Lessons learned during the 2016 end-of-year shopping season are already finding applications in the retail space as store, sales and customer experience models continue to evolve. Retailers are focused on developing new approaches to better target consumers via mobile, online and in-store sales to not only remain relevant, but innovative in the retail marketplace.
The Latest Stats
For greater context on why retailers are making the decisions at hand, let’s start with a snapshot of recent industry figures. Total sales are almost flat year-over-year from 2015 to 2016, but the distribution of where sales are happening continues to shift. Brick-and-mortar stores are still seeing their piece of the pie shrink as online sales increase. The real winner right now is mobile. Consumers are flocking to apps and easy-to-use mobile shopping options that save payment information and make purchasing a new item as simple as a few finger swipes and thumb taps. According to reports, “more than 72 percent of Amazon’s customers worldwide shopped through mobile devices,” so even e-commerce retailers are realizing this phenomenon.
Overall, the 2016 holiday shopping season drove a commendable amount of sales despite a flurry of negative sentiment in the press. The National Retail Federation forecast holiday sales would rise 3.6 percent to $655.8 billion, higher than the 10-year average of 2.5 percent increases. The Census Bureau reported that Retail and Food Services sales in November 2016 were 5.3 percent higher than the same figures from November 2015, a not insignificant bump. To cap things off, this holiday season revealed a record number of online shopping spurred by easy access to large selections of inventory available for direct shipping to consumers.
Throughout 2017, retailers must find ways to adjust margins for continued lost physical sales and increased e-commerce sales. Additionally, the reverse logistics and ancillary costs of higher return rates for e-commerce purchases need to be engineered for adaptability. Finding ways to reduce floor space to match sales, without closing the entire store — effectively throwing the baby out with the bath water — will be new territory to explore. There will be ample opportunity as brick-and-mortar retailers divest of stores and find ways to modify store layouts and assortments to better fit consumer buying habits.
Applying Tech in Smart Ways
Several retailers took immediate steps to prepare for a boost in online and mobile shopping. Wal-Mart expanded its store pickup model by allowing customers to retrieve online orders in stores until midnight on Christmas Eve. The company also flexed its Jet.com integration to help gain a boost in e-commerce sales, and now offers free, two-day shipping on purchases of more than $35 with no membership requirements. The move appears to be a direct response to compete with Amazon’s Prime offerings.
Nordstrom is another example of a retailer that has embraced digital tools and is using them to differentiate its 116-year-old business model while continuing to offer the fashion advice and value consumers have come to expect from the brand. The retailer has invested significantly in engineering and software development experts who not only build new tools internally, but also represent the brand frequently at public events, helping to further elevate the company’s innovative approaches.
Over the last decade-and-a-half, Nordstrom has continually invested in new technologies to stay relevant and compete more effectively with Amazon and others. The business has pushed growth of mobile and personalization technologies on the front end to help meet ongoing consumer needs, including a well-designed selection of Nordstrom apps supporting an online marketplace, customer social hub and mobile checkout. On the back end, engineers are proactively addressing opportunities to expand e-commerce activities and improve marketing and supply chain touchpoints. Nordstrom uses a point-of-sale system that helps salespeople track customers’ individual requests and needs in near real time, allowing it to access information about past purchases and preferences. All of these technology investments help the brand build trust and reflects Nordstrom’s leading position as a retail tech innovator, creating better customer experiences, employee interactions, marketing and supply chain touchpoints.
Retailers must maintain a portfolio management approach to new technologies, focusing on those tools and capabilities that truly differentiate the customer experience or drive cost savings and process improvements. There’s an endless supply of “shiny objects” in the marketplace to distract buyers and less-savvy technologists. Retailers’ development and maturation of portfolio management efforts is key to keeping the enterprise moving in the right direction.
Major Brick-and-Mortar Retailers Must Remain Nimble to Survive
Department stores such as Sears, Macy’s and J. C. Penney, which sell a range of discounted goods and luxury products, continue to struggle, maintaining a middle ground with increased competition from online retailers like Amazon and discount retailers like T.J. Maxx. In January, Macy’s announced the elimination of 10,000 jobs as it moves forward with the closure of 100 stores and other cost-cutting measures. Sears also announced that it will close over 150 stores and that it’s selling off its long-standing Craftsman brand of tools, storage and garden equipment to Stanley Black & Decker. This is one example of a company selling off a brand and product line to reduce inventory saturation and focus more on profit-driving goods.
As usual with annual shopping cycles, throughout Q1 we expect to see a short-term drop in demand for apparel and accessories as consumers’ spending habits shift focus to big-ticket items such as home renovations or car purchases. To help maintain consumers’ boots on the ground, some retailers are moving away from offering large inventories and toward smaller, in-store item selections enhanced by ancillary services. For example, a sporting goods store may decrease the range of tennis rackets it sells, but offer more services in racket maintenance and restringing.
Continuing throughout 2017, we will see more integration of technology into every facet of the retail experience, including in-store, online, mobile and beyond. Companies are experimenting with virtual reality (VR). Alibaba tested virtual shopping with Macy’s on Single’s Day in November 2016. Consumers in China used VR cardboard viewers to navigate Macy’s flagship store in New York City. We expect other retailers to undertake similar initiatives throughout this year. Augmented reality will also continue to penetrate retail experiences. Companies like Acep TryLive are helping retailers create digital experiences for trying on eyewear and jewelry, as well as filling a room with furniture. There will be ongoing changes to the way consumers shop, but as always, a key to retailer success lies in offering positive customer experiences that make it easy and fun to purchase goods.
As multichannel retailers continue to mature, we expect to see more organizational consolidations. Having duplicate staffs across various channels isn’t only costly, but drives complexity and slows innovation across the entire connected customer experience. Similarly, finding ways to leverage dramatically different supply chains for store deliveries and online fulfillment will be critical to maintaining overall margins in the face of lower margins for e-commerce transactions.
Tom Murphy is global retail and CPG lead at North Highland, and has over 35 years of information technology and business experience in the retail and transportation industries as both a practitioner and consultant.
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