Archive for the 'Consumer behavior' Category

Diminishing returns for Black Friday

With the release of the NRF’s annual holiday shopping forecast comes a RetailWire discussion about Black Friday. The debate? Whether the event itself is essentially dead as a volume driver. My opinion? Not so fast:

“Killed” is too strong a word, because Black Friday still represents one of the biggest shopping days on the retail calendar. But the day has lost its punch for a number of reasons:

1. Most obviously, the shift from brick-and-mortar to e-commerce. With the growing number of store closings and “zombie malls,” this will be a bigger problem than ever throughout the 2017 holiday season.
2. The Thursday paper stuffed with promotional circulars doesn’t reach the huge number of Gen Y and Z shoppers who don’t even read the paper.
3. As stores have extended Black Friday opening hours into Thanksgiving itself, they have simply cannibalized their own business.

I could go on, and these are tough “macro” challenges for an individual retailer to overcome. Some of the potential solutions involve greater use of targeted social media and other messaging to reach younger customers…and this is true from early November all the way to the last crucial weekend before Christmas.

But the biggest challenge may be to make the sale offerings and merchandise content more compelling. Easier said than done (without months of advance planning), but the recent focus on putting entire assortments on sale — instead of key items at compelling price points — has drained Black Friday of its former sense of urgency.

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The impact of “activewear as sportswear”

It seems more apparent than ever that some of the “women’s apparel” problem is actually a long-term lifestyle change. RetailWire panelists discussed this in the context of Gap’s Athleta activewear division:

I was in Madison, Wisconsin last week and walked down the pedestrian mall running from the state capitol to the University. It was impossible to ignore that the vast majority of women were wearing “activewear as streetwear” — in particular, black yoga pants instead of jeans. And these were college students for whom jeans would have been “the uniform” five years ago.

On the last wave of quarterly earnings calls, most retailers complained about the lack of traction in their women’s sportswear businesses — while mentioning the rapid growth of fitness wear. It’s increasingly clear that activewear is cannibalizing more traditional women’s apparel, so Gap ought to push the growth of its Athleta brand as hard as it can for as long as this lifestyle shift continues.

Are social media driving the speed of trends?

The short answer to my own headline question (above) is “yes,” but there is a lot more to this issue. Here’s my comment from a recent RetailWire panel discussion:

Social media may be a factor in fashion trends going Aeand moving faster. But the influence of “fast fashion” retailers (Zara, Forever 21 and others) can’t be understated. They mastered their supply chain in order to bring new goods to the selling floor a lot faster, and in order to react to early test orders in a big way. Most traditional retailers built their logistics around long lead times, especially on private-brand goods, and are scrambling to catch up.

The idea of “speed to market” requires a change in mindset — affecting supply chain management, the willingness to chase big ideas, and the ability of retailers’ vendors to move just as fast.

Groceries are battling too much space too

Excess square footage in general merchandising has been well-documented, especially with 2017’s wave of store closures. The trend hasn’t swamped grocery retail — yet — but don’t be surprised if the advent of online grocery shopping will take a toll. Here’s my comment, from a recent RetailWire discussion:

The grocery business is suffering from the same “overspace” problem that has plagued general merchandisers for years, leading to waves of store closures this year. The retailers in the middle — the old standbys like Kroger — are particularly vulnerable to increased competition from discounters, small-format stores and retailers doing a better job engaging with “foodies” and Millennials. (At least Kroger has a winning concept with Mariano’s in Chicago.)

There is no doubt that shopping behavior is changing. Some shoppers are opting for more frequent but smaller trips for fresher food, while others are bulking up at warehouse clubs. Aldi, Lidl and Trader Joe’s are offering smaller stores with curated assortments, and now Amazon is lurking in the background with its purchase of Whole Foods. As a regular shopper at Kroger’s “Metro Market” chain in Milwaukee, I can tell you that the overwhelming amount of choice (to fill all that space) makes even a simple shopping trip harder than it should be.

While some mid-tier chains are in a better position than others to survive, some industry consolidation is probably long overdue here. Meanwhile, here’s a related post about mall developers looking to fill empty space with food retail:

It’s ironic that we’re talking about food stores taking over vacant mall space today, after discussing excess square footage in the grocery business yesterday. There may be specific malls where it makes sense to add a small-footprint store like Fresh Market, but it’s hard to see how full-line mid-tier stores like Kroger can make this work on a large scale despite its test in Ohio. Presumably the grocery store would be the “last stop” on the shopping trip, if the shopper visits the rest of the mall at all.

The entire issue comes down to mall developers and how they reinvent all that real estate. Southdale (outside Minneapolis) is replacing a JCP store with a three-level fitness center; other malls are adding more dining and entertainment. But pulling off-mall retailers (TJX, Costco) into the fold may be a more viable solution if the price of entry is right.

Thoughts on the QVC-HSN merger

Here are some quick impressions that I posted on RetailWire about QVC’s plan to acquire HSN. “Home shopping” has lost its novelty — especially as TV viewers cut the cable cord — so the combined company faces some daunting challenges:

The initial benefit of the QVC-HSN merger comes from economies of scale in a mature segment. (It’s the same kind of play that Macy’s made for May Company several years ago, recognizing the lack of organic growth in traditional department stores.) But it’s clear that home shopping (via TV) is not where the action is. It’s up to QVC to figure out how to translate the “treasure hunt” experience of off-pricers to its model, and especially how to engage mobile shoppers at its site. It becomes an urgent challenge as more consumers (especially younger ones) continue to cut the cable cord.

Stagnant growth of loyalty programs

RetailWire panelists discussed some new data suggesting that loyalty programs’ growth is slowing at several retailers. Here’s my take on why this may be happening:

Loyalty involves establishing an emotional connection between the retailer and the customer, in order to move that shopper from a state of satisfaction to commitment. But far too often, retailers’ loyalty programs consist of little beyond price incentives. Extra discounts for cardholders may drive more frequency of visit but also encourage bottom-feeding when “loyalists” can apply one sale offer on top of another.

Among many other uses of data science, retailers can do a much better job using predictive technology to tell their best customers about new products of interest — not just when those products are available at the lowest possible margin to the store.

Should customers pay extra for service?

RetailWire recently posted an online discussion — about whether customers will pay an upcharge for customer service — that triggered plenty of comment. My perspective follows, and it is based on the idea that there is more than one way to define “service”:

To answer the question, you have to define “customer service” differently for different kinds of retailers. Customer service at Nordstrom means “high touch” and the SG&A cost of providing it is covered by high merchandise gross margins (or it should be). Conversely, expectations of “customer service” at Target are totally different — shoppers expect store shelves to be well-stocked and checkout lines to be efficient. Again, this lower-expense model is reflected in tighter merchandise margins.

My point? Customers are already paying for the “customer service” they seek in the stores they choose, based on the “cost of goods sold” that they are willing to pay. Any surcharge imposed by retailers to meet or exceed these expectations (hidden or otherwise) would be a bad idea.