Specialty Retail Blog

THE FUTURE OF RETAIL

By Evan Wise

The following analysis and conclusions are based on an article in WSR (Frugal Shoppers Appear Here To Stay by Lisa Lockwood 8/16/2010) about various observations of the direction of retail. Keep in mind none of these are absolutes but rather a continuum of change. We are at various stages of that continuum and it will affect some more than others.  I hope that these observations help you identify where you are situated in your own store with your own customer base. This Is an overview of the general  retail situation so there will be many individual examples of exceptions to these observations.  Like any forward looking analysis, the best use is to be aware of changes and see if there are signs in your business that reflect these observations.  If so, you then need to identify the changes in your marketing ,selling, buying and planning to be certain that you are ahead of the curve.

Thoughts about the future of Retail:

• More Technology
• Less Branding
• Move toward Need not Want

The “high end” retailers will be dealing with a smaller demographic. Those shopping the high end will be more aligned with that income and economic level, regardless of social level as in the past.  This will be offset by less competition and a flight from the big box environment to the stability of the independent. With a smaller pool of potential customers and fewer competitors, the high end is ripe for developing dedicated communities and networks of shoppers.  Those networks will be more critical to future success than any traditional marketing in print or broadcast mediums.

Technology

The overriding theme for the future of everything seems to be technology. The younger generations that will feed future purchases are so tuned in to technology that phone calls are becoming passé in favor of texting and other communication methods. Phones do so much and their worst feature is that it is becoming harder to talk to other people on it. People will want a relationship but it will be nurtured differently than in the past. Print media and radio are dying  as social networking, twitter, facebook, linked- in and word of mouth through technology takes over.  The website is a natural transition to the brick and mortar buying experience and no longer a separate experience as many retailers treated it in the past. That means that even if you are not into e-commerce, the website should display your top lines just like your window. Change the website even more often than you do your window.

The retailers that can adapt to the latest technology will gain an edge.  We are on the cusp of automatically sending  a text  or Twitter to prospects when they enter a radius ½ mile from your store  or closer and stores  will invite traffic that is potential business when they are close.  The more creatively you can use technology the more tuned in to growth you will be.  That means not only on the floor but in the back office too.  The need for forecasting and technology in managing your buying and your cash has increased. Lack of this technology has been a prime driver in who survived the recession and who succumbed and that pressure will only increase.

Technology will find its way into fashion products too.  I was at the WSR shoe show in Las Vegas last week and saw technology for comfort, cushioning and balance incorporated into shoes.  Technology to develop a custom fit in the store is here and serves to bring the customer into the technology of finding the right shoe.  Just like the phone has evolved to become a camera, texting device, internet access etc, fashion will provide muscle exercise, slimming, and health benefits too.  That means that every sales person must have more product knowledge about the features and benefits with details and background information. Communication of the technology of the product, how it is used  and its manufacture will be more important.  Organic stores, new materials, humanitarian manufacturing and just plain information about the features and benefits of each article is already on the scene. Look for more technology in the items sold in stores at all levels.  Shoppers want value and that comes with knowledge. As consumers get more thoughtful about what they buy, it must not only look and feel good but must be good for the environment and be made in quality ways that deliver greater benefits.

Less Branding

Brand loyalty is on the way out as people are looking to their friends and networks for the thing to buy; whats hot and whats not.  In some ways this is a logical extension of how shoppers get their information.  This is a fundamental shift and has many interesting ramifications!

Magazines, newspapers, and broadcast marketing to develop a brand is waning. That leaves vendors without a key tool they always used to develop their brand.  They are transitioning to the internet  and email but that is a personal medium where most email that is not personal gets filtered out with spam before it reaches the shopper.  That means the branding will shift to the local level.  Retailers will be in a stronger position with vendors since the market development will depend more on them.  Look for vendors to shift more marketing funds and efforts to the retailers!

Look for vendors to search for technology and other features to drive their lines.  No longer is fashion the key driver since those fashion statements were driven by mass marketing.  With people looking to what their own network is wearing, they will be less driven by a fashion trend than in the past. That being said, technology of new fabrics, function and design will eat away at the emphasis on fashion.

Brands will come under pressure from shareholders to maintain traditional profits.  To do that they will need to expand their customer base or raise their prices as those that qualify to buy at the high end shrinks. Some will dilute their brand to sell to the less affluent. Others will maintain their quality and brand image to sell to a smaller pool at a higher margin.  Retailers will have similar pressures to either stay the course and find ways to stay profitable or expand their target to change their focus to attract a larger client base.

Technology has redefined the fashion world. When a vendor could create a fashion and be exclusive for a season the brand image meant a lot. Today when a fashion is launched on the runways of Paris, technology allows it to be knocked off in the factories of China so the exclusivity may last a couple weeks.

One example of this move is the Vibram 5 finger toe shoe.  The design looks awful but has technology features designed into it all over! You probably have not seen an ad for it because their investment has gone into patents and aggressive protection of those patents.  The design is “foot functional” rather than fashion desirable and retailers can’t keep them on the shelf. Word of mouth in networks of runners and other young people are driving brisk sales.

More Need and Less Want

Future customer service will focus on developing networks and relationships through the networks.  More time will be spent communicating individually and electronically and less will be spent mass marketing in the media, direct mail and broadcast. Customer service means different things to each person and the best retailers will look for those differences and customize their “service package” for each customer. That will be a differentiator!  Technology can help log that information  and guide the building of a strong relationship.   Need will show up in more than just product and the best retailers will provide the retail experience, service and product that fills the need of each customer.

Events and experience will become more important than particular lines or brands.  The store experience will be much much more important. The words DYNAMIC AND SPIRITED jumped off the report.  What words define and depict your store and the experience your customers receive.  What feelings and emotions do your customers feel as they leave your store.

Mass media, broadcast and direct mail will all continue to wane. Why do you think the post office is hurting so badly!  Newspapers are going out of business on a consistent basis. The customer is smarter and more informed due to the internet and the networks of friends comparing information and data. When you are in a group of people under 30 and you want to go out to eat, phones come out and heads go down and  people get on their phones to type in yelp.com or some other evaluation site on the internet to see how many stars their friends rated the place!  They are doing that with your business too.

Summary

You must make sure that your customers are talking about you; you can’t be talking about yourself!

Vendors are becoming less important as customers are becoming more so.  Retail is changing in fits and starts. Nothing will always work but ideas that fit these changes will work more often as time goes on.

Adapting has been a series of topics as to how the recent changes in the market, economy and retail world are affecting your business. This is the fourth of the series by Evan Wise.

Another trend that the recession has accelerated is the rapid change in marketing. In days gone by, retailers would send direct mail pieces frequently and fill the newspapers with weekly advertisements. Today that is quickly changing. The postal service is upside-down economically, so twice a year we see postage rates increasing to keep up with its finances. Certainly the drop in mail volume is due in great part to the e-mail that is sent for free over the internet. Another factor, however, is the drop in bulk mail and direct mail advertising sent by retailers and other businesses. Newspapers are shutting down their presses too as there is less print advertising being done which supports the papers.

The replacements to these forms of advertising are many, including social networking (Twitter, Facebook etc.) that are more targeted and less expensive. Marketing has become more fluid as customers move from venue to venue. An upscale customer may shop in a luxury boutique in the morning and stop into a local shop on the way home.

The ability to stay in contact with customers rather than advertise to them has become the key. A successful retailer stays at the top of his/her clientele’s mind so at any time a shopping decision needs to be made, his/her store is the first option the customer sees. That is difficult to do with a weekly ad or a monthly postcard.

New breakthroughs in communication technology have created the opportunity to provide a more targeted, personal way to match your offerings with the customers’ interests. With Twitter reaching them once a day and e-mails reaching them three times a week, the historical goal of sending a message seven times is easily reached.

In addition, the technology is becoming so sophisticated that customers can be broken down into 30 different groups with like needs and wants, and targeted communication that hits their personal hot buttons is more effective. Hitting those personal hot buttons is more important now as people are bombarded by more marketing all the time. The close contact and personal messages that the independent retailer provides are a major way to rise above the din created by constant marketing by competitors. That is one reason it is critical to define your niche and stay there! You must mean something to your target market.

Another important marketing tool is your website. Although internet sales are beyond the scope of many independent retailers, an attractive and targeted website is essential. The Yellow Pages are struggling like newspapers and the post office because people now search the web to find stores. A website provides much more information and is more adaptable to exactly what the customer is looking for. Isn’t it time to give your marketing a makeover?

Have you ever read about pivotal moments in history where people say, “This was the best time to buy” because a market had bottomed out and was starting to rebound.

In the past few years, this advice has frequently been given regarding real estate.  But I think it also extends to retail.  And I believe that RIGHT NOW is the time to map out a growth strategy.

Many stores have closed their doors.  Others have contracted, leaving market segments or territories open for those who can capitalize on the opportunity.

A retail establishment grows  via one or more of the following methods;

1. Gaining additional market share
2. Gaining additional territories
3. Adding Product Lines

We are advising all of our accounts to review the above methods and decide on areas where they can grow their business.  Sure, things are still tough out there.  Yes, I believe Spring 2010 is going to be a challenge.  But if an outlet can get through that (which we are helping our clients do via better marketing, improved cash flow and great open-to-buy planning), then they will  be able to grow an amazing business from the seed of the present opportunity.

This economy has had us all worrying, contracting, suffering, weeping, struggling, and enslaved for far too long.  The time is ideal to do something proactive, something spectacular, something bold, and something that will carve a mark in the memory of customers and competitors.

Dan Jablons
Retail Smart Guys

Adapting will continue in subsequent Informer issues with various topics of how the recent changes in the market, economy and retail world are affecting your business. This is the second of the series by Evan Wise.

The hub of retail is moving out of the malls and into the streets. The recession has caused unemployment but the shoppers tend to be those who are employed, retired or otherwise minimally unaffected. However, even these shoppers can be more hurried and harried as the recession has caused most businesses to cut staff to the bone which puts more pressure on the rest to spend more hours, be more productive and work harder than ever before.

We value what is scarce and, because of the recession, it seems time is among our scarcest of possessions. The scarcity of time has put a greater value on convenience, availability and simplicity in shopping. A strip mall where a woman can take the dry cleaning to be done or have her nails manicured and can buy items for her wardrobe within 50 yards can be a huge convenience.

Other retailers have found ways to use their stores as bases and then move their sales influence beyond the physical location. Everything from bringing a wardrobe selection into an office to internet sales can move the boundaries to a much wider circumference and can make the shopping experience faster and more convenient. E-mail, social networking and even the phone extends your boundaries to expand your business. Now is the time to brainstorm ways you can make your store more available and easier to shop.

Adapting to a New Reality will continue in subsequent Informer issues with various topics of how the recent changes in the market, economy and retail world are affecting your business. This is the first of the series by Evan Wise.The recession has had a profound impact on your customers, your vendors, your employees and the entire business community. Your success will depend on your ability to read these changes and adapt to the new reality quickly, creatively and effectively. The first requirement is to be able to identify the new emerging trends. Over the next several issues, I will try to point out the various trends that are being impacted and propelled by the many recent changes. Prudent retailers will be able to assess how these trends have affected their business and more importantly, how they will assess their own situation and decide how to take advantage of the changes. Your comments will not only be welcome, but they will be important feedback during this time of considerable flux.

The independent retailers’ great advantage has always been that they are closer to their customers, and thus better able to understand them than the chains and big box stores. That advantage is more important now than ever. With the understanding of the sales pulse of his clientele, a successful retailer can take that knowledge to market and find merchandise that attracts his customers and keeps them coming back. Chains and big box stores count solely on megatrends to compete and cannot match the independent’s ability to surgically target the market. That precise approach is why independents command higher price points but they lose the battle of markdowns and promotions.

The recession has spawned a trend for customers to be more skeptical which means that the trust that existed in the past and was a key to independent retail success may be questioned. New trust will be more difficult to achieve. Customers are more willing to explore different shopping venues. Trust and loyalty both are more tenuous when the customer is fearful about his own future. The need to develop trust and strong relationships has always been the cornerstone of independent retail. It presents itself now as a fierce challenge but its importance has never been stronger. Trust must be the foundation for everything from marketing communication with customers, dealing with employees, creditors and local vendors.

As an independent retailer you must be more creative in providing the right price, selection, service, policies and experience for your particular niche in the market. What are you doing to demonstrate your values, the trust you place in your customers and how they see that in the shopping experience?

Black Friday is behind us and the holiday shopping season is in full swing. In many cases it will be the little things that store owners do that will make a big difference in the profitability of the season. One thing to be aware of is that shoplifting is up 6% since the recession hit.  The National Association for Shoplifting Prevention estimates retailers lose $25 million a day to shoplifting.  Make sure you measure shrinkage and the trend for how much you lose in your store to theft  are not on the rise.

Giving all employees brief but frequent reminders of what to look for can pay dividends. Some of the following points may help get you started. The rest will come from your own years of experience and the ideas of your staff when asked.

1.       Many shoplifters work in groups of two. One person is the distraction while the other is the thief.  When something occurs, make sure you are looking around and not at the distraction.

2.       Watch for items inconspicuously hidden under clothing, in handbags, strollers, umbrellas or stuffed into pockets.

3.       Make sure that labels are on the right merchandise. Switching a label to a more expensive item is theft.

4.       Be wary of people that spend more time watching the sales staff than shopping.

5.       Keep a count of what goes into the dressing room and what comes out.

6.       People that look at items more to kill time and delay. They do not seem interested in buying.

7.       Eliminate blind spots in the store—hang a mirror or a camera.

8.       Treat restrooms with the same scrutiny you do dressing rooms.

9.       Monitor trash—putting goods in the trash and picking it up after hours is not uncommon.

10.   Alarm doors that are not supposed to be used for customer traffic.

These ten actions are a good start. Shoplifting costs both the store and your good customers’ money. Have a great holiday!

Thanks again to Neal Esserman for sharing this blog posting from Retail Design Diva called “A Recession is a Terrible Thing to Waste.”

It discusses how the current crisis has forced many companies and people to reinvent themselves positively, and in ways that they simply would not have had the courage to if their current groove had remained rosy and adequate.

Retailers are entering the fourth quarter with many significant and important questions. The way they respond to these inquiries and respond to the circumstances will dictate their success. Three of the most fundamental questions I see are:

1. What will traffic be in the store?
2. What will sales be?
3. What will margins be?

Let’s apply some logic to see if we can find some likely answers. Many people have lost their jobs (~10%) and even more are underemployed (~17%) which means they are making less money than they did a year ago. All these people will not be taking vacations or spending a lot of money on entertainment like they did before. We are talking about one out of six people; the losses cut across all income brackets from laborers up to executives.

Even with lower credit card limits, tighter credit and less home equity as financial supports, for the most part, these people will not ignore the holidays and will be shopping for gifts. The probability is that they will be looking for less expensive items and bargains this year in addition to the special gifts they buy at regular prices. The best news is there is a form of entertainment that they can still afford and that is shopping. Look for the store traffic to increase this holiday season which is good news for retailers. Keep in mind that now, more than ever before, the more entertaining you are, the more traffic will be searching you out.

Those who have less discretionary income are joined by many others in worrying about what lies ahead. On the positive side, the stock market has run up nicely to about where it was at the beginning of the year. That has released some pent up demand among the 73% of the population who are fully employed. That means there will be a demand for full price goods but also a pull for discount, off price and lower price point goods as well. Balancing the inventory mix will be tricky. No one knows when discounting will begin and how brutal it will be. That means this season your inventory planning, balance and flow is as critical as enhanced selling skills will be to determine your success. With traffic up, conversion rates could be the main dashboard components on which to focus!
Margins are the big unknown this year. It is a question mark whether the chains will pull the trigger on markdowns early again or whether they took a big enough beating themselves last year to buy more prudently and be able to hold the line on discounts. We have been working hard to find ways for clients to boost margins in the face of uncertainty and the moves are working. Certainly the Margin Buying Service is a great key for women’s boutiques to boost IMU to 70% and increase turns at the same time. The holiday suit promotion was a similar opportunity for men’s. More prudent markdown strategies are needed this year to keep up the MMU. There are opportunities out there but retailers must be aggressive to grab them.

There are a lot of other situations and circumstances that will affect retailers – from the scarcity of certain goods to a scarcity of credit available to buy them – but these three stand out as critical. The unknown factor is again extremely significant this year so be adaptable, flexible and keep listening to your market and to your affiliate. These will be the keys to your success.

Happy holidays and good luck!

Hopefully the Great Recession of 2009 is starting to see a turning point and slight optimism is emerging in the media, in the market and on the street. I am reminded about growing up with parents who were a product of the first Great Depression and how they were against taking on debt to get what they wanted. I remember my mother washing out plastic bags to reuse them and smoothing out tin foil for re-use; later I realized this was another manifestation of her years of struggle in a depression.

Hopefully we are starting to see the recession’s end or at least the bottom of the drop. I wonder what will be the lasting lessons that our society keeps from this experience. One result that is emerging is a higher rate of personal savings. Even those who have not lost their jobs or had their pay cut are saving 4% more on average than they were a year ago! For retailers, that means that families making $100,000 a year are spending $4,000 less so the fight for their business becomes that much more intense. The reasons that this change is expected to outlast the recession is the fear of losing a job, the tighter credit, the loss of collateral and asset value and the realization that the spending levels we were at cannot continue. (2005 saving rate was a negative 2.5%, meaning we were spending MORE than we were making as a nation.) Conspicuous consumption is over and we are shifting from a mentality of “I am worth it!” to “Is it worth it?”

This “shift to thrift” is something that puts a greater burden on the strategy, planning, inventory management, expense control, payroll oversight, productivity, training and cash management. All retailers will need enhanced information and methods to manage their buying and inventory more accurately than ever before. That does not mean avoiding spending and buying, but it does mean spending and buying the right goods in the right amounts and landing them at the right time so that payment for them can be covered! Inventory planning must be accurate, timely and implemented effectively if you are to strive, survive and eventually thrive.

Other aspects of the business will require more scrutiny and positive actions as well. New strategy aimed at adapting quickly and effectively to the new environment is more critical than ever before. Many will need to cut staff and expenses while, at the same time, needing more productivity, motivation, innovation and creativity. That means that effective leadership and management are a critical aspect of the plan to strive, survive and thrive. Those stores that rely on outdated management and leadership methods will be flushed from the retail environment as the average household cuts 4% of its spending and there is less demand to go around.

The potentially great news for specialty retailers is that adaptability is in their favor. The independent specialty retailer should have the ability to quickly implement new strategies, leadership, management and control methods in order to adapt to the new situation quickly. The chains and big box stores will require a much longer time period to make adjustments and their survival will be less assured.

I am certainly not to the point where I am washing out plastic bags but I am thinking twice about what I spend and hoping to see my savings account grow. It appears I’m not alone.

We started on this ride we are on after the Great Depression and WWII. After we built up a huge debt that time we emerged to a great standard of living.  We earned enough so a man could feed and provide for his family while his  wife could tend to the home and raise the kids.  That lasted about 20 years but in the 70s, women found they needed to go to work outside the home and bring in some cash to provide for a “standard of living”. By the 80s even that was not enough so we needed to inflate the price of homes and use the equity to supplement that family income to achieve a “standard of living. “  That worked for a while but soon we needed more so the banks came to the rescue with credit card debt that was available easily to all.  Credit cards were used to build up huge deficits so the middle class could all have a standard of living. Then the crash of 2008 caused the standards to all change. The home equity vanished, the credit card issuers were retrenching and one of the two income earners in the family was likely to be unemployed.  Back to 1950.

Since 1950 we have allowed our standards to increase at a steady pace. If each of us went back to the standards of 1950 we would do fine.  That means a black and white 13 inch TV for the family instead of three 42-inch color plasma TV’s.  One car instead of two would be the norm and we would move back to the city where we would be close to the job.  The food you would eat would be fresh, not processed and liver once a week would stretch the budget too!  You could throw out the cell phone and the $50 a month bill and replace it with one land line connected to one phone ON A PARTY LINE.    We would go back to seeing clothes flapping in the breeze and you would be happy if you had a washing machine in the house.   I think you get the idea.

There are so many improvements in our standard of living today that we do not appreciate. We may be making some changes back toward 1950 and all be happier and better off for it.  In 1950 there were many retailers and many fewer chains and department stores.  There were no malls but downtowns were flourishing.  We look at malls struggling that might be signaling a reversion  toward 1950 retailing. Certainly we will not revert back 50 years but it may be worthwhile to consider this scenario as you look at your own situation and try to adapt to a changing customer base. For example, rentals of expensive items might get more popular. Although we may not be moving back to 13 inch black and white TV’s; we may be going back to one family TV instead of several scattered throughout the house.  Might not be all bad!