The Power of ‘Pivot or Perish’ in Retail

by Diana Drake

A highlight of the Wharton Global Youth Program’s Future of the Business World online course last summer was the Pivot or Perish simulation, better known as POP. POP allowed high school students to role-play as retailers and make critical decisions about their businesses at a time when the retail market was experiencing big changes due to the pandemic.

“I’ve learned that you have to pivot or perish,” says Rylan Robb, who participated in last summer’s FBW course and was also a guest on the Wharton Global Youth Future of the Business World podcast. “You have to change or things won’t work out. That is a fundamental law of life. Something’s bound to change, and what’s going to really matter is how you adapt to that change.”

Wharton marketing professor Barbara Kahn would agree with those sentiments, especially as they apply to the retail sector, a mercurial market for which she has developed a deep expertise. Kahn, who taught last summer’s FBW retail module for high school students and led the POP simulation, also wrote and recently updated the book The Shopping Revolution: How Retailers Succeed in an Era of Endless Disruption Accelerated by COVID-19.

“Lululemon pivoted to digital in a big way, and they could answer the demand their customers were requiring of them.” — Barbara Kahn, Wharton Marketing Professor

Kahn spoke with Brett LoGiurato, senior editor from Wharton School Press (publisher of her book), about how some retailers have succeeded despite big disruptions like the pandemic. Generation Z consumers are an important part of the changing market.

Below are 8 key takeaways that illustrate the power of pivot or perish in retail.

  1. Before COVID, there was the year of the “Retail Apocalypse” in 2017, when Kahn first wrote her book. In that year, 8,600 stores closed with big-name retailers like Macy’s, Sports Authority and Payless closing stores, liquidating and filing for bankruptcy.
  1. In March, April and May of 2020, when some 250,000 stores closed, it made the 2017 meltdown pale in comparison. By the end of 2020, 12,000 stores had officially closed.
  1. Even with more people shopping online during the pandemic, Kahn says, “Physical retail is not going away; bad retail is going away.”
  1. The pandemic accelerated important trends in retail that were already starting to happen in 2018 and 2019. “I believe retailing is moving to what I’m calling a “customer-centric, omnichannel experience,” says Kahn. “What that means is it’s not online or offline. It’s a seamless integration between, or among, those two channels, and it is all looked at from a customer perspective.”
  1. Amazon is a great example. While everyone has been talking about shopping online and the acceleration of e-commerce during the pandemic, Amazon has been opening up real stores. “They opened up their first Amazon Fresh and now they already have as many as eight, and they’re still opening. They’re opening up Amazon Go stores, too,” notes Kahn, adding that Amazon represents this concept of “new retail.” “When you go into a physical store in new retail, you have the customer experience in the store, but you also facilitate online shopping, if necessary, and you can use the store somewhat as a distribution center…There is a lot of use of technology in the new stores that they’re opening up…They are moving to this notion of new retailing, which integrates what we know about online shopping and facilitates it through a physical environment.”
  1. Guess who else prospered during COVID, despite the brutal retail environment? “What is super interesting is how well Lululemon has done,” says Kahn, pointing out that the company had already built a strong customer base for its work-out clothing. “They pivoted to digital in a big way, and they could answer the demand their customers were requiring from them. They were providing very strong product, which they always had, but they were now ratcheting themselves up to the digital experience, as well.” Lululemon also recently purchased MIRROR, adds Kahn, where they can have that digital, omnichannel experience that defines the new look of retail with their customers by running classes and building community.
  1. Generation Z is also having a big influence on the changing face of retail, not only as digital natives who shop seamlessly online, but also as big social media users. “What we’re seeing in retail is what’s called “shoppertainment,” where you use live streaming and big influencers — and sometimes in the U.S., celebrities. In other parts of the world, they’re called KOLs, key opinion leaders — who are not necessarily celebrities, but people who have influence. The shopping experience is merging between social media, live streaming, video, v-blogs, and real shopping into this new world where you can buy something through the influence of somebody you admire,” says Kahn, adding that Gen Z’s commitment to social responsibility is also influencing brands to not just sell clothes or products, but to do right by the world.
  1. While we are starting to see new retail trends in the U.S., China is way ahead of the game with omnichannel experiences from big-name sellers like Alibaba, which has opened Hema stores that integrate the in-person shopper experience with digital and distribution approaches. “China is also way ahead of the U.S. on frictionless payment,” notes Kahn “There are two big payment streams there, either WeChat or Alipay, which is 90% of the transactions in China. They are completely independent universes, but these payment systems are Uber apps. It’s not only that you can pay, but you can also order a car. You can access social media. You can pay attention to the shoppertainment. All of this is done in one app, and that integrates all of these processes into this seamless retailing experience. We’ll start to see some of that come to the U.S.”

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Conversation Starters

What was your retail shopping experience during COVID? Does it align with any of the trends mentioned in this article? Share your story in the comment section of this article.

With the explosive growth of online shopping, why are retailers like Amazon and Alibaba choosing to invest in opening physical stores?

As a member of Generation Z, do you agree with Kahn’s observations about your specific influences on the changing nature of retail? What other ways are you having an impact on how retail operates and what it stands for?

6 comments on “The Power of ‘Pivot or Perish’ in Retail

  1. COVID-19 has impacted the retail industry tremendously. Physical stores, including major retailers like, J.C.Penny, Nordstorm and Macy’s have shut down their stores due to lockdowns forcing shoppers to stay away. Consumers of today expect an omnichannel and personalized experience which the retail sector has spent years building up. The e-commerce industry saw a boom during the pandemic but the future of retail is not going to be completely online. Retailers should adopt by incorporating innovative technological solutions example, with computer vision and edge computing, retailers can learn a lot from how people shop and react to offers on store shelves. Physical stores will definitely be a thing of the future the only question being, how are they going to adopt? For instance, I am less likely to shop clothes online rather than physically trying and feeling the product. Consumers can use contactless and mobile payment options and retailers can use new technology-powered models such as buy online, pick up in-store (BOPIS) which has emerged and thrived during the pandemic. Such technology will continue to be essential and retailers will need to be more digital, creative, innovative and omnichannel than ever to emerge successfully from this crisis and thrive.

  2. Revolutionizing retail shopping and accelerating e-commerce, covid-19 has exacerbated the momentum. The next step we anticipate after establishing an explosive evolution of online shopping is making the process more frictionless. Taking that next step but putting a twist, companies like Amazon and Alibaba have chosen to blend the best of both worlds. While online shopping cannot completely obliterate brick-and-mortar retailing, it can be blended into a multi-channel. Identifying the friction points, these retailers seek to remove them and incorporate technology to enable customers to shop however they prefer- Observing customer’s dissatisfaction with current in-store experiences and eliminating them. Understanding choices and cutting another revenue stream can prove to be advantageous. Providing the convenience of both ways, retailers are understanding and catering to customer needs at their best. Another reason is to offset the rising shipping costs. Putting huge pressure on the supply chain, global online shopping has exponentially doubled the costs, reaching billions.
    Finally, even to this date, several customers are apprehensive of online products and window dressing. Companies are building a more inclusive network, allowing the retailer to show off their ware and enticing customers to join the community. Boosting awareness, building trust, and increasing sales are the main benefits of approaching this trend. Today, this venture has turned successful, inviting new members to join the community.

  3. I think in the future we will see retail companies like J.C. Penny, Nordstorm and Macy’s increase investments in their e-commerce platforms to adopt to shifting consumer preferences. While the in-store experience is still important, trends are suggesting that many consumer segments prefer the convenient and frictionless experience offered by online shopping.

  4. I think that frictionless payments and Generation Z’s influence on retail are the most important factors that retailers should consider in order to stay competitive and expand their businesses.
    Professor Barbara Kahn’s statement — “physical retail is not going away; bad retail is going away” — certainly holds true in today’s world. Even though several physical stores have shut down due to COVID-19 and digital technology is widespread, I think that physical stores will continue to remain relevant by evolving to meet consumers’ diverse tastes, as well as the growing demand for increased options and flexibility. One such way they can do so is by implementing frictionless payment systems. The pandemic has taught us the importance of hygiene. As a result, several consumers may prefer the frictionless payment alternatives, given its contactless and quick nature. Amazon Go involves scanning an app, picking items, and simply walking out of the store without having to go through the time-consuming process of checkout. Starbucks has had success with frictionless payments as well. Customers can open the Starbucks mobile app and hold their phones up to a scanner to make payments. The app also allows customers to rapidly customize their orders, tip waiters, and use a Rewards program that saves them money.
    Businesses should also focus on enhancing the online shopping experience, especially for Gen Z consumers, who are significantly influencing retail. As a Gen Z consumer myself, I understand that we have high expectations for the retail experience. My active social media use (eg. Instagram) and essentially unlimited access to information has increased my awareness of product options. Gen Z consumers want not only trustworthy, authentic, diverse, and relevant products, but also convenient, valuable, and inclusive customer experiences. Popular social media platforms like Facebook, Instagram, and Twitter can create such experiences. If we see a trendy product we like on social media, whether it be the latest Nike sneakers or a hoodie with your favorite influencer’s face on it, we are more inclined to purchase that product. The opinions of others and the latest trends are easily accessible through social media. Several companies heavily utilize social media to create trends and then present their products as fitting these trends through vivid pictures and engaging videos that customers can relate with. Companies should enhance the customer experience primarily through their online platforms and improve the efficiency of shopping in-person. Overall, I think that it is extremely important for businesses to create the “customer-centric, omnichannel experience” discussed in this article.

    • Hi Phalguni, I really enjoyed reading your comment and especially about how companies should shift their business model to suit the needs of their customers. After all, the only way businesses can keep getting customers is if they offer enough to meet their demand. I also like how you brought in examples of the system of frictionless payment already widely implemented in places like China where people could pay seamlessly making shopping much more convenient. However, I don’t think that businesses should target their customers mainly towards Generation Z kids. Keeping track of modern fashion trends will help you out but you may be leaving out a much larger audience of different age groups and interests in doing so. Rather, getting to know what kind of customers you have may turn out to be most beneficial. If a store is located near a school, having a more Gen-Z oriented business will be an obvious approach but a store selling fancier clothing would do better in other areas.

      I personally have also seen examples of the ‘pivot or perish’ ideology in practice near me locally. I live near a Japanese hibachi restaurant that has been open for decades. Once the pandemic hit, they closed down for a few months but reopened with renovations that accommodated outdoor dining, and also printed the menus onto the napkins to prevent the potential spread of Covid-19. The article also relates to the topic of impact investing, as most impact investors are of a younger age group. Companies conscious of this audience may also make changes to improve public relations and orient themselves towards a younger audience entirely. Overall, I loved the great points you brought up and especially how you brought up how amazon has adopted the frictionless payment method during Covid-19.

  5. When discussing the shift to online retail, professor Kahn states “‘Physical retail is not going away; bad retail is going away.’” This quote perfectly embodies the idea of the pivot or perish simulation; “run with the bulls or get run over.”

    To further address what professor Kahn said, it is important to consider the current state of retail. Compared to the past year and a half, retail is booming, but could “bad retail” be on the horizon? Quite frankly, yes. With one of the most challenging years due to COVID, retailers are desperately searching for solutions to become profitable and successful once again. There are two main ways to address these issues: reduce prices the business must pay, or raise prices the consumers must pay. Obviously there are a multitude of ways to do both methods, but without careful consideration and planning, customers will grow uneasy. For instance, if a clothing retailer deemed it necessary to cut costs on their end, they might switch to a cheaper material. Although this seems like the perfect fix, this is a negative paradigm that will result in angry and lost customers.

    Now more than ever, it is crucial for retailers to steer clear of these paradigms and quick fixes, and instead, focus on the roots of a problem and search for solutions that will keep the business, and the customers happy.

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