A recent report by Forrester on 2020 Retail predictions said that retailers will find new revenue streams in the health and wellness space. Well, didn’t we already see this coming? There was no better indicator than when a large online retail giant set its eyes on this line of business, and acquired an online pharmacy some 18 months ago.
Similarly, a large US department store partnered with a national chain of fitness centers and a weight loss and wellness company, even sharing their store space with them. A large chain of consumer electronics stores bet big on “Smart Health”, acquiring a leading provider of connected health and personal emergency response services. More recently, the retailer also partnered with a telehealth device company. Another American retail giant diversified its total revenues coming in from health and wellness, which includes their Rx dispensing services, payer business and care clinics, by creating a one-stop place for primary care, counseling, dental, specialty, and insurance enrollment. In another segment, a clothing retailer launched a wellness and personal care product line.
The message is clear. Retailers and brands realize the huge potential in this sector. The global pandemic has only strengthened this case. Living through and coming out of the pandemic, customers would not only want a safe shopping environment but also products/services/communication aligned with safe and healthy living.
In their recent report, the Global Wellness Institute estimated that the global wellness economy- which does not include the traditional healthcare economy like prescribers, insurance payers, PBMs, hospitals, clinics, drug manufacturers, etc. - is valued at $4.5 Trillion. To put this in context, the Global Retail revenues were $23 Trillion in 2017, and the industry continues to grow at almost 4 percent annually, according to the National Retail Federation. While the top 250 Retailers registered a 5-year growth rate (CAGR) of 5.7%, the global wellness economy is registering 6.4% growth. In addition, according to forecasts, this doesn’t look like it’s going to slow down anytime soon.
Some of the macro-economic trends (leaving aside the pandemic) that are giving way to new sources of health and wellness revenue are:
1. Ageing population: A United Nations recent report found that there were twice the number of older people in 2017 than in 1980, globally. And this number is going to double again by 2050, touching 2.1 billion and accounting for one in five people globally. Thanks to advances in medicine, healthcare delivery, global peace and overall health, there is a growing need to cater to the ‘health and wellness’ lifestyle of this ageing population.
2. Changes in healthcare delivery: Governments, institutions, and corporates are all investing enormous amounts of time and money to change the way healthcare is delivered to their citizens and consumers. Being cost-effective, quick, patient/customer-centric, and outcome-focused are the tenets for a successful healthcare delivery system. Any investment in one or all of these areas paves the way for other services to hop on to the bandwagon. Think of it more like building a cold-chain network in rural India. Once such a thing gets built for a CPG company, opportunities are huge to transport other such products using that supply chain.
3. Consumers’ lifestyle-focus: A recent Deloitte report said that 61% of Gen-Zers will be giving second-hand gifts this holiday season. Okay, so where are they spending their money instead? Probably, experiences and lifestyle elements. Though the pandemic will have them curtailing spend on tourism, events & concerts, it will instead make them invest in things that promote healthy living. A leading fitness equipment maker registered a 64% increase in sales post the onset of the pandemic. Reports have also shown that people are willing to shell out more for products that have been ethically produced or sourced.
If there is a common thread that straddles each of the above, it is the more visible change in consumer mindset, and how they make buying decisions. This, in turn, has contributed to the growing health and wellness market.
Role of non-drug Retailers in the wellness economy
The above trends probably explain why retailers and brands have found this industry lucrative. So can we expect Macy’s to fill Rx tomorrow? That’s where the difference between the roles of drug and non-drug retailers arises. Apart from personal care, athleisure and beauty, that non-drug retailers have been involved in for several years, the health and wellness economy now includes not just products but also services such as anti-aging, sleep, wellness real estate, spa, healthy eating, nutrition, weight loss, wellness tourism, personalized and preventive medicine, fitness etc.
There are numerous fitness apps, trackers, and workout equipment available in the market today. One of my favorites - Mirror – a personalized and interactive workout station has even upped the game by consolidating sub-segments such as fitness trackers, personalized services, and consultation in a single window. Literally!
However, given Retail’s adaptability to blend in different formats into their business – for example: coffee shops, QSRs at a retail store – and also given its closeness to consumers in terms of data, retail is best suited to accelerate the consolidation/co-existence of the wellness economy within itself. This will also be partly driven by the pandemic as store real estate has become a non-value-adding asset and reinvention is required to repurpose them.
While health and wellness could mean different things for different retailing segments, non-drug retailers should strive to become wellness advisors for their customers, customizing based on the segment they operate in. Here is where technology can be a foundational block in making this work.
Technology to play a defining role in this journey
Of all the industries, retail is one of the very few that has successfully imbibed the advances in technology into its mainstream operations. Advances in analytics, Virtual and Augmented reality, IoT, Blockchain etc., have all found their use cases in retail successfully deployed. The current pandemic has only proven how technology can be a trusted ally during difficult times. As companies reinvent themselves during these times, it is recommended that they keep their customers’ wellness goals in mind while they revisit their value proposition and make changes to their business models. Technology has a critical role to play in making this happen. Some of them are listed below:
· Information-centered buying decisions
Ensuring that adequate product information is shared on websites and mobile apps has become the norm today. However, for wellness-related decisions, consumers typically have to constantly compare products, read a few hundred reviews, understand the relevance of these reviews with their wellness goals, and then make a decision. While retailers have taken steps to provide adequate information, they need to further travel with their customers to help them make decisions out of this information quicker. AI and personalization can play a role by identifying relevance in terms of product reviews, product information etc., and thus help customers get to their wellness decisions quicker.
· Align In-Store fulfilment and Fitness goals
Couple of years ago, Gensler and Reebok reimagined gas stations as fitness stations that generate energy. While this was driven by the growing demand for electric cars and the corresponding irrelevance of gas stations in certain neighborhoods, there could be a parallel in retail today. As stores transform into dark stores and regional fulfilment centers to salvage the cash situation, and to provide enhanced fulfilment capabilities, the concept of attachment sales that an in-store fulfilment would bring for a retailer has become invalid. On the other side, for customers, picking up an item either through curbside or by walking-in will soon become an unnecessary chore and a friction point in their shopping experience. This provides a window of opportunity for retailers to marry customers’ wellness goals with in-store fulfilment options. For example, retailers serving at downtown locations can reward customers for walking in to pick up items. This again needs technological foundation blocks such as external integrations with wellness systems, extending BOPIS functionality to accommodate such needs.
· Endless aisle that caters to specific wellness needs
Advances in fabric technology, bioprocessing etc., have led to the development of several niche products manufactured by boutique firms. Starting from fitness clothes that cool your body after a heavy workout to food products that cater to targeted nutritional needs, there is an increase in the launch of these products. Consumers are becoming aware of these products through social media channels and friends, and they want it now. Given the relatively longer lifecycle of 3-4 months in retail to bring products from the manufacturer to the store, it is not a good place to be for a retailer when the consumer searches for that “niche” product in your website and is unable to find it. Operationally speaking, it is also not possible for a retailer to stock these products unless planned for months in advance. In this scenario, retailers must identify these needs through cognitive capabilities and use new fulfilment avenues such as Marketplaces to source these products. Retailers’ supply chain must be agile and nimble to make this quicker.
· Loyalty programs that encourage healthy behavior
Typical loyalty programs at non-drug retailers reward customers who make purchases at their stores. Drug retailers, however, have long linked wellness goals with loyalty. The time is ripe for non-drug retailers to also adopt this approach. However, it is easier said than done. While the marketing services applications at, say, an apparel retailer are integrated with order information sourced through OMS-es, this new strategy would warrant them to integrate with disparate systems such as fitness tracker apps, at-home devices etc. Developing a common platform that allows them to integrate with these systems, without having to depend on customers to input this information, would be a good start.
· Holistic wellness advisor providing advice, starting from food to sleep
Customers spend their day across different brands, services, and products that serve them for a specific need. Given this, it is not possible for a single retailer operating under one segment to truly serve as a holistic wellness advisor to their customers. This is the market which many leading consumer-focused companies are trying to get in, through their smart home products. For retailers, this is a unique challenge as the data that their customers provide them is limited with respect to context. Unless and until the other streams of data from other brands and devices are integrated, retailers will find themselves providing uninformed advice to their customers. On the other hand, technology has matured enough to serve this need without compromising on customer privacy. The current pandemic might result in several consolidations between retailing segments that have the potential to drive these partnerships.
In addition to these, technology can also play a defining role in assuring the basics - the health and safety of their customers and employees – be it at DCs, Stores, EFCs, and HQ by distilling information from several sources such as social distancing adherence, economic vulnerability, social mobility etc.
Conclusion: Running the mile
In the 1990s, due to the efforts of the sustainability lobby, an accounting framework called ‘Triple Bottom Line’ (TBL) was devised. TBL made companies in the U.S. report their social and environmental performance, along with their financial performance. This in turn made them more socially responsible. More recently, cybersecurity became a standard factor to consider whenever building technology products and services.
Drawing parallels from there, it is recommended that retailers imbibe the health and wellness needs of customers as a de facto consideration point while making strategic and operational decisions. It is important to note here that as a customer’s profile changes with each retailer, so will their respective health and wellness needs. This focus should go beyond adding more product lines, and should permeate across all customer touchpoints.