BrandZ: Retail
Brand values in the retail category declined 27% year on year as consumers moved beyond lockdown-era shopping patterns and investors cast a tougher eye on tech companies.
The same stock market that boosted the share price of digital-first retail brands during the height of the pandemic has now adjusted valuations downward. This effect is especially pronounced for Chinese brands, as the market there prepares for slower economic growth.
Given these market corrections, it’s no surprise that overall brand values have trended down this year for top retail brands. But when looking at brand equity on its own (rather than combined with financial value, as it is in Kantar BrandZ’s overall valuations), the picture is more mixed.
Category leader Amazon, for instance, improved its equity perceptions in its core US market this year. This was largely caused by an upswing in Difference; compared to last year, Amazon is seen as more sustainable, ‘superior’, and trusted. Overseas, the picture is more variable; in Japan, for instance local competitor Rakuten is making a strong effort to regain its Difference edge. Notably, Amazon is planning for a strong push in India across retail, cloud storage, and entertainment services.
In its core US market, it’s no secret that Amazon has had to scale back its workforce and cut costs after consumers’ demand for online shopping came back to earth in the past year. Indeed, across the retail category this has been a transitional year.
That doesn’t mean that brands are heading back to their pre-pandemic status quo. But it’s a fact, for instance, that lockdowns led to retailers amassing excess inventory in many product categories – inventory that brands then had to consider how best to manage in 2022. For brands like Walmart, where price rollbacks are part of the brand DNA, this was less of an issue – but a brand like Target had to tread more carefully on discounting. Going forward, Target is looking to combine its renewed prowess in delivery and ‘click and collect’, with a return to its ‘Tar-Jay’ positioning (read that in a French accent, like Tar-gé: the promise here is high-quality design at democratic prices).
Similarly, retail brands specializing in home goods and home renovation did well in 2020 and 2021, as consumers prioritized investing in their domestic spheres; now, as travel, entertainment, and socializing has returned, consumer interest has rebalanced.
Overall, strong brands’ ability to pass on inflationary costs – and thus maintain healthy margins – has likely kept the Retail Top 20 from declining more in brand value than it otherwise would – as has the general strength of their brand equity, of course. A reputation for ‘good value’, in particular, has given brands more room to maneuver through this tricky transitional phase.
Walmart, for instance, outperformed the wider category in a year when it continued to grow it private label offerings. Walmart has also improved consumer perceptions around its being ‘worth more than it costs’ (to the point where consumer perceptions now suggest that brand has a ‘margin opportunity’ to increase premium pricing).
What’s more, the two returning brands that notched positive brand value growth this year both boast strong reputations for maximizing value, from different angles: Costco through its bulk sales and membership model, and Dollar General via extreme low prices across the board.
Of course, some inflationary effects are harder to maneuver around. This is especially true in the grocery space; in the UK, for instance, where prices notched a record-high 17.1% year on year increase in February 2023. In response to these shifts, some grocers are increasing their reliance on private labelling, which also puts them into greater competition with brands like Aldi and Lidl. and now aims for own brands to represent 40% of all sales by 2026.
Already, in face of rising food prices, Carrefour has leaned on its more flexibly-priced private label SKUs to burnish its reputation for value. Witness, for example, the popular promotions by which Carrefour commits to freezing prices on ‘100 private-label products for 100 days’
In China, large online retail brands have begun to face more competition from smaller players, which have gained on ‘shaking things up’ by offering more targeted product arrays and experiences.
In general, big digital retail brands have built up a lot of expertise around creating limited-time ‘shopping festivals’, which drive excitement around deals during a limited time frame. But it’s also important to pay attention to more everyday shopping occasions; as the scope of an online store grows, there’s always the risk of too much ‘visual bloat’ and complexity creeping in, to the detriment of customer experience and exploration.
In the medium and long term, there’s a hope that the metaverse and chatbots can create new avenues for discovery – but there’s room for improvement in the short term, too.
Costco has always based its value proposition on a membership model that encompasses wide-ranging perks, including travel deals and insurance. So, too, has Amazon, via its Prime program (although in recent years its cloud and advertising business have also been reliable revenue engines). Walmart’s more recent Walmart+ initiative offers a revealing look into the current state-of-the-art around value bundling; relative to Costco, it’s based less around ‘exclusive perks’ and more about saving people money in as many ways as possible – a positioning that may be right given Walmart’s customer base and brand DNA, as well as this inflationary moment. (According to an executive in charge of Walmart+, who was hired away from American Express, around one in four members receive government-provided food assistance benefits.)
In addition to free delivery – including for many grocery orders – Walmart+ now includes enhanced gas discounts, movie deals, digital coupons, cash-back rewards, tax prep deals, exercise video subscriptions, and a year of Paramount+.