How Small and Mid-Size Retailers Can Thrive and Beyond

come in we're open sign on a green door

As tumultuous as 2020 was for the retail industry, it revealed some pretty large disparities between small to mid-tier retailers and big box retailers. 

Retailers didn’t have the luxury of A/B testing channels or offerings–most had to adopt a “jump in and figure it out as we go” mentality. For example, when countries went into lockdown, curbside pickup became a widely adopted practice for many retailers with little to no time to perfect the logistics. If retailers build it, the customers will come—at a distance.

However, some practices proved to be more difficult depending on the company’s resources, like returnless refunds.

Returnless refunds, specifically, have garnered more attention with social distancing and even sparked a conversation on LinkedIn:

ricardo belmar linkedin post returnless refunds

The original poster, Ricardo Belmar, a well-known strategist and thought leader in the retail and consumer technology space, asked his followers to sound off on what they thought about returnless refunds.

Industry professionals among two major sides of the retail realm—traditional, legacy retailers and digitally-minded retailers—weighed in on whether they thought returnless refunds were a sustainable practice for all retailers, specifically small to mid-tier ones. 

We wanted to dive into this conversation more and explore other areas of disparity between retailers, so I sat down with Ricardo Belmar and Gary Newbury, a Canadian-based Interim Executive who specializes in effecting rapid change within Retail Supply Chains and The Last Mile, to get their take. 

(This interview has been edited and condensed for clarity.)

In the LinkedIn discussion, it was brought up that middle-tier retailers like KOHL’s, Sears, and Nordstrom seem to be “left out” of opportunities like returnless refunds. Can you elaborate on why you think that is? 

Belmar: So, when we look at the different fulfillment models that came out of 2020, it’s important to think about which became almost a necessity. For retailers to stay in business when stores are closed, you have to fulfill a customer’s purchases in some other way. 

Retailers not already digitally enabled and caught “in the middle” were left scratching their heads trying to figure it out. The reason for this is they were the ones not even thinking about new types of fulfillment in 2019 or 2018. If they’d had that appropriate level of management foresight, they would have been thinking about how they could grow their fulfillment capabilities. 

And it’s almost become a cliché, right? Everyone wants to talk about how you have to meet your customer wherever they are. Unfortunately, a lot of the retailers in this middle category, they just didn’t do that. They stuck to their guns in certain channels and certain sales mediums, and they didn’t budge. 

Sometimes the excuse was, “Well, we don’t have the cash. We don’t have the resources to do it. So we can’t.” Then I turn that around and say, “What you’re saying is you’re not willing to invest. You know, if you’re not willing to make that investment, then you’re not going to grow.”

And then you have retailers on the smaller side who I think look at fulfillment and say, “I want to grow. But I’m not going to do that if I don't invest in something. So what are the areas that I can improve even if I don’t have stores? And I’m an online-only brand. Where else can I engage? Do I need to open a store?” Those are the questions they start asking to figure out what it’s going to take to improve fulfillment.

💡 RECOMMENDED READING: Considering opening a brick & mortar storefront? View our collection of articles about opening a retail store.

Newbury: There are four cultural types that might be helpful to think about. If you look at the average textbook, they talk about a process-minded culture, which is a very stable, nice, steady state—it works. Every employee knows what they've got to do. 

However, I put that in the bucket called “cultural intransigent.” That is a lack of awareness of a need to change approach, typically by the top team, that can spill into the organization, and a lack of appetite for change. 

The best of this is what I call cultural ignition, which is that everybody knows there needs to be a change, top to bottom, they’re willing to do it, they want to do it, and they suddenly take that first step and gain confidence. Many businesses don’t actually get very close to this state of cultural adaptability, which is key to becoming an agile organization, being resilient and serving their consumers as their needs morph quickly.

Belmar: Lululemon, I would say, is probably the best example of a retailer that is in that middle category. They’re not a Walmart-sized operation, but they know exactly what they’re doing. And they’re doing it right. That’s why they're successful. 

I think Nike is one of these middle retailers, too. They’re not a big gigantic retailer because they're really a manufacturer that sells directly. And they’ve had a plan running now for the last few years to grow that direct-to-consumer business and have pulled out of other retailers that don’t perform as well. They’ve been laser-focused on doing it. And they’ve learned how to speak to their customers. They know how to be where their customer wants to be.

Now, they do things like open personalized, localized stores in key areas where they know they have customers. It’s no wonder they’re doing so well. But then, on the other side of the spectrum, you have just about all the department stores, who despite the press releases to the contrary cannot figure out how to get it right no matter how you tell them.

What’s your take on the bifurcation between the DTC retailers who are digitally focused and the mom-and-pop shops who have a more traditional mindset regarding growing and being resilient?

Belmar: I tend to think, as Shopify does, if there was a theme to 2020 for retailers of any size, it was how to become agile and how to react quickly. 

I think this has been true for small and large retailers: up until the start of last year, they have been used to a glacial pace of change. We can argue that because of Amazon, in the last decade, they were forced to move a little bit faster. But at the end of the day, everybody was reacting to what Amazon did, and nobody was thinking forward until we had this huge outburst of DTC companies pop up who recognized how slow these other guys moved and said, “Oh, I have a way to do that differently.” And that’s why we have this strong DTC space now. 

So I think for 2021, the theme is actually “resilience.” Retailers who came out of last year successfully learned how to be agile. 

💡 We've got a podcast for that! Check out Resilient Retail, hosted by Kristen LaFrance, on Apple Podcasts, Spotify, and YouTube.

My favorite thing I've heard, especially from retailers who were in that middle-tier segment, is that their CEOs now look at them and say, “So you know, now that you proved to me that you could do that in six weeks, you can’t tell me it takes six months to do anything anymore. And if you told me it took six weeks before, I expect it in six days from now on, because I know you can move that fast. There’s no excuse anymore.” 

It forced them to prioritize things by themselves and have some sense of focus. To get things done quickly and to meet a customer’s needs. Whereas before, they were more focused on meeting an internal need.

That’s why we saw, for example, so many retailers figure out how to do curbside pickup. They didn’t have the time to sit around and say, “Well, we need a six-week project to evaluate different technology solutions to know how we’re going to implement that. And then we need another six weeks to train store staff on how to handle these kinds of operations. And then marketing will need another six weeks to promote the idea.” We now know they can do all of that simultaneously.

My favorite examples are the shops that took a little can of paint and a bucket and some cement and a stick for a sign in front of their doors and labeled it ”Curbside.” Done! They were able to do curbside pickup, and the rest kind of fell into place as it happened.

Newbury: It depends on how sophisticated you want to be beyond getting the basics out there. As a minimum you had to get to a baseline of, “I received the customer’s order, I go and pick it, and I have it ready to go.” The good thing about this period where many of the non-essential retailers that closed had an opportunity to put digital and mainstream retailing together in one place: the store. The store is a great place to execute the Last Mile from because they’re typically located within a neighborhood and often a lot closer to their consumers than the “central warehouse”.

One area that seems to have caught a few retailers out is thinking about what happens when you’re doing click-and-collect for efficiency. The key here is that you don’t fulfill the order at that moment you receive the order unless you have no time window as part of the “delivery” options. Time windows allow you to phase the picking and better balance workflow. If you don't have that system in place, you end up with, “We’ll tell you when it’s ready.” So, it requires space as you have to put the products somewhere, especially for those consumers who don’t come immediately for pick up. Plus, as a consumer, you might be thinking, why can’t a retailer have my order ready for curbside within an hour? They care less about the demand from others.

The lockdown situation allowed retailers to bring both channels together (physical and digital) and start to work out the logistics of click and collect and home delivery, and what does our store need to look like when we reopen, especially if we think the demand for online service is likely to continue.

Having this time to crash through all the procedures might have been fortuitous, although quite a shock to the system of work, but when faced with a revenue of zero, the most adaptable retailers immediately went to work.

A great example of this at large scale was at Tesco in the UK (world’s fifth largest retailer). They had a multibillion-dollar project to extend their ecommerce capabilities across the UK, scheduled to be landed over three or four years. David Lewis, the former CEO, said, “We need to expedite this, else we’ll lose share quickly.” The program was executed in six weeks. They got it up and running, and it cost them $400 million. It was just done. People throughout the retailer just said, “Right, let’s do this, it’s our only focus. Park everything else up.” 

There’s a real energy within any situation when the leaders and the staff are focused on one thing, regardless of which silo you may have sat in prior to the pandemic.

There’s a lot of conversation around what the new table stakes for retail are, due to the pandemic. Are there any retailers in your mind still trying to wait things out and go back to the status quo way of doing things?

Newbury: I remember some of the businesses who tinkered with ecommerce and found it was only a small part of their business and backed out of it. These are ones typically focused on what we call “the treasure hunt.” We have Homesense and Winners here in Canada and T.J.Maxx in America. So for those companies, it may make more sense not to do ecommerce. They’re hoping to get the doors open at some point and get all the people back in the stores and selling their products. But that’s a huge assumption that consumers will return to their stores beyond the initial burst of interest when the restrictions are eased.

During the restrictions, consumers found convenient options to meet their needs and have products delivered directly to their porch rather than have to drive their car to the store, find parking, pay for it, walk to a store, and all the other stuff we were prepared to do prior to the pandemic. It’s a predicament for store only based retailers, especially when the experience their offer is not relationship or value based.

We need to prioritize our thinking and recognize the most important operational activity is getting the product to the customer. The thing that’s going to crush retailers this year is not being in stock, worse than that is when the consumer believes the retailer is in stock and we either substitute or tell consumers “we’re out of stock, our inventory is wrong, supplier issue!”

Belmar: The first thing that everyone will have to do, which is probably the least interesting thing, is to figure out their inventory control across the board—up and down, end to end. This way, they’ll know when they’re going to have things in stock and when they’re not, because everything else branches out from that. In my opinion, that is the biggest takeaway for every retailer of any size: you learned last year that not having something in stock doesn’t just mean you lose a sale. It means you might lose a lifetime customer, and getting them back is a much, much bigger challenge. 

And it didn’t necessarily matter before. That’s why, before the pandemic, retailers would always talk about how one of their big projects is to modernize their supply chain and distribution so they can get close to 100% inventory control, because “we’re probably no better than 80% right now.” 

I remember hearing retailers tell me, “Oh, we’ve been trying to get ship-from-store right so we can fulfill ecommerce orders.” Or when the customer says they want to pick up in-store, so now they have to put in a system where if the inventory count drops below three, they can’t take that order because they don’t know if it’s really three or not. That’s just totally unacceptable now. You could get away with that up until 2020. Now you don’t get those second chances, because the convenience level from the consumer’s perspective is so critical and so high that you only get one chance. 

And that’s what I am always telling retailers, big and small, is that you get one chance in this. So you have to get it right. Your first table stakes are inventory management. If that means you need to look at your supply chain differently, then that’s what you’ve got to do. If it means you need store-level systems that have to change to help you keep track of everything, then that’s the one you’ve got to do first. 

Because the last thing you want to happen is if somebody buys five things from you and wants to curbside pickup, but you have to cancel two of them. And obviously, grocery has a huge problem with this, not necessarily because of poor inventory management, but because it’s moving so quickly. You could enter an order in the morning and run out of something by the end of the day before you pick that order.

Newbury: There’s a lot of opportunity to fail as the basket size/number of items ordered increases. Take your average weekly grocery shop of say 100 items. You may miss 20 items and it’ll be an absolute disaster for the consumer. They almost certainly will look for somewhere else to go. You lose the sale, and possibly the future business with that consumer.

Belmar: Another thing I wanted to bring up is the degree of proper order management from the customer’s perspective. So, say you’re in that scenario where the customer does have 10 things in their cart that they shopped for on their mobile device, and you only have seven of them in a store for them to pick up this afternoon with curbside pickup. 

Well, do you just not take the order for the other three? Does your ordering system at checkout allow them to say, “I’m willing to have those three things shipped to me and they’ll arrive in one or two days at my porch.” Or do you want to provide another option, like shipping it from another store, and it can be available for pickup there because it’s not too far away? 

I think that then becomes the next step in those things because now customers expect it. The big-box guys were the ones that did it right and implemented it last year. Consumers became trained to do it that way. So now everybody else has to catch up if they haven’t done it because it’s the new expectation from the consumer’s perspective.

How would you encourage a small to medium-sized retailer to adapt to changing customer expectations?

Belmar: It’s really hard to train a consumer to gain a habit, and it’s next to impossible to get them to break it. Once that’s trained, it’s a losing battle you can’t win. And frankly, it’s like one of those famous Seth Godin expressions—it’s like a race to the bottom, and the worst thing is to come in second. So, you have to find a way. 

One way I tell retailers is you’ve got to find the right technology partner because there is technology that’s going to be put in place. There are both processes and operational changes at the store level. But usually, there’s some backend technology. 

The big guys can afford to do this on their own. Some of them do it in-house. They can build it. They can go to one integration partner that can custom build it for them. 

Everybody else needs to find something that’s relatively off the shelf, that just needs some minor tweaking, because you don’t want to take six months to build it, and you don’t even want to, frankly, take six weeks to have to customize it. You want it to be as ready as possible so you can drop it in your environment, integrate it with your POS, integrate it with ecommerce, and put together one order management system that does all of these things. 

Connect your in-store & online storefront with Shopify POS

Shopify POS lets you show customers in-store availability, offer buy online pickup in store, manage your inventory across in-store and ecommerce, and more!

Learn more

I think that’s a key thing, especially for the medium and small retailers, because you’re not going to be able to do it all yourself and do it as well as the big guys might be able to because you don’t have limitless resources.

What about small and mid-size retailers feeling the pressure to compete with Amazon?

Newbury: If you’re a small to mid-sized retailer, Amazon isn’t your competition, largely because you’ll never compete with their proposition, especially Prime. What you have to do is find new ways of competing and being a lot closer to your customers. 

Take smaller retailers who may have proliferated their assortment and have just “too many” product categories, for example. When you walk into their shop, it is like an emporium of stuff. They have to do the hard work and actually reduce that down to something so that the customer has a very clear picture when they go into the store or go to the website for that retailer, exactly what are the specific problems they are solving for consumers?

I think smaller businesses have an opportunity to find that niche, to differentiate themselves. They have to be in stock and reintroduce the concept of service so when people go to the store, there’s added value. 

But with Amazon, it’s a transactional thing. It’s very predictable. As a consumer, I have no relationship at all with Amazon, and this is where small to mid-sized entrepreneurial retailers have an advantage.

"As a consumer, I have no relationship at all with Amazon, and this is where small to mid-sized entrepreneurial retailers have an advantage."

Belmar: I see two main differentiators. One is the relationship you gain through service, as Gary described, and the other is discovery.

Amazon is not a great discovery platform. At the end of the day, if you know what you’re looking for, you can get many variations of that item on Amazon. 

But if you don’t know what you want, then it’s not a great place to go and learn about things and discover them. I find what most people do if they try to discover on Amazon is read reviews. They know they’ll find the largest collection of reviews on products on Amazon.

But then, where else can you go to learn about a particular item that you don’t know a lot about? The local store that sells that kind of product is probably a great place to do that. And as long as the store operator knows that’s why you’re there, they can provide that discovery education around a product category.

Then, connect that with really great service. Say, let customers pick up their orders just a few blocks away at the local shop, or it can be delivered to their door the same day or within a few hours.

Those are the kinds of service-level things that small retailers can use to their advantage that Amazon will never have. I don’t believe there’s any amount of technology Amazon can throw at it that’s going to replace those two factors.

A few retailers we’ve spoken with are concerned that some of the trends brought about by COVID-19, like shopping local, aren’t going to last once we’re past the pandemic. What would you say to retailers who are feeling that way?

Belmar: I give them two counters to that. One is going back to what I said about how it’s hard to train consumers for a habit, and it’s next to impossible to untrain them afterward. A year is a pretty long time, so I think while it’s a valid concern to be afraid that people would give up these new habits because you know, some number will. Sure. But I think a pretty significant number will not. But only if, as that small retailer, you take advantage of the current trend to deepen your relationship with those customers. 

If you give customers a reason to keep engaging with you, you’re going to build that habit over the same period. And that customer is not going to break it afterward because now it’s become a convenience, and 2020 proved that convenience is king.

"If you give customers a reason to keep engaging with you, you’re going to build [the shop local] habit over the same period. And that customer is not going to break it afterward because now it’s become a convenience."

Newbury: Small businesses who have found themselves capable of getting curbside up and running have a great advantage, because if they’re in a 2-3000-square-foot store, it is reasonably efficient to do the actual picking/packing. The good thing about being a smaller store is that you can call a customer up and suggest another item if you’re out of stock. Whereas if you’re Walmart, it’s harder to have that kind of interaction because of the sheer size of the operation and how inefficient it might be to stop the picking to call the customer when you have only just starting picking their order, with the risk you may to call them again! 

Belmar: You know, you can be assured that no executive is sitting around a conference table at Target or Walmart worried about competing with you as a small local retailer right now. They’re worried about competing with Amazon. 

Focus on your customers and let them fight it out over there, because you don’t have to get in the middle of that. There’s plenty of space for you in your niche. 

What are some of the top priorities for a smaller brick-and-mortar business in 2021? 

Belmar: I think there is some validity to saying that among any of the things you accomplished last year, odds are you’re not done, and you want to build it out more. So, for example, if you were a retailer of any size and you added a curbside pickup capability, there are things you can do to make it better, even more convenient, and therefore stickier with your customers.

One of my favorite examples there is with home improvement stores. They didn’t have curbside pickup before, but they added it. They’re lucky enough that the store itself has the components they need to go out into the parking lot and set it up. But how do they communicate with the customer? 

Let’s say I place an order online or from a mobile app. If I use the app, I’d expect to get a notification on my phone that prompts me when my order is ready, rather than an email as you would after placing an order online. That’s one thing.

So, I get the notice, and I drive to the store. I get there. There’s a sign that says, “Text your parking spot number to this number.” OK, that was a quick and dirty approach to get it up and running. 

If I got an email, then there should be a link in the email if that’s the mechanism. I shouldn’t have to do anything as a consumer. My phone has GPS. If I’m doing it all with an integrated app, it should just recognize me and pop up and say, “Oh, we see you’ve arrived. Tap here to confirm that you’re ready for us to bring out your order, and we’ll meet you in a few minutes." 

Make it simple for the consumer. Make it smooth and simple for the store staff to not have to scramble to figure out those new procedures. So I think there are many incremental improvements on just about anything that any retailer rolled out new in 2020.

Retailers who feel like they need to catch up should look at the gaps in the things they did and what other retailers are doing and figure out how to close that gap. Once they’ve caught up, that’s the time to focus on that personal engagement, especially for the smaller retailers. 

What can you do to deepen the relationship with the customers you have? If you sell consumable items, can you put together a system that notifies them in some manner that prompts them to buy again? 

Don’t wait for customers to come to you. Start prompting them in an automated way to help encourage them to place another order. Keep the relationship rolling without allowing customers to go somewhere else. Those customers will end up being the best advocates for you to find new customers. 

"What can you do to deepen the relationship with the customers you have? Keep the relationship rolling... those customers will end up being the best advocates for you to find new customers."

Newbury: I believe a key area for smaller retailers during this time is to think boldly. For example, if a frequent customer consistently buys a product, you should make sure your online and in-store are unified so that when that customer comes in or orders online, you always have that product in stock for them. Having a narrow proposition is key here. 

To learn more about where retail is moving in the future, download the Future of Retail in 2021 report. It contains data from more than one million merchants on Shopify and survey insights from consumers all over the world. You can also request info about Shopify POS to learn more about how it can equip you for growth in this new reality.