In-store Marketing

Abstract

This chapter will highlight the importance of the store environment as part of the retail marketing mix. Options for store layout, the determinants and influence of store atmosphere and the allocation of space to merchandise are described.

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

1 Relevance of In-store Marketing

In all forms of retailing – store retailing as well as non-store retailing such as Internet shops – the store environment is one of the most important determinants of customers’ store choice. It also exerts a very strong influence on shopping behaviour in the store. Many buying decisions are made at the point of sale, with a frequently cited figure claiming that this in-store decision rate is about 70 % for fast-moving products (Gröppel-Klein 2012, p. 646). Thus, professional marketing within a store can increase sales tremendously (e. g., by pushing impulse purchases), and can guide consumers to specific products and brands. In-store marketing (or “point-of-sale marketing”) refers to the use of information and communication-related retail marketing instruments within a retailer’s outlets. This includes the structure of a store and its basic layout, the presentation of goods and allocation of merchandise space and measures for influencing store atmosphere, including in-store events (Gröppel-Klein 2012, p. 645). Visual merchandising is a frequently used term in the context of in-store marketing. It refers to the way products are presented in a retail outlet. While this expression is often used with a focus on merchandise display (e. g., choice of fixtures and method of product presentation), it also relates to overall store design, store layout and other facets of the store environment (Varley 2014, pp. 220–224). Therefore, it is often used synonymously with the design component of in-store marketing.

Two basic objectives of in-store marketing are:

• To facilitate customers’ search processes, i. e., to allow easy internal orientation and

• To create a positive store atmosphere , i. e., to evoke positive emotions in consumers while shopping.

Both goals are important to different degrees in different stores and for different consumer segments. A distinction can be drawn between two different types of shopping processes and motives (Kaltcheva and Weitz 2006):

• Task completion, i. e., buying needed items (utilitarian motives).

• Recreational shopping, i. e., spending leisure time shopping and browsing through stores (hedonic motives).

When targeting task completion, retailers should focus on easy orientation and supporting the consumer search process. When targeting recreational shoppers, however, efforts should be shifted towards store atmosphere. In-store marketing must always consider both factors. Even in everyday routine shopping for task completion, store atmosphere is important because it can positively influence customers’ moods. And easy orientation also plays a role in recreational shopping, because consumers prefer to feel secure and self-confident when shopping.

2 In-store Marketing and Consumer Behaviour

The model most frequently used to explain the influence of store environment on customer behaviour was developed by Donovan and Rossiter (1982), based on earlier contributions to environmental psychology . They concluded that the stimuli presented in a store and customers’ personality variables combine to influence customers’ affective and cognitive responses to the store environment. They found that two main dimensions must be considered as intermediating variables when evaluating the effects of store environment:

• Pleasure (level of positive emotions).

• Arousal (feelings of excitement and stimulation).

Together, these two dimensions affect customer response behaviour, i. e., the degree of approach behaviour or avoidance behaviour. Studies have frequently shown that increased pleasure also increases the duration of a store visit, amount of unplanned purchasing, willingness to talk to store employees and intent to return. Arousal has optimal levels. Very low levels of arousal result in a lack of interest, while very high levels of arousal can lead to “panic” and encourage customers to avoid a store or leave a store as quickly as possible. While this seldom occurs in marketing, crowded situations such as those found in end-of-season sales or on opening days can create this level of arousal. Thus, the interior design of the store environment should evoke an optimum level of customer arousal. It has frequently been shown that moderate levels of arousal (if the store environment is perceived as pleasant) correspond positively with approaching behaviour, i. e., a positive customer response to the environment (Gröppel-Klein and Baun 2001, pp. 412–413).

The level of arousal is determined largely by the store’s information rate, that is, the novelty (unexpected, surprising and unfamiliar elements) and complexity (number of elements, changes in the setting, etc.) of the overall store environment (Mehrabian and Russel 1974). Arousal theory implies that optimal information rates contain some novelty and complexity to activate the consumer, but also include calming elements. In other words, complexity and novelty are attenuated by giving the consumer familiar cues and signs.

3 Store Design and Layout

3.1 Overview

A store should be planned to (consciously or unconsciously) direct customer flow in specific patterns, ensuring that customers visit certain important merchandise areas. This should achieve optimum sales-space productivity and stimulate impulse purchases. The retail layout must also be easily comprehensible so that customers can quickly understand and assimilate a route through the merchandise (Gilbert 2003, p. 129).

One core component of store environment design is the macrostructure of elements in the store, i. e., the store layout. This layout is represented internally in consumers’ minds in so-called mental maps of a store. Clear and well-arranged mental maps of a store and knowledge of the locations of specific products, categories, checkouts, etc. have been found to positively influence customers’ perceived shopping convenience (Gröppel-Klein 2012, pp. 656–658; Foxall and Hackett 1992, pp. 313–314). Stores use orientation points and areas to help consumers create strong mental maps. The design of paths and crossings, appropriate signage, different colours for different sections, escalators, floor material and so forth can act as clues for customers. Some retailers (e. g., Toys ‘R’ Us) support the development of cognitive maps and the search for specific products by providing visitors with real store maps which visually represent departments and routes.

When designing their store layout, retailers have two basic options, which can also be mixed (see Fig. 15.1; Gilbert 2003, pp. 124–125; Varley 2014, pp. 229–231; Levy et al. 2014, pp. 489–493):

Fig. 15.1

Two basic types of store layouts. (Adapted from Gilbert 2003, pp. 125–127)

• A grid store layout is characterised by long parallel aisles, with merchandise on shelves on both sides. This layout channels customer flow and, although it is often not very stimulating, it is well-suited for shopping trips in which customers need to easily locate certain products and move through the entire store. Self-service is generally easy, and the shopping process is fast and efficient for customers. Space is mostly used. Supermarkets, drugstores and other retailers of fast-moving consumer goods normally adopt this layout.

• A free-form layout (also called free-flow layout) follows an irregular pattern that allows customers a free choice of movement in certain areas of the store and along certain paths. It allows for more relaxed and unregimented shopping. However, it may require salespeople to help customers find certain products. This style is found in many clothing stores.

There are a number of variations of these basic types. For example, a loop layout (also called a racetrack layout) provides a major aisle that loops around the store to guide customer traffic around different departments (Levy et al. 2014, p. 492). There is usually a free-form pattern within departments. In an extreme case, a racetrack layout can force a fully guided customer flow. This principle is often applied by IKEA, where customers have to follow one major path through the entire store, with few possibilities for shortcuts.

Certain store layouts also benefit from use of different fixtures. The most important fixture types are gondolas (shelves), round fixtures (e. g., for hanging clothes), tables (for stacked clothes), dump bins, baskets (for vegetables) and closed counters (e. g., for jewellery). While the grid layout mainly employs shelves, free-form layouts usually have a mix of many different types of fixtures.

3.2 Grouping of Store Offerings

Within the store layout, merchandise is grouped together in sections, departments or aisles. Retailers usually use three main types of grouping: item-oriented presentation, theme-oriented presentation and brand-oriented presentation.

• With an item-oriented presentation, the most traditional way of displaying merchandise, products are organised by types of items. For example, a fashion retailer might have one area for shoes, one area for trousers and one area for shirts. A DIY retailer might have a shelf for paintbrushes, one for paint, one for wallpapers and so on. While products are easy to find, demand interrelationships are not considered and, therefore, not exploited fully.

• With a theme-oriented presentation, merchandise is displayed together according to a specific theme, such as “living in your home” (e. g., furniture, lamps, rugs and accessories), “outdoor” (e. g., backpacks, outdoor clothes, tents, barbecue grills and special food products) or “office” (e. g., suits, shirts and executive briefcases). Sometimes, a theme-orientation can follow a certain lifestyle and display in a single area all the fashion associated with a common lifestyle such as hip-hop, sophisticated career woman or casual and denim style. Short-term or seasonal themes such as Halloween, Christmas, the Olympic Games or the FIFA World Cup can influence the decoration in all parts of the store but can also be used to group certain merchandise together temporarily, often in a special feature area. Theme-based presentations promote cross-selling and can support solution selling, where products and services are bundled to provide a full solution for customers. Therefore, themes are sometimes implemented as part of category management strategies (see Chap. 12). Examples include tools, materials, delivery services and even trade services in a DIY store. Skis, ski shoes, services such as waxing and edge sharpening, skiing lessons, skiing clothes and travel arrangements in a sports store are another good example.

• With a brand - oriented presentation, products from a certain brand are merchandised together in monobrand store areas. In a fashion store, different products such as shoes, suits, shirts and neckties from Hugo Boss could be grouped together in one area, while the equivalent items from Armani are in another. Brand-oriented presentation often takes the form of a shop-in-shop (or store-in-the-store), a concept where the merchandise for one brand is clearly separated from the rest of the store in a boutique-like manner. This type of boutique layout is sometimes considered a variation of the free-form store layout (McGoldrick 2002, p. 468). This often takes the form of leased space or a concession store, in which an external company (often the brand manufacturer) operates the dedicated selling space, including the coordination of merchandise mix and inventory, with a separate checkout and specialist staff (see also Chap. 6). Brand manufacturers often design their entire product ranges to match. Brand loyal customers buy different products from the same brand to wear or consume together. A brand-oriented grouping facilitates such buying behaviour. Large department stores, such as Saks Fifth Avenue, Selfridges or KaDeWe, have traditionally employed concession stores for products like cosmetics, fashion and other brand-dominated categories. In this way, they act as a house of brands. The concept of a shop-in-shop has recently expanded into other retail sectors, such as Tchibo shops in supermarkets, T-Mobile concession shelves in electronics stores, Starbucks in bookstores or Bosch shop-in-shops within DIY stores.

3.3 Store Design and Store Atmosphere

Store atmosphere refers to customers’ emotional responses to the store interior. This emotional state of mind influences shopping enjoyment and subsequent shopping behaviour (Berman and Evans 2013, pp. 491–497; Varley 2014, pp. 202–204).

While the layout of the store and the arrangement of goods are the core components, store atmosphere is created by many more elements. Consumers perceive the store environment through all five senses. These include (Gilbert 2003, p. 128; McGoldrick 2002, pp. 460–467):

• Visual elements (such as colour, brightness, sizes and shapes of fixtures and goods, floors, appearance of salespeople, etc.).

• Acoustic elements (such as background music, audio advertising on the in-store radio or noises from other people).

• Olfactory elements (i. e., the scent in the store, e. g., perfumes used in clothing stores or the smell from a supermarket bakery department).

• Tactile elements (such as the material used for floors or the sensation of touching products).

• Gustatory elements (such as food samples in a supermarket, coffee served in a bookstore or champagne served in an elite boutique).

Visual elements are particularly used to influence consumers, especially colours. Colour psychology is frequently applied to store design. Examples of the different psychological effects of colour include (Varley 2014, p. 203; Hurth 2006, pp. 140–141):

• White and blue appear calm, cool and clean.

• Red (also orange and yellow) has been shown to be stimulating and arousing, evoking sensations of warmth, action and sometimes even aggression.

• Green is regarded as restful and stimulates associations with life and nature.

Some retailers use a specific colour in their in-store branding that they also use extensively in their stores. For instance, The Body Shop uses green (which emphasises its environmental positioning), Saturn uses a blue and orange combination (to stress its price aggressive positioning), Boots uses blue and white (which strengthens its image as a chemist) and Douglas uses turquoise (to communicate a luxury image). Conversely, many retailers prefer to use colours sparingly in-store because they could conflict with the colour of the goods sold, which often change with seasons and fashions. This is particularly true for clothing retailers.

Other sensual modalities are planned to some extent, but their effects are seldom considered systematically. However, sound and scents have been shown to influence customer behaviour and mood, thereby exerting an influence on purchasing behaviour (Berman and Evans 2013, p. 495). Slow music, for instance, encourages people to move slowly and spend more time in the store, while fast music increases arousal and feelings of excitement, which might lead to more vivid memories of the store and more active shopping behaviour.

3.4 Experiential Retailing

Store atmosphere has become even more important with the trend towards experiential retailing. This involves creating a retail environment that offers a unique and memorable sensory experience in order to transform shopping into an interactive, enjoyable and exciting experience for the customer (Schmitt 1999), and provide a coherent emotional profile for the store. The atmosphere aims to appeal to the consumer trends of seeking exciting events, pursuing stimulation in shopping and spending leisure time going shopping.

This kind of “shoppertainment” (Cordt 2008) focuses on consumers who demand pleasurable experiences in their shopping activities. Both in general merchandise retailing with retailers such as REI, Globetrotter or Sephora and food retailing with retailers such as Trader Joe’s (see the case study for Chap. 9), Whole Foods (see the case study for Chap. 12), EDEKA or REWE, retailers invest in impressive retail environments to create extraordinary experiences for shoppers (see Fig. 15.2).

Fig. 15.2

Experiential shopping at Globetrotter. (Globetrotter 2015)

However, entertaining store atmospheres do not complement all consumer shopping tasks. Shoppers pursuing task-oriented shopping goals often prefer simpler environments that do not distract them. This can be observed in any Aldi or Lidl store. In contrast, consumers who go shopping for fun might prefer exciting store atmospheres. Retailers must therefore consider their target customers’ typical shopping goals when designing their stores. For example, if their customers typically regard food shopping as an unpleasant task, it might make sense to design supermarkets in soothing colours with simpler atmospheres. Conversely, shopping for clothes is often viewed as fun. Thus, fashion retailers can influence shoppers positively by creating exciting atmospheres (Levy et al. 2014, p. 510). Retailers can also vary the level of entertainment and excitement across their stores and can create low arousal environments for categories that are typically purchased in a task-oriented way and high arousal zones for categories that usually are purchased within pleasure-seeking shopping contexts.

While the Disney Store or Warner Brothers’ Store, department stores such as Galeries Lafayette and urban entertainment centres are prototypical experiential retailers, elements of this trend are important for every retailer.

These trends show that a retail store’s potential to provide pleasure is achieved not only through the static physical facilities of the store, but also through in-store events that can be used as an “experience stage”. The store is thus transformed into an interactive “retail theatre” (McGoldrick 2002, p. 453). Potential events that contribute to pleasant and entertaining in-store marketing include cooking lessons in supermarkets, beauty treatments in department stores, fashion shows at apparel retailers, live appearances of artists in music stores or football tournaments in front of a sports store. However, the effects of such events on consumer behaviour depend on the level of innovation and adequacy of the events, i. e., the fit of the event to the retailer, its store and its merchandise (Leischnig et al. 2010).

3.5 Store Design and the Environment

Running stores, especially when creating pleasant and exciting store environments with elements such as lighting or sound, requires a large amount of energy. Increasing energy costs and the importance of the environment are leading retailers to rethink their strategies for store design, store maintenance and the exterior and interior facilities of their stores.

Coupled with increasing customer and social awareness of these issues, many retailers are implementing ecologically and environmentally friendly and energy-efficient store buildings and store strategies that are presented using terms such as “green retailing” or “greentailing”. The basic principles of these greentailing strategies for store design are to reduce energy use and use more renewable resources. Companies such as Coop, Marks & Spencer, C&A, Tesco, B&Q, the Metro Group, Walmart and Zara have all emphasised protecting the environment in their retail strategies. One element of these strategies is the establishment of “green stores” (or at least “greener” stores). With these green stores, retailers are trying to make their stores more energy-efficient and environmentally friendly using, for example, renewable resources (e. g., solar or wind power or total energy units), geothermal heating or cooling and energy-efficient refrigeration and lighting. They are also trying to reduce the carbon footprint of the merchandise they offer by optimising logistics and installing advanced recycling programmes (see Chap. 10 on CSR).

3.6 Store Design and Retail Branding

Store design is an important element of any retail branding strategy (see Chap. 9), since it has a strong effect on customers. Consumers’ store image can be influenced by a direct brand experience (during a store visit) as well as indirect experiences such as advertising (Krishnan 1996, p. 394). Because retailers can offer customers more extensive and direct physical experiences than manufacturers, retailers are better able to relate directly to consumers, trigger intense emotions and build vivid memories.

This effect on a retail brand is especially strong when store design is aimed at not only evoking positive emotions and an appealing store atmosphere, leading to a pleasant shopping experience, but also when it represents the core of the retail brand and is used to differentiate a retailer from its competitors (Morschett 2006, pp. 537–538). The use of colour has already been discussed, but the concept will be developed further here. The unique store designs of REI in the USA, The Body Shop, Sephora, Old Navy, Boots and Lush are conventional examples, but the flagship stores of manufacturers such as Nike, Apple, Timberland and The House of Villeroy & Boch, which are primarily designed to strengthen their respective brands, provide an even more cogent illustration of the effective use of this strategy (see Chap. 6).

However, experiential retailing is not the only way for retailers to use store designs to convey a brand message to their customers. Hard discounters such as Aldi and Lidl or wholesale clubs such as Costco follow the same principle. Simple, basic stores reduced to the essentials, floors and shelves with an inexpensive appeal presenting the goods in cut cardboard boxes and on pallets, with no unnecessary decoration elements and modest and pragmatic exterior design communicate these retailers’ main competitive advantages very clearly to the customer.

3.7 Store Design and Online Shops

The basic principles of store design (e. g., store layout and grouping offerings), store atmosphere (e. g., colour effects) and experiential shopping also apply to online shops.

Consumers spend a considerable amount of time in online shops. Online shops have to guide their customers through their store and they invest heavily in facilitating this search process. In addition to the “layout” of the online shop in, e. g., a category structure, search functions are usually added. Online shops can provide a product more or less space on a webpage and can position it on a landing page or much less prominently. And they can do this on an individual basis, tailoring the shop layout to specific visitors, e. g. based on browsing history. As Amazon has demonstrated for over a decade, products can be displayed based on what the customer has searched for or bought in the past.

Online shops must also create a positive store atmosphere, so customers perceive their visit as pleasant. Obviously, on a tactical level, there are many differences between the design of online and brick-and-mortar stores. Online shops cannot currently address some human senses (e. g., taste, smell) due to technological restrictions; however, visual and acoustic elements play a major role. Online shops can use videos, promote customer interaction through online discussion platforms, and even connect to customers’ homes via augmented reality. While store-based retailers have to decide on a specific form of product presentation for each product (e. g., products on a shelf), online shops can use several forms simultaneously and display products in a brand-oriented presentation, a theme-oriented presentation and an item-oriented presentation – depending on how the customer searches for products and which clickpath they follow through the shop. In addition, online shops can group products together in the display based on shopping patterns identified for previous customers (“customers who bought product A also bought product B”). Also, online shops can simplify the customer’s search process via filtering options, i. e., sets of product characteristics that a customer can select to restrict the products displayed to those possessing all the chosen characteristics (e. g., colour, price range, product features).

The specific design of an online shop depends on the shopping format (e. g., merchandise-oriented shops vs. price-formats; see Chap. 4) and on the device that customers will predominantly use (e. g., notebook vs. smartphone), although responsive designs which display optimally regardless of the device used are now the preferred standard. Various kinds of shop design have developed, i. e., designs that customers expect and have learned. For example, Amazon’s dominance of online retailing has created customer expectations of where the buy button should be located, how products should be displayed and described, that several pictures per product are useful, etc.

Data on the performance of an online shop are more easily available than for physical stores. It is also easier to change the design of an online shop. Both features make it common to measure the performance of an online shop and constantly optimise it. With A/B tests , different versions of an online shop (e. g., different product description positioning) can be shown to customers to measure which version performs better. Different key performance indicators are commonly used to evaluate online shops, including:

• Number of unique visitors and number of total visits: These measure how many unique customers visited an online shop during a particular period and how often customers visit a website. Different measures of online marketing, e. g., optimising the website to receive better rankings in search engines like Google (search engine optimisation, SEO) or search engine advertising (SEA), can be used to improve this indicator.

• Conversion rate : This is the percentage of visitors to an online shop who actually buy a product. Better product descriptions including product videos and customer reviews, better page layout, easier payment processes, simpler purchasing processes, certificates like Trusted Shops, low logistics fees, etc., are all ways to improve this indicator.

There are analytic tools which help track individual customers’ shopping processes or behaviour during their visit, which can help detect and fix weaknesses in the shop design. For example, a frequent problem is shopping cart abandonment, i. e., when a visitor fills his online shopping basket but fails to purchase anything. Identifying when this occurs (e. g., when delivery costs are displayed or when the payment options are presented) can reduce this rate. This is just one example of the many opportunities that online shops provide to monitor and optimise performance.

4 Space Allocation

4.1 Overview

Space within stores and on shelves and fixtures is a scarce resource. The allocation of store space to merchandise categories and the allocation of shelf space to different products are, therefore, crucial processes for retailers. Store space requires heavy investment. Appropriately allocated merchandise is an important determinant in the productivity of the relevant assets. Thus, most retailers measure space productivity as part of their operational controls (see Chap. 20). It is typically measured in sales per square metre or sales per linear metre. Retailers who display most of their merchandise on freestanding fixtures usually use square metres, while retailers who display most of their merchandise on shelves prefer to use length, i. e., sales per linear metre (Levy et al. 2014, p. 497–498).

This task has become more critical for cross-channel retailers. If customers visit a brick-and-mortar store, look at a product and then buy it in the retailer’s online shop (as a form of showrooming), then this does not increase the space productivity for this item, even though the display of the product on the shelf may have caused the purchase. Conversely, if a product is displayed very nicely in a retailer’s online shop, leading many people to buy this product in-store (“Research Online, Purchase Offline”; ROPO), then the space productivity of this item might seem very high, even though allocating it less space could result in the same sales levels. Thus, the increasing interdependency between online shops and stores, where purchasing decisions and purchasing acts do not necessarily occur in the same channel, makes the use of certain retail performance indicators for space allocation dubious.

4.2 Determinants of Space Allocation

The decision over how much space to allocate to a certain product or category is influenced by a number of variables. A simple rule of thumb is that share of space is allocated according to share of sales. However, other determinants such as product profitability, potential to enhance store traffic, demand interrelationships, retail brand positioning, category role (e. g., destination categories vs. routine categories), display needs (e. g., physical characteristics of the products, such as watches vs. bicycles) and inventory turnover (owing to restocking considerations) are also frequently considered.

An important coefficient for determining space allocation is space elasticity of demand (similar to the frequently used price elasticity coefficient; see Chap. 13). Space elasticity of demand measures the responsiveness of customer demand to a change in sales space. It is defined as the ratio of the relative change in unit sales (or change in turnover) to the relative change in shelf space. Average space elasticity has been found to be about 0.2, so that doubling the space allocated to a product would increase sales by 20 %. However, the rate of change is different for different products. Figures have been reported between 0.6 at the high end (e. g., for fruit and vegetables) and close to zero at the low end (for many fashion products, maybe because of a negative impact on exclusivity by increasing sales space). As with many output/input ratios, a declining marginal return on additional space is likely (McGoldrick 2002, pp. 478–479).

However, profit has to be maximised; hence, space elasticity of profit, defined as the relative change in profit in relation to the relative change in space allocated, could prove an efficiency-enhancing coefficient. In order to optimize profits, the space allocated to all products or categories must produce the same marginal space elasticity of profits. Otherwise, allocating more space to a product with higher marginal space elasticity of profits at the expense of a product with a lower coefficient would increase total store profits. In contrast, category management (see Chap. 12) emphasises the consumer perspective more. Allocating space with only short-term profit maximisation in mind might not enhance customer satisfaction and customer loyalty; thus, beyond pure short-term profit figures, the needs of the customer also have to be considered (Varley 2014, pp. 67–74).

Space allocation also needs to be based on the quality of space. Areas in a store are not frequented equally by customers, the speed with which customers pass through different areas varies and certain areas of the store (or shelf) draw more attention than others. Accordingly, placement has a strong impact on sales success. Some examples of valuable store and shelf areas include (Varley 2014, pp. 180–181; Levy et al. 2014, pp. 495–497; Hurth 2006, pp. 122–129):

• areas at the entrance of the store, especially the first shelf or other fixtures that customers face immediately after entering the store,

• ground-level space compared with other floors, which even results in different levels of rent for different floors,

• end caps of gondolas, which are usually highly visible – even for people who do not enter an aisle,

• feature displays/special displays (e. g., off-shelf displays in a supermarket), which exert an additional impact and are employed to highlight certain products, especially new product introductions,

• the checkout area, since all customers have to pass through it and may have to queue at the till (which makes this a preferred space for impulse items),

• eye level on shelves, the centre of the shelf and – since customers in Western cultures usually look at items from left to right – shelf space on the right side of the shelf compared with that on the left.

4.3 Space Allocation Software

Space allocation is often based on simple rules of thumb and experience. However, the complexity of influencing factors meant optimisation software was developed decades ago. With the rise of retail information systems, scanner data at checkouts and even personalised loyalty card data, these systems can now store an immense amount of data.

Space optimisation software uses information on specific products (e. g., product costs, size of product, variations), general information on space productivity in different areas of the store and on the shelf and data for the specific market (e. g., demographics in the catchment area). It calculates effect metrics (such as space elasticity) and demand interdependencies from past sales data, or provides tools to integrate estimations (e. g., from experiments). Company strategy (such as category role or inventory targets) is also considered and all variables are applied in a multivariate model to generate suggestions for optimal store space and shelf space allocation.

The optimisation results are typically displayed in a planogram, which is a visual representation of a store or a shelf that illustrates how many products from a specific SKU should be stocked and where they should be placed. Planograms are also useful for store employees setting up and restocking the shelves, because they help them comply with the planned space allocation

5 Conclusion and Outlook

Most of the various aspects of store design, store layout and space allocation discussed in this chapter apply to all types of retailers, including mail order retailers and online shops. Space is also precious in the mail order business, because square metres in stores are analogous to page space in catalogues. While catalogues cannot offer all that “in-store” marketing can achieve, because they only display two-dimensional, static pictures, online shops can now employ methods and approaches that are similar to in-store marketing. Even though products cannot be touched in Internet shops, the medium has other benefits. Online shops can be customised for specific users, space is only limited by the duration of the customer’s visit and consumers can be provided with different paths to find the same product and the grouping of store offerings can follow several types of groupings simultaneously. With digital salespeople (i. e., avatars, potentially customised), three-dimensional views on products, videos, virtual trials and sound effects, online shops have many instruments available to create an exciting and pleasant store atmosphere (see Chap. 4).

However, there are many diverse reasons to shop on the Internet. Therefore, online shops should not be designed purely from a technical perspective, but from the consumer perspective. The aim should not be to employ all the available technical resources to excite the customer, but to reduce the effort of buying products (e. g., by providing shopping lists from prior purchases) and support the customer. In other words, technology should be used to facilitate shopping.

If a retailer employs different retail channels, coherence between store atmospheres in all channels is important. Coherence of appearance for a multichannel retailer, particularly for cross-channel or omni-channel strategies, has been found to positively influence consumer attitudes towards a retailer (Schramm-Klein 2003, pp. 227–245). Given the influence of store atmosphere on a retail brand, cohesion across a retailer’s different retail formats is crucial.

Further Reading

• Ashley, C., Ligas, M. and Chaudhuri, A. (2010): Can Hedonic Store Environments Help Retailers Overcome Low Store Accessibility? Journal of Marketing Theory and Practice, 18(3), 249–262.

• Schmitt (1999): Experiential marketing: How to get customers to sense, feel, think, act. New York: The Free Press.

• Varley (2014): Retail product management – buying and merchandising, 3rd edn. London: Routledge, pp. 220–241.

6 Case Study: Macy’s

6.1 Profile, History and Status Quo

Macy’s, Inc ¹ . is one of the premier omni-channel retailers in the United States. The company operates around 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under four different retail brands: Macy’s, Bloomingdale’s, Bloomingdale’s Outlet and Bluemercury. It also operates the online shops macys.com, bloomingdales.com and bluemercury.com. It is headquartered in Cincinnati, Ohio, and employs about 167,000 people. Combined, the different retail brands of Macy’s, Inc. reached sales of 28 billion USD in 2014 (Macy’s 2015b). The company was previously known as Federated Department Stores, Inc. but changed its name to Macy’s, Inc. in June 2007 (Bloomberg 2015).

Macy’s and Bloomingdale’s are department store chains with a focus on apparel and related products. They sell a variety of merchandise, including men’s, women’s and children’s apparel and accessories, cosmetics, home furnishing and other consumer goods. While Macy’s stores target the mid- to upper-market segment, Bloomingdale’s is clearly upscale. In order to attract more price-sensitive customers, the company plans to open four stores in New York under the name Macy’s Backstage by autumn 2015. These new stores will offer products at discounts from 20 to 80 %. This strategy is designed to create new market opportunities. The company also operates Bloomingdale’s outlet stores, which offer a reduced price range. The acquisition of Bluemercury, America’s largest and fastest-growing luxury products and spa services retailer, was completed in March 2015. This was Macy’s first acquisition in ten years and provides a completely new channel of growth (Macy’s 2015b, p. 10). Additionally, Terry Lundgren, the CEO of Macy’s Inc., intends to expand the branch network of Bluemercury in the near future. The Bluemercury retail brand will also be presented in the department stores with its own sales areas and own brand (Bloomberg 2015; Westermann 2015).

Macy’s has established strong brand equity. Both Macy’s and Bloomingsdale’s have existed for more than 150 years and are two of the most popular brands in the United States. Both successfully operate in the niche department store branded market, providing a variety of store brands and exclusive brands to their customers. In addition, in 2014 the brand consultancy Interbrand ranked Macy’s as one of the top 50 most valuable US retail brands (Marketline 2015).

6.2 Store Design, Store Layout and Visual Merchandising at Macy’s

Macy’s has clearly distinguished itself from other major retailers by selling highly desirable brands such as Calvin Klein, Charter Club, Estée Lauder, Hotel Collection, I.N.C, Michael Kors, Ralph Lauren, Sean John, Thalia Sodi and Tommy Hilfiger (Macy’s 2015b, p. 10).

Like other department store chains, the company focuses on impressive in-store design and visual merchandising. This is particularly obvious in its flagship stores, including Herald Square in New York City, Union Square in San Francisco, State Street in Chicago, Dadeland in Miami and South Coast Plaza in Southern California. The flagship store at Herald Square in New York is advertised as the world’s largest store (see Fig. 15.3), although there are actually larger department stores in other countries. Over the past 110 years, Macy’s Herald Square has become iconic, and the historic building has been added to the National Register of Historic Places. The building comprises almost 200,000 m² of retail space. Built in 1902, the store now covers an entire city block with eleven floors of the latest fashion (Macy’s 2015c).

Fig. 15.3

Macy’s flagship store in New York City

In recent years, Macy’s has invested heavily in this store and a 400 million USD renovation will be completed during 2015. The renovation is designed to attract both millennials and foreign customers looking for luxury brands like Gucci. Thus the New York store carries a much wider assortment than regional Macy’s stores, with brands like Ralph Lauren, Polo, Tommy Hilfiger and Michael Kors – the kind of classic American clothes that international customers like to take home. One industry analyst claims: “What Macy’s is trying to do with the renovation is elevate itself further from the J.C. Penney across the street. This is their way of making sure that they are in the luxury game and establishing their foothold early on” (The New York Times 2014).

Like other department stores, Macy’s Herald Square has a clear structure across its different floors. Table 15.1 shows the store’s current structure.

Table 15.1 Floors at Macy’s Herald Square

Like in many department stores, the first floor carries fragrances, cosmetics, jewellery, watches and luxury fashion accessories. This floor (but also others) has a particularly brand-oriented design, where products from a certain brand are merchandised together in monobrand store areas. More specifically, it takes the form of a shop-in-shop. As Table 15.1 indicates, in-store designer shops such as Louis Vuitton, Burberry, Longchamp and Gucci are located on the first floor and grouped together by brand. Thanks to a partnership agreement, part of the retail space on the basement level is leased to Sunglass Hut (Luxottica 2015). The second floor contains a Starbucks with an upscale coffee line. This is targeted at attracting high-end customers who come to visit the new in-store designer shops (The New York Times 2014; Jennings 2014). During the Christmas period, a 1000 m² mock North Pole village called Santaland is located on the eighth floor.

The renovation of Macy’s Herald Square has seen some significant changes to the store’s look, product mix and infrastructure. Before the renovation, many windows were blocked up and the store received limited natural light. Now these are open and contain attractive window displays. Similarly, the 750 m² retail space on the fourth floor that used to be a stockroom surrounded by opaque windows has become a Tommy Hilfiger retail zone. Some of these products are intended for sale in Europe and are exclusive to Macy’s Herald Square. This is a marketing strategy to increase the number of international customers (The New York Times 2014). In addition, Macy’s offers a large portfolio of store brands that are merchandised exclusively in its stores. These brands are advertised in-store as “Only at Macy’s” and are targeted to specific consumers (Macy’s 2015b, p. 14). Macy’s distinguishes between so-called “private brands” and its “labels”. According to Macy’s, private brands have fully developed brand profiles aimed at specific consumers and supported with national advertising and branded in-store environments, whereas labels are just names attached to a category of merchandise that can fill a niche in its assortments. Macy’s store brands currently include: Holiday Lane, JA by John Ashford, Morgan Taylor Intimates, The Cellar, Home Design, Karen Scott, Studio Silver and Tools of the Trade (Macy’s 2015b, p. 17).

Macy’s invests in high-end visual merchandising in all of its stores (see Fig. 15.4). In some cases, products are displayed in shop-in-shops where the brand owner is responsible for the visual merchandising. In other cases, the company uses a mix of product displays, upscale decoration and mannequins that change the atmosphere of the store, enhance its emotional touch and give consumers a better impression of what the clothing will look like when they wear it.

Fig. 15.4

Visual merchandising at Macy’s. (Macy’s 2015b, pp. 3, 11)

Investing in the Macy’s store on Herald Square has several benefits. First, the store is very important to the city. As Macy’s CMO (chief marketing officer) proudly explains: “There’s a famous quote from Mayor Michael Bloomberg that, ‘If you have not been to Macy’s, you have not been to New York’” (Palmer 2012). But there is also a huge image transfer from the New York store (and probably the other flagship stores), as the CMO explains: “There is a halo effect on this building that permeates out to all of our other locations” (Palmer 2012).

6.3 Macy’s In-store Events

Macy’s stores hold events almost every day. In addition to many small events, Macy’s is known for its highly innovative events that attract millions of people every year, with themes such as American Icons, which celebrates the people and places “that make America great”. The American Icons campaign also includes fashion from well-known American designers, in-store events, interactive digital content and a give-back programme in partnership with Got Your 6, a non-profit organisation established to empower veterans (Retail Merchandiser 2013, p. 20).

Every year in spring, Macy’s Flower Show attracts millions of customers to its large stores in New York, Philadelphia, Chicago, Minneapolis and San Francisco. These events are meant to highlight the beginning of spring and each store holds different musical and cultural events, floral seminars, complimentary guided tours, contests and special fashion shows (Macy’s 2015d). For a few days, every department in every store is decorated with flowers (see Fig. 15.5).

Fig. 15.5

Macy’s Flower Show

During the Christmas period, customers from all over the world travel to the Macy’s stores to look at the holiday window displays and attend the celebrations. Fig. 15.6 shows the Macy’s Christmas light show in the store in Philadelphia, which has been a tradition since 1870. In fact, Macy’s was the first store to feature holiday windows. Today, at peak times, more than 10,000 people per hour pass the window displays at Herald Square. Also during the Christmas period, Santalands are opened at seven large Macy’s across the USA. These are theme displays with a Santa theme. For example, the New York Santaland includes a mock North Pole village including employees dressed as elves, an enchanted forest and a train display (Macy’s 2015c; Macy’s 2015d). Stores in other cities include fairy tales, puppet shows and other features are added.

Fig. 15.6

Macy’s Christmas Light Show in Philadelphia

As part of the American Icons programme, in summer 2015 Macy’s on Herald Square and several other locations hosted a special store event called Camp Macy’s, an afternoon dedicated to celebrating summertime, camping indoors and shopping for summer fashions (Macy’s 2015a). Another example of Macy’s entertainment savvy is the Macy’s Cherry Blossoms Show. During the National Cherry Blossoms Festival, the store in Washington, D.C., is transformed into a floral wonderland including beautiful visual displays (Macy’s 2015e). Over the course of the year, Macy’s also organises a number of special events. For example, in September 2014, Ryan Seacrest, the host of American Idol, broadcast his daily radio show live from a temporary studio in a window of the New York store to promote his new line of men’s suits and matching accessories, called Ryan Seacrest Distinction (The New York Times 2014).

6.4 Omni-channel Retailing

Macy’s executives know that today’s customers shop via a large number of channels, including stores, websites, smartphones and tablet computers (see Chap. 5). As a result, the company has recently adopted a strong omni-channel retailing strategy (Retail Merchandiser 2013).

Sales associates at the shoe department in the Herald Square store each have an iPod Touch to track products using a radio-frequency identification (RFID) system. When a customer wants to try a particular pair of shoes, a sales associate can scan the product tag and the iPod Touch immediately displays the available colours and sizes. The order is then routed to the stockroom, where employees are directed to the exact aisle and shelf where the product is located. The aim is to find the shoe box and bring it to the customer in under two minutes (The New York Times 2014).

Macy’s has further improved its omni-channel presence recently. Since 2014, orders made online or in other stores can be shipped direct-to-customer in almost all locations. If a store is out of a particular item, Macy’s associates can select merchandise from other stores where the product is still available or can ship it directly to the customer through Macy’s online fulfilment centres. Macy’s can also use store inventories nationwide to fulfil online orders (Marketline 2014; Retail Merchandiser 2013, p. 21). This fulfilment concept makes it possible to leverage the inventory and customer relationships. Last year, Macy’s successfully introduced its “Buy online – Pick up in store” concept in many of its locations. This increased popularity of omni-channel retailing means Macy’s strong presence here gives it a competitive edge (Marketline 2014).

Macy’s is currently testing different sales technology innovations at selected stores in Georgia and New Jersey. For example, a new generation of handheld point-of-sale devices and tablets created to improve the in-store shopping experience is meant to empower sales associates to engage customers more effectively and to offer merchandise ideas and product information. In addition, customers can now shop Macy’s assortment via an electronic kiosk and large interactive “lookbook” displays based on touchscreen kiosks in selected stores (Businesswire 2014, p. 21).

Macy’s strongly promotes the use of its own shopping app. For example, during a fashion and rock event sponsored by Macy’s in autumn 2014 (Rock Fashion), the Macy’s shopping app let concertgoers shop live. During “Black Friday” – the Friday after Thanksgiving and the busiest shopping day of the year in the USA – Macy’s encouraged mobile shopping and the use of its shopping app by letting customers scan QR codes in stores to receive prizes. The pool of high-value prizes changed every hour. Macy’s was also one of Shopkick’s first partners. Shopkick was launched in 2010 and quickly became the largest location-based shopping app in the USA. Since 2012, customer can earn bonus points just for entering a specific store, where they receive store-specific and individualised deals, discounts and recommendations. This app has recently been linked to the iBeacon technology, which helps identify a customer’s specific location in a store. In late 2014, Macy’s and Bloomingdale’s were among the first retailers to accept ApplePay, a mobile technology which lets customers with an iPhone or Apple Watch pay at the checkout by simply presenting their device.

Embracing the most innovative mobile technologies and using them in stores is another measure to attract millennials. Customer interaction occurs through different types of social media such as Facebook, Twitter, Instagram, Pinterest and the Macy’s mblog. For example, Macy’s 11.5 million Facebook fans were given the opportunity to vote on some of the music played in stores. Special store events such as concerts and fashion shows are also publicised on Facebook. According to Macy’s, 30 % of customers who use these online and digital shopping channels are new customers (Retail Merchandiser 2013, p. 21).

6.5 Conclusion and Outlook

In-store marketing is crucial to the success of a department store chain like Macy’s. Macy’s visual merchandising and the store layout of its Macy’s Herald Square flagship store creates an atmosphere that appeals to a broad target group but also gives an upscale image. Brands are important to Macy’s mid- to upper-market positioning and these brands demand to be displayed in a prestigious fashion. The most attractive brands are grouped into brand-oriented displays. However, having a nice store with a good atmosphere is not sufficient to draw in traffic; successful department stores also organise events in their stores. In the case of Macy’s, this includes both small daily events and huge iconic events that take over an entire store or even more. The company’s strong omni-channel retailing presence – and the way modern technology has been linked to the in-store experience – also provides a clear competitive advantage.

In recent years, Macy’s has achieved impressive growth in a generally difficult market. At the beginning of 2015, the company purchased the cosmetics chain Bluemercury, Macy’s first acquisition in a decade. It also started to explore the “off price” business in the hope of attracting a new customer base. Macy’s has also announced a major restructuring of its marketing and merchandising operations, and Macy’s executives are considering opening international stores (The Washington Post 2015). The first Macy’s store outside the USA is scheduled to open in the United Arab Emirates approximately 2018 (Westermann 2015).

Questions

• 1. Macy’s department stores structure several of their floors with a brand-oriented shop-in-shop design. Discuss the possible advantages and disadvantages.

• 2. The case study discussed numerous examples of holistic in-store marketing. What are the precise elements of this approach?

• 3. Where do you see the main potential for European department store chains in their in-store marketing strategies, compared with American retailers such as Macy’s?