White Paper: The 4 Pillars For Growth In Consumer Electronics
THE 4 PILLARS FOR GROWTH
CONVENIENCE, FREQUENCY, AVERAGE ORDER VALUE & CATALOG
We’ve analyzed the strategies, offerings, innovations, acquisitions and relevant news from 24 top consumer electronics retailers. These include 14 in EMEA (MediaMarkt-Saturn, Fnac-Darty, Euronics, Expert, Otto Group, Dixons Carphone, Argos, Boulanger, Unieuro, ElectronicPartner, Cdiscount, Coolblue, Worten and AO World) and 10 in North America (Costco, Sam’s Club, BestBuy, Target, Office Depot, Staples, GameStop, Exchange, Fry’s and Newegg.com). Tech manufacturers that retail their own products have been excluded for like-to-like comparison purposes.
A few tech manufacturers dominate the consumer electronics market. These select few have both the innovation capacity and the financial muscle required to keep up with the speed at which technology evolves. As a result, consumer electronics retailers end up all selling the same products from the same manufacturers and at very similar prices.
With so little differentiation in products and prices, how do these companies compete? The battle for growth is fought on four fronts:
1. Offering maximum convenience through extremely fast delivery times and any imaginable combination of physical and digital resources, picking points and apps. Today, the omni-channel purchase experience is a reality
2. Increasing customer loyalty by delivering subscription-based services and solutions, which increases order frequency
3. Incrementing the average order value by shifting from selling products to solutions
4. Expanding their catalog through the addition of third-party vendor solutions
More convenience, higher frequency, bigger baskets and a broader catalog are the goals to set your sights on. Long before COVID-19, consumer electronics retailers had already embarked on a profound digital transformation to be competitive in these four areas.
First, they digitized their own businesses with platforms capable of offering true omni-channel experiences on the customer side and delivering maximum convenience (and minimum delivery times) on the logistics side. This automation and digitization of processes allows retailers today to offer click & collect, drive-in, in-store online ordering—and every other imaginable combination of physical and digital resources—along the purchase journey.
As a result, they can quickly serve demanding, 24/7-connected buyers who expect delivery the same day, sometimes even within an hour, to wherever they choose. Here’s a list of ways retailers are currently stepping up their “convenience game”:
Target opened 100 new small-format stores in 2019. In 2020, they will open 36 micro-stores and add “drive up” to dozens more small-format stores.
Walmart China invested in a crowd-sourced delivery platform, and customers now receive their merchandise within an hour.
With Sam’s Club Scan & Go app, customers bypass the checkout line and pay for items on their mobile device.
Target acquired Shipt in 2019 for $550M. The online platform offers same-day delivery and is better equipped to compete with Amazon.
The Fnac Darty group opened nearly a 100 new Darty stores between 2015-2018. In addition, they opened 14 “Périphérie Fnac” stores in
2018 and 79 stores in 2019.
Coolblue has deployed a network of 35 electric bicycles to deliver the same day in urban areas and has invested in a massive 88,000m² warehouse in Tilburg.
Argos Sainsbury opened a regional fulfilment center in Croydon last year to be able to deliver the same day to over 50% of the country.
New mobile payment in-store was launched at Argos and Fnac to avoid lines.
Many items at Staples are available for pickup today in just one hour. Online order pickup counters are located at the Staples EasyTech and customer service areas.
Best Buy allows customers to pick up their orders at any UPS Access Point, including UPS stores, CVS pharmacies, Michaels arts and crafts stores, Advance Auto Parts and other stores.
Newegg.com customers can choose to have their package held for pickup at one of more than 2,500 FedEx Corp. locations, including 1,800 FedEx retail stores.
Both Costco and Sam’s Club have made efforts to evolve by offering click and collect capabilities, checking in-store availability and providing drive-up collection points.
Throughout Costco’s warehouse space, Costco.com is promoted through signage. The company provides tablets on-site to allow customers to search and buy items unavailable in the store, instead of getting them delivered to their homes.
Cdiscount has set a network of 18.000 collecting points.
Otto Group is building new logistics hubs for the Hermes Germany subsidiary in a multi-year, €300 million investment program.
Cdiscount opened a new warehouse of 80,000m² near Paris (Moissy) at the end of June 2018
AO World opened three new outbases in Telford, Coventry and Luton during 2020, taking the total number of outbases to 17.
Frequency and order value
Subscription-based services are offering retailers the ability to transform one-off purchases into a commitment for several future transactions. Repair insurances and tech-support memberships are the foundation of their current offering. Here’s how retailers are working to increase how often customers order as well as the amount of their purchases:
• BestBuy launched their Total Tech Support program in 2019, which for $199/year provides 24/7 support for all of a customer’s technology. By the end of 2019, the program had more than one million members.
• Both Costco and Sam’s Club increase the value of their annual membership by providing exclusive prices on home, personal, business and travel services offered by third-party party vendors. Some of these services are subscription-based.
• Staples launched a Premium Membership program for companies with 20+ employees that provides access to special prices and dedicated services.
• GameStop U.S. loyalty program, called PowerUp had approximately 42.0 million members as of February 1, 2020, including 5 million paying members.
• Most companies offer protection plans, many of them through external partners such as SquareTrade, but mostly through a one-off, upfront payment.
• BestBuy offers Geek Squad with every technology purchase. The program provides an extended warranty service along with a dedicated support team of 20.000 technology experts.
• Worten acquired iServices, a smartphones repair company in 2019 with 15 shops.
• Dixons stated that the company’s repair services subsidiary, Team Knowhow, is a key area for their future growth.
• FNAC acquired WeFix in late 2018 to internalize repair services with more than 59 repair points in France.
However, to ready themselves for the much-proclaimed solution-selling versus product-selling approach—that is expected to dramatically increase their average basket value—they must be able to offer much more. The true challenge is not only bundling products with installation, support and insurance services, but also with third-party vertical solutions (for designers, productivity, security, etc), which are often subscription-based.
Let’s explore two scenes to illustrate the benefits of this transformation for both businesses and end consumers:
SCENE 1: PRODUCT SALE
Eve smiles as she marches back home, her brand-new laptop in a plastic bag hanging on her arm. Her mind projecting all the incredible items she’ll design for the new client she just signed. “How helpful was Jim, the shop assistant,” she thinks. ”He provided everything I needed to crush this project, even knowing before I asked that I would need an SSD hard disk and a dedicated graphics accelerator.”
|Business KPls||Pending Efforts by Eve||Eve’s Risks|
• Laptop: $800 (20% margin)
• Cross-sale value: $0
• Client data: unknown
• Frequency: 1
Basket value: $800 Total revenue: $800 Customer Lifetime Value: $40
|• OS initial setup – hour
• Backup and transfer of files to the new laptop – 3 hours
• Installing all productivity
applications – 1 hour
• Installing antivirus, security and backup solutions – 3 hoursTotal: 8 hours
|• Accidental damage,
• Data transfer malfunction,
project delays: $600
• Losing the new client: $6,000
Total risk value: $6,900
SCENE 2: SOLUTION SALE
Eve smiles as she marches back home. Her brand-new laptop in a plastic bag hanging on her arm, her old laptop in her backpack. Her mind projecting all the incredible items she’ll design for the new client she just signed. “How helpful was Jim, the shop assistant, offering me the Designer Bundle with a great discount,” she realizes. “All my files were quickly transferred, and all the applications I need are already installed and ready to use. I may have saved about 8 hours, if not more. Plus, now I have insurance if anything goes wrong that I can comfortably pay on a monthly basis.”
She remembers how she lost her last client, after not being able to deliver the project on time when her laptop unexpectedly slipped through her hands and broke. “Now I truly have everything I need to crush this project,” she acknowledges.
|Business KPls||Pending Efforts by Eve||Eve’s Risks|
|• Laptop $800 (20% margin) = $40
• Insurance: $8/month (40% margin,18 months average) = $57.60
• Productivity and security apps subscriptions: $120/month (20%margin, 18 months average) = $432
• Warranty extension + tech support: $50
Client data: all stored for future promotions and cross-selling Frequency: 1 time a month, 18 months average
Basket value: $978
Total revenue: $3,154
Customer Lifetime Value (average 18 months): $579.60
Total: 0 hours
Total risk value: $0
The first scene produces $40 of gross margin value for the business via an anonymous receipt the company can’t leverage for future promotions. And it leaves the consumer with pending tasks and thousands of dollars in direct and indirect risks.
The second scene produces $579.60 of gross margin value for the business (14.5 times the first one). Plus, a registered client profile with whom to establish a long-lasting relationship to create cross-selling and promotion opportunities. It also leaves the consumer with a solution covering all her setup needs and minimizing most of her potential risks. The value delivered to both parties is significantly higher, thanks to the efficiencies created by automation.
Products and prices will no longer be at the core of the value proposition. Services that eliminate consumers’ risks and hassle, together with third-party applications, will be the key differentiators and drivers for an increased lifetime value.
In the wake of COVID-19, the need for solution selling has dramatically increased with physical stores now subject to stricter safety and capacity policies. The necessity to quickly comprehend customers’ different requirements, offer solution bundles and most importantly, automate all the necessary processes has become even more imperative. To become true solution sellers,
now more than ever, retailers need technology platforms providing them with complete automation of procurement flows for third-party solutions (productivity and security apps, insurance and services), and the capability of bundling, billing and delivering all these products and services to their consumers seamlessly.
Successful retailers will be able to draw on a continually expanding solutions portfolio, and efficiently and intelligently bundle all sorts of applications to fulfill their customers’ demands.
Our client MediaMarkt, the German retail giant, boosted the adoption of insurance and protection plans for technology devices by two digits. They accomplished this by simply eliminating the initial price barrier by transforming device insurances from a one-off initial payment to very small, monthly installments. The CloudBlue platform allowed them to smoothly and accurately handle a huge monthly volume of small installments, providing them with unparalleled scalability and a strong competitive advantage.
Giant multi-category players such as Amazon, Alibaba, Rakuten or even Walmart still hold one competitive advantage over smaller and niche players: they offer a broader assortment. They’ve achieved this advantage by acting as open marketplaces, where third-party vendors can onboard their catalogs and end customers benefit from the same advantages, support and coverage services offered by the platform.
The recent reaction of consumer electronics retailers has been logical: If we don’t have all the products, but we do have the customer, why not open up our marketplace to external vendors, and offer our platform and services in exchange for a commission like the big players do?
Opening their online marketplaces to third-party vendors maximizes the value of their customer base by letting external vendors onboard their products and leverage the organization’s existing services and capabilities.
Thus, Fnac-Darty, Cdiscount and Worten launched their open marketplaces in the last couple of years in Europe. Target did the same last year in the US and MediaMarkt will follow in 2021.
• Newegg operates as a global marketplace platform and advertises as the #1 global tech marketplace, reaching over 40 million customers in 20 countries.
• In February 2019, Target announced its third-party marketplace called Target+ to grow its online portfolio in areas like home, toys, electronics and sporting goods.
• Sam’s Club parent company Walmart sells 40 million third-party products through their marketplace.
• GameStop announced their plans to build a platform for gamers, including products and services from third- party vendors.
• Fnac Darty now runs a marketplace with 36 millions customers.
• Today, 12,000 professional sellers use the Cdiscount marketplace.
• Worten launched its marketplace platform in 2019.
The CloudBlue platform enables retailers to grow seamlessly and transform their e-commerce shops into marketplace ecosystems. It handles all the ordering, fulfillment, subscription management and billing flows—including managing multi-tier reseller levels—so retail companies can seamlessly manage a catalog of third-party vendor solutions to be offered through their own marketplace, and deliver their own products by way of multiple third-party marketplaces in any language, currency and geography.
CloudBlue enables retailers to become better problem-solvers for their end customers, anticipate risks and hassles and proactively offer creative solutions. The company’s end-to-end cloud software and services platform helps retailers bundle, scale and monetize devices and digital services for an ever-more complex decade.
As the demands of digital transformation are passed on from customers to the go-to experts they depend on, CloudBlue equips these trusted advisors—the retailers of the future—to transform today’s limitations into tomorrow’s opportunities.
For additional information, read how consumer electronics retailers can achieve even greater growth by maximizing customer convenience, expanding their catalog of solutions and services offering, and transforming into a subscription-based business.
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References: 1. “Share of personal computer (PC) market revenue by vendor worldwide in 2018 and 2019,” ITCandor, March 2020.