The Future Created by Data Collaboration Between Retailers and Manufacturers Vol. 2: The Form of Retail and the Shape of Information

In Chapter 2, after explaining various forms of retail, I would like to examine and organize the information required for each retail type.

The Forms of Retail

First, I would like to define “retail.” As in the previous chapter, this article assumes that the “product” provided by “retail” is a tangible item in order to make the issues easier to understand. In addition, it also assumes that the product is a so-called convenience item (goods purchased frequently, such as food and daily necessities). When retail is defined in this way, the forms assumed are broadly as follows.

＜Store-based retail form＞
Department stores, GMS, supermarkets, convenience stores, drugstores, discount stores, home centers, 100-yen shops, specialty stores for specific product categories (such as greengrocers, fishmongers, or stores that handle only alcohol or tobacco), and other forms in which customers visit the store directly to purchase products. If we dig a little deeper and look at the changes in store counts by channel from 2014 to 2023, the situation is as shown in the table below.

※1 The author extracted the number of stores in Japan from publicly available materials (listed at the end). Note that the figures for 100-yen shops (Daiso only) are public figures as of July 2014 for 2014, and as of February 2024 for 2023.

This data clearly shows the decline of department stores while drugstores and 100-yen shops are rising dramatically. Incidentally, if you look at drugstore sales by product category, food sales are about 2.2 times higher than they were 10 years ago (※2), exceeding the rate of change in store count. This shows that food sales became a major factor behind the expansion of store count.

＜Online retail form＞
This is a form of selling products through online platforms such as Amazon, Rakuten, and online supermarkets. In principle, products are delivered to a location desired by the customer, such as their home, but online supermarkets operated by supermarkets with physical stores may also offer pickup services at the store, in the parking lot, or in lockers installed at the store. According to the "FY2022 Market Survey Report on E-Commerce" published by the Ministry of Economy, Trade and Industry, the BtoC e-commerce market in the physical goods sector was about 14 trillion yen in 2022, with an e-commerce penetration rate of about 9%. Compared with 2013, ten years earlier, when the market size was about 6 trillion yen and the e-commerce penetration rate was about 4%, this represents significant growth. In particular, during the two years from 2020 to 2021, when the spread of COVID-19 had a major impact, the e-commerce penetration rate rose by about 2%, and even after that, although momentum has slowed somewhat, market expansion has continued.

＜Catalog sales form＞
This is a form in which products are introduced through catalogs and purchased by ordering by phone or mail. TV and radio shopping are similar forms, differing only in the medium used to introduce the products. In addition, I was a little unsure where to classify it, but I think the home delivery business of consumer cooperatives is also one type of this form. Incidentally, according to data released by the Japanese Consumers’ Co-operative Union, the home delivery business of consumer co-ops generated sales of about 2.1 trillion yen in fiscal 2022. With 30.41 million members nationwide (number of members including medical and school co-ops / FY2022), it has an extremely large membership organization, and it also has a logistics network capable of delivering products including refrigerated and frozen items right to the front door. For that reason, I actually think it may be a hidden (not so hidden?!) key player in retail.
In addition, as catalogs themselves are increasingly being digitized online, I believe this form will likely be integrated into online retail in the near future.

＜Vending Machines＞
This is a form of selling products through vending machines. According to the number of vending machines published by the Japan Vending System Manufacturers Association, about 2.64 million vending machines were installed nationwide as of the end of December 2023. Of these, about 2.2 million units (84%) are beverage vending machines. The total number of machines exceeded 5.6 million at its peak in 2000, but the decline in canned coffee demand due to the rise of convenience store coffee, as well as the decrease in tobacco vending machines due to the decline in the smoking population and stricter age verification, means the downward trend has continued. On the other hand, there are also moves by retailers to install new vending machines targeting offices and small trade areas in order to address labor shortages and expand sales channels (for example, vending machines that sell food such as boxed lunches).

The Form of Information

In this section, for each retail form, I would like to think about the information that is necessary precisely because of that form, especially from two perspectives: 1) store-based retail and 2) online retail. By the way, deciding how to choose the necessary information is actually quite simple: it comes down to whether that information affects sales. I will not discuss the basic product information mentioned in Chapter 1 here.

＜Store-based retail form＞
In store-based retail, information about competitor stores is essential. If there is a physical store, the nearest store of a similar form is generally set as the competitor store. However, there are issues with continuing to set nearby similar-format stores as competitors in the traditional way, especially as drugstores increasingly stock more food. Recently, there are also methods for scientifically identifying competitor stores from foot-traffic data captured by GPS, so I recommend making good use of them.

In addition, after setting competitor stores, information such as the assortment status of competitor stores, the selling price of the same product, and the sales method (POP displays and other in-store merchandising, the number of facings, and other shelf presentation conditions) becomes extremely important. To confirm this, people often visit competitor stores for field observation. Other factors that should not be overlooked include weather information, which is one of the biggest factors affecting customer traffic, and local event information (festivals, school summer vacation schedules, and if there is an event facility nearby, the event schedule and expected attendance).

Customer information obtained through membership cards and apps is also extremely useful. It is converted into so-called ID-POS data and used for product development, assortment review, and sales promotion activities such as FSP. In particular, over the past few years, major retailers have been accelerating efforts to combine ID-POS with product DNA to extract customer characteristics and build their own “customer segmentation,” thereby further expanding the information obtained from ID-POS.

Information about employees who interact with customers is also important. For example, convenience stores are often operated with around 15 staff members per store, but naturally the level of customer service differs from employee to employee. In particular, items such as fried foods sold in front of the register can see major changes in sales depending on how actively staff speak to customers. I think it would be very interesting if this too could be visualized through data.

＜Online retail form＞
What I find most distinctive about online retail is that the “sales floor” = the “screen” can be individually optimized for each customer. This is difficult in other retail forms, which is why I think it is the point to focus on most, and the information required to achieve it becomes extremely important. For example, purchase history and access log data fall into this category. By linking this information to customer IDs and turning it into a database, individual optimization can be achieved.

Another distinctive feature is review information. In a retail form where customers cannot actually pick up and inspect the product, many people probably check reviews before purchasing. It is well known that comments written by the customers who actually purchased the product have a major impact on sales. How to create a spiral in which reviews lead to sales, and sales in turn expand reviews, may be even more important than external advertising strategies. A great deal of information can be extracted from reviews. You can identify not only the evaluation points of the target product, but also improvement points, UI issues on the site, and operational issues such as delivery and returns. The key to success will be to carefully design what information you want to obtain from reviews and build the comment section UI accordingly.

Naturally, it is also characterized by a strong fit with listing ads and social media ads. Information for advertising on web-based media is mainly important for acquiring new customers. There are said to be about 4.55 million active EC sites in Japan (as of June 2023 / according to Empower Shop Inc.), which is far more than the roughly 2.87 million retail stores with physical locations (aggregated retail store count from the Ministry of Economy, Trade and Industry / the 2021 Economic Census - Basic Activity Survey), and since users are not constrained by physical distance, a sophisticated advertising strategy is necessary in order to be “chosen.” It is necessary to manage advertising while monitoring conversion rates for each combination of ad target / medium / keyword / ad creative.

In addition, it is also important to increase traffic from organic search, which is the base. This is the search engine optimization commonly known as SEO. It is said that Google accounts for about three-quarters of all searches today, but are you familiar with Google’s "10 things we know to be true"? The first of those truths is: “Focus on the user and all else will follow.” This truth is, of course, also built into the ranking criteria for search results. In other words, deepening customer understanding is essential when working on SEO. To do that, it is necessary to correctly understand what needs your company’s products or services are satisfying for users.

Summary

How was “Chapter 2: The Forms of Retail and the Shape of Information”? There is, in fact, a wide variety of information. However, the most important information is the information that affects sales. Among that, information that can be “changed” is especially important. For example, weather information. Suppose we found that sales are higher when it is sunny. However, it is impossible to make every day sunny. What matters at that point is the information that helps us think about what can be changed to further increase sales when it is sunny, or what can be changed to prevent sales declines when it is not sunny. When you are unsure which information is important, please keep that in mind.

That concludes the summary of Chapter 2. Thank you for reading to the end. Next comes the final chapter, “Chapter 3: The Value of Data Integration.” Please look forward to the rest!

End

>>Chapter 1: Challenges in “Product Information Collection” in Retail

＜Sources＞
※ 1
Department store store count: quoted from the Japan Department Stores Association website
Supermarket store count: quoted from the Japan Supermarket Association website
Convenience store store count: quoted from the Japan Franchise Chain Association website
Drugstore store count: quoted from the Ministry of Economy, Trade and Industry’s Commercial Dynamic Statistics Survey
Home center store count: quoted from the Ministry of Economy, Trade and Industry’s Commercial Dynamic Statistics Survey
100-yen shop (Daiso only) store count: quoted from the Daiso website ※ domestic store count

※2
Calculated by the author from the Ministry of Economy, Trade and Industry’s Commercial Dynamic Statistics Survey long-term time-series data