEA announced how it plans to expand into more global markets by taking a localized approach to what products it sells and how it markets them based on the unique cultural differences of its consumers. Yet again, we see this theme of a “local marketplace” feel, and the value that retailers see behind giving customers a intimately curated, genuine experience.
Meanwhile, Nordstrom (55) and Target (55) tied for the second highest ranking, scoring 27 points behind IKEA. Both Nordstrom and Target have implemented technologies across every touchpoint, which we’ve outlined in a competitive snapshot report that compares innovations across Nordstrom, Target, Walmart, Macy’s, and Kohls’ customer experiences.
Outdoor Apparel Retailers
Patagonia (68) ranked as the most innovative Outdoor Apparel Retailer, with REI (62) close behind. It comes as no surprise that Patagonia would be perceived as most innovative, as it is a brand that is founded upon the principles and values such as authenticity, sustainability, social impact, customer-centricity, and loyalty, which we saw take center stage at the beginning of 2018. Undoubtedly, these purpose-driven trends are here to stay, as Millennials and Gen Z consumers embody these expectations from brands, and Patagonia and REI are two powerful examples of market leaders that have driven these trends towards
Earlier this year, PSFK’s Customer Experience Playbook highlighted a strategy called Network Impact, which revolves around how brands are syncing audiences to real-life opportunities that encourage them to take direct action by volunteering for or contributing to a global initiative while bringing people together around the pillars of brand values and creating a community of changemakers. A prime example of this is Patagonia’s Action Works digital platform, connects people and environmental non-profits, helping them get involved through events, petitions and volunteering in their community. Additionally, its Worn Wear program increases the longevity and sustainability of the brand’s clothing by offering repairs in select stores and incentivizes donation of old products by offering discounts for future purchases. By enabling people to act on their broader missions, Patagonia has established itself as direct influencers of positive impact on a global level.
Meanwhile, in terms of its operations, Patagonia was also ahead of the curve, when it partnered with cloud-based platform 7thonline to optimize wholesale inventory based on customer demand in 2016. The platform monitors customer purchases, including product, location, in-store and online, to understand demand from an attribute level and predicts preferred styles, colors and sizes. With this data, Patagonia is able to understand inventory productivity, assess inventory position and reduce inventory aging. PSFK’s Future of Retail 2019 report highlights this strategy, called Responsive Operations, which discusses how brands can use data to quickly adapt or even anticipate shifts in consumer demands to be first to market with new products and/or better serve the needs of customers.
REI embodies these same principles of authenticity. In fact, this month PSFK sat down with REI’s Chief Customer Officer, Ben Steele, to understand how REI helps its members live life fully by embracing the outdoors and opting out of the consumer frenzy exemplified by Black Friday.
Fast/Casual Dining Restaurant
The results from the latest update of the Retail Innovation Tracker shows a large amount of variance between companies in the Fast/Casual Dining Restaurant Industry. Starbucks (68) ranked far ahead of runners up Chipotle (50) and Panera Bread (40), while industry laggards Applebee’s (8), TGI Friday’s (8) and Outback Steakhouse (7) ranked 60 points behind key player Starbucks.
So what is Starbucks doing that is setting the brand so far ahead in the industry?
Simply put, it is successfully leveraging technology to enhance the customer experience across all touchpoints, while optimizing its store locations as spaces for community-building (and of course, brand-building as well). The below list offers a brief snapshot of some of Starbucks’ latest innovations and activations:
- Packaging & Product Engagement – Starbucks store in Shanghai features various points where customers can learn about how the coffee company makes its brews via augmented reality: link
- Store Experience & Design – Starbucks opens its first u.s. signing store to support hearing-disabled community: link
- Store Experience & Design – Starbucks in Brooklyn focuses on welcoming—and hiring—local residents, prioritizing community building: link
- Store Experience & Design – Starbucks opened its first megastore location, called Reserve, which has an open, marketplace-style space that functions like a food hall: link
- Transparency – Starbucks introduced a blockchain-powered program that traces the production of coffee from bean to cup: link
- Delivery & Logistics – Starbucks and alibaba revolutionize customer experience with virtual store integration: link
- Employee Experience – Starbucks creates employee toolkit & workshops to combat bias: link
Quick Serve Restaurants
The latest update of the Retail Innovation Tracker shows results for the Quick Serve Restaurants industry showed close competition between many participants. McDonalds (47) and Domino’s Pizza (46) scored the highest, followed by Pret A Manger (41), and a close tie between Dunkin’ Donuts (32) and Taco Bell (31). At the bottom of the list is Pizza Hut (15) and Subway (11), which fell about 30 points behind the industry key players, McDonald’s and Domino’s Pizza.
Given the fact that quick service restaurants are fast-paced with minimal table service by design, McDonald’s goal to have cashier-less kiosk checkouts at all U.S. locations by 2020 is a good indication that it is on a track in terms of innovating its customer experience to meet today’s consumers’ expectations of convenience, control and immediacy. Beyond that, the chain's Shanghai customers can use the WeChat messaging app to order food and coffee for delivery, which is one of the transformative steps for transactions and payments that occurring in the Quick Serve Restaurants industry.
Another company innovating the point of purchase is Domino’s, which experimented with letting customers order from its nearby restaurants by creating clickable augmented pizza boxes on Snapchat. For the post-purchase experience, the chain announced in 2017 it could be employing robots to deliver pizza, along with its introduction of its IFTTT integration that aimed to make deliveries easier for customers. Additionally, more recently, Domino’s started its “Paving for Pizza” campaign, which seeks to fix potholes in all 50 states to ensure safe transport for pizza.
As a whole, Domino’s Pizza’s efforts to enhance the customer experience through payment and delivery satisfaction, as well as elevate the brand experience by creating local impact, indicate that there is significant opportunity for the direct-to-consumer pizza brand to gain a long-term advantage through innovation.
Within the Convenience Retailers industry, Wawa (43) and Sheetz (42) scored the highest, ranking far ahead of competitors in the space. Meanwhile, other players’ scores in the space fell between the 14 – 26 range. While there is a lot of innovation occurring in the Convenience Retailers industry, which is outlined in a PSFK Research paper called Upscaling the C-Store Experience, traditional C-Stores appear to be falling far behind. Some driving trends include everything from how C-Store retailers are rethinking product offerings to be wellness-oriented to creating autonomous C-Stores that are adapting to shoppers’ locations, whether they are delivering orders, dispensing items or even bringing the entire store to customers.
For the latest update of the Retail Innovation Tracker, we added Gas/Petrol Stations Retailers to the list of industries up for analysis by experts. The results show that the the Gas/Petrol Stations were perceived as the least innovative industry, scoring the lowest average of all those surveyed by PSFK’ Retail Innovation Tracker. However, this does not come as much as a surprise, considering growing widespread negative perception of a soon-to-be (hopefully) obsolete product offering.
With a large amount of competition in the market, companies like Speedway and BP can transition themselves into convenience stores and electric car charging stations. In order to prepare, Gas/Petrol Stations Retailers can build brand and customer experience through loyalty programs and in-car or remote ordering options to increase convenience and efficiency for customers.
Each month, PSFK surveys progressive consumers about their impressions of retailers and DTC brands. The results are published in a Retail Innovation Tracker which can be found here.