08 Nov Why The Smart Home Needs The Retail Channel
For all the promise and potential of the smart home, the category has always been a little like Jello—difficult to nail down and challenging to define. If you ask 10 consumers what it is, you’ll likely get 10 different answers. Some define a smart home as the simple possession and use of a digital assistant solution such as Amazon Alexa, Google Voice, and Apple Siri; other consumers might associate it with mundane functions like automated heating/cooling management or lighting.
Obviously, the potential of the smart home is exceedingly broader than the aforementioned highly simplistic definitions. Home security, monitoring, door locks, and sensors are just a small sampling of what’s possible in today’s smart home. There are hundreds of smart home-related solutions on the market, offering consumers unprecedented opportunities to automate, control, and manage nearly every aspect of their homes. However, the sheer volume of solutions, app proliferation, setup, installation challenges, and hardware interoperability problems can overwhelm the average consumer. With some modest exceptions in the hardware area, there is no single technology player that provides the entire solution stack. Then there’s the scary fact that many good, innovative smart home-related devices are provided by startups that may or may not be in business a year after going to market. All these factors combined is enough to make any consumer a little nervous.
Retailers bring a sense of order to the smart home chaos
Amazon (and other companies that utilize the direct model) has undoubtedly made life more convenient for customers, providing great price value and access to products and services. However, a strange thing happened on the road to the direct model: brick and mortar retailers figured out how to remove operational efficiencies from their own supply chains and were able to mitigate (if not outright eliminate) the direct/retailer price gap. While there are exceptions, most products now cost the same at local retailers as they do online. Most retailers even have price matching policies for those savvy consumers willing to take advantage of them. Additionally, brick and mortar locations allow consumers to see a product in action before purchasing and gives them the ability to take a product home the same day. These are just a few of the ways that retailers help consumers cut through the smart home pandemonium.
Best Buy storefront. MARK VENA
Retailers have an uncanny ability to figure out how to sell market, merchandise, and promote complex products. Ron Crocco played a pivotal role in building Compaq Computer Corporation’s consumer product line into a multi-billion dollar business in the mid-1990s, and is widely considered one of the “deans” of U.S. technology retailing. Crocco makes the good point that it was U.S. retailers who originally invested heavily in the concept of selling consumer-targeted PCs. Now a Managing Partner at the RS Channel Group, one of the most highly respected technology retailing consulting groups in the United States, Crocco believes that the hard lessons retailers learned from selling PCs in the 1990s and early 2000s will be also be useful in the smart home category.
Arlo products on display at a retail location. MARK VENA
Best Buy, in many ways, is the past, present, and future of technology retailing. It survived the brutal retailer channel consolidation that occurred during the early 2000s, which spelled the end for retailers like CompUSA and Circuit City. Best Buy operates over 1,000 stores on a worldwide basis and is really the last remaining consumer electronics retailer in the United States. Mass merchants like Walmart and Target stepped in, as did warehouse club giants like Costco and Sam’s Club (the latter of which has proven to be quite adept at selling high-end electronics). Surviving regional retailers, like Fry’s Electronics, offer expansive product selection but not the best customer assistance.
Best Buy, on the other hand, has made enormous investments in sales personnel training and retail floor layout modifications—improvements that are not trivial in cost. Best Buy’s Geek Squad capability positions them particularly well for the smart home since many consumers require help installing security cameras, sensors, upgraded routers, and other smart home products. During a recent visit to Best Buy, I was impressed with the problem-solving advice from a Best Buy “blue shirt” who recommended to me a simple sensor that would automatically turn off the air conditioning if the balcony door was not closed. The fact is that Best Buy is getting good at supporting smart home sales.
An Apple Store retail location. MARK VENA
Apple, of course, is the gold standard for electronics retailing from a product presentation and merchandising standpoint. Apple’s 505 retail stores operate across 24 countries (272 in the United States) and are typically located in some of the most exclusive (and expensive) retail shopping centers. In some ways, these stores are ideal for marketing smart home-related products, but as Apple tends to be strict about what third-party products and accessories it sells, its smart home assortment is fairly narrow. It also should be noted that Apple led the charge several years ago (followed by Samsung) with the “store within a store” concept—allowing Apple to embed focused retail footprints within Best Buy stores with dedicated Apple or Apple-trained sales personnel. These tactics are not inexpensive from a manufacturer standpoint, and few smart home vendors have the deep pockets and high margins to emulate what Apple does.
Amazon pop-up retail location. MARK VENA
Offline direct-to-consumer tactics can help sell smart home products
Beyond physical brand-owned retail stores, mall kiosks and other seasonal “pop up” stores-in-stores can be effective at marketing complex smart home solutions. A great example of well-executed pop-up store is Amazon, the popular manufacturer of digital readers (Kindle brand), digital voice assistants (Echo and Echo Dot) and cord cutting products (Fire TV Stick) and other Amazon-branded electronic products. Its typical pop-up store has a decent sized retail footprint that feature faux walls, providing some level of intimacy that allow customers to learn about Amazon solutions. These pop-up stores are professionally designed and staffed by knowledgeable salespeople who provide highly personalized sales assistance, all attributes that are vital to selling smart home products.
Beyond the smart home, these type of offline, direct-to-consumer tactics will be particularly effective for showcasing bleeding edge products such as Facebook’s new Portal video communications solution and the Oculus Go headset. Consumers almost demand the ability to see firsthand and play with new category products like these before making a purchase.
The future of the smart home
Retailers still have the same challenges they’ve always faced: dealing with high return rates (especially with smart home products and “new category” products like VR headsets), assorting the right SKUs that deliver the most volume with the least amount of floor space, managing high employee turnover, and optimizing the most efficient use of their store layouts—just to name a few.
The good news is that retailers like Best Buy are making the appropriate investments to provide consumers with the right counsel and advice to make sound purchase decisions. The fractured nature of the smart home ecosystem—multiple vendors, scores of products with sometimes little differentiation, interoperability challenges, app proliferation, and other challenges—is not likely to change in the short term. The best purchase decisions are informed ones and it’s reassuring to see that retailers are stepping up to the challenge of filling this void.