| -- | May 9, 2017 How Coffee Technology Is Changing Retail By Patrick Watson I like Starbucks. That’s not the same as liking Starbucks coffee. I think their coffee is fine, but I’m not a connoisseur. I just like it hot and caffeinated. Combine the coffee with their store environment, though, and the attraction is clearer. There are good reasons Starbucks went from a local Seattle shop to worldwide brand in record time. You could say the same for other companies, of course. But today, we’ll discuss Starbucks (SBUX) because it is doing something unique. Thinking about it after my e-commerce pricing story last month, I realized the online retail vs. bricks-and-mortar conflict isn’t as clearly defined as it might seem.  Magical App My Starbucks habit began when I lost my last corporate job and took up freelance writing. The local Starbucks was a comfortable place to work. It was rarely crowded except for the morning rush, and they had reliable Wi-Fi and power outlets. Not wanting to be a freeloader, I always bought some coffee. Now that I have a home office and the nearest Starbucks is 15 miles away, I only go on weekends. But the Starbucks app on my phone keeps nudging me to come more often. The very handy smartphone app will guide you to the nearest store and hold your gift card balances. At the register, they just scan your phone and you’re done. Better yet, the app now has mobile ordering. Before you even get there, you can order your drink—customized however you like—and it will be waiting on the counter for you. You just walk in and grab it. Magic. This is where it gets interesting: The Starbucks loyalty program ties into the app too, using points to incentivize behavior, much like online merchants do. It does this by sending personalized promotion offers. This new approach to retail marketing isn’t the old shotgun advertising (pull the trigger and hope you hit something). It’s a sniper rifle aimed right at my weak spot.  Personalized Promotions Standard retail promotions—10% off, 2 for 1, etc.—have lost a lot of their bite. They may or may not work. Some people would have bought the product anyway, even without a discount. Others didn’t buy, but would have if the discount were just a little more or offered on a different day. What if the store could offer each customer precisely what it takes to make them buy, and not a penny more? That’s kind of what Starbucks is doing. Every month or so, they send me an offer that says, “Buy these three products in the next week and get 100 Bonus Stars.” Normally, you would have to spend $50 to earn 100 stars. So this isn’t a negligible amount of money. There’s a pattern to the three products too. Two are always items I bought recently. The third one will be something I’ve never bought before. They offer me a reward for trying it… and it usually works. Another sales tactic is the “Star Dash.” It awards escalating bonus stars for making multiple visits in a defined period. That one never works for me because I am near a Starbucks only on weekends. But they keep trying. You can infer the goals here: Frequency of visit and average ticket size are key metrics for any retailer. The Starbucks app tracks those by customer. Then the loyalty program offers individualized incentives. This is remarkably similar to the way online retailers customize prices and promotions based on customer data. But it’s happening in a physical store.  Hybrid Models The retail sector battle isn’t black and white, stores vs. online. While that’s part of it, drawing the line is getting harder. Chain stores are now exploring ways to integrate e-commerce with their store networks. At Nordstrom (JWN), salespeople carry tablets that list every store’s inventory. If you want those shoes, but they don’t have your size in stock, no problem. A few taps, and a Nordstrom store across the country will ship them right to you. How do we classify that transaction—store or online? Is Nordstrom a traditional retailer or e-commerce? It’s both - or maybe neither. Walmart (WMT) offers store pickup for online orders. Last month, it launched a “Pickup Discount” program where you actually get lower prices for items bought that way.  There’s another element to this: supply chain efficiency. If a chain store advertises a sale in traditional media, it has to make sure every location is stocked up on that item. Contrast that with the Starbucks app giving every customer their own personal sale days. They can coordinate it with inventory planning and smooth out the peaks. Small savings add up over thousands of stores. The bigger point here is that retailers are not surrendering to the Amazon (AMZN) juggernaut. They are fighting back with whatever advantages they have. And they do have some, as we see in the Nordstrom and Walmart hybrid models For investment strategy, it means that some beaten-up retail stocks may have more value than we think. Likewise, I suspect we’ll see new real estate opportunities as the economy finds the right balance of storefront, mall, and warehouse space. Companies that supply retailers with efficient technology and logistical services may also have good prospects. Finding those opportunities isn’t easy, of course. But success never is. (I’ve written extensively about retail in the Macro Growth & Income Alert. My co-editor Robert Ross and I vetted various retail-related stocks and came up with the best bang for your buck. Click here to give our premium alert service a risk-free try.) See you at the top,  Patrick Watson P.S. If you’re reading this because someone shared it with you, click here to get your own free Connecting the Dots subscription. You can also follow me on Twitter: @PatrickW.  | Subscribe to Connecting the Dots—and Get a Glimpse of the Future
We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets. |
 Senior Economic Analyst Patrick Watson is a master in connecting the dots and finding out where budding trends are leading. Patrick is the editor of Mauldin Economics’ high-yield income letter, Yield Shark, and co-editor of the premium alert service, Macro Growth & In come Alert. You can also follow him on Twitter (@PatrickW) to see his commentary on current events.
Share Your Thoughts on This Article
Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use. Unauthorized Disclosure Prohibited The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com. Disclaimers The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One Trade, Transformational Technology Alert, Rational Bear, The 10th Man, Connecting the Dots, This Week in Geopolitics, Stray Reflections, and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financi al advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC. Affiliate Notice Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.pubrm.net/signup/me. Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service. © Copyright 2017 Mauldin Economics | -- |
