8 NOV-DEC 19
As I write this there is much discussion in American news outlets about proposed tariffs on goods imported from China currency fluctuations lower international tourism rising labor costs and increasing rents (think Barney’s 72% increase) and rumblings about economic recession. All are things that could happen and if some or all do most likely would have an effect on retail.
That said July retail sales – the latest data available at this time – increased at their strongest pace since March. Since 70% of economic activity is tied to consumer spending the recent sales figure bodes well for the economy in general.
Count on Change
That doesn’t mean it will stay that way. One constant you can count on in retail is that everything will change. Today’s hot line is tomorrow’s markdown.
For additional proof of change look no further than what has happened to shopping malls during the past few years:
- 25% of our nation’s malls have already closed since the peak of the retail expansion with more expected to close – and it’s safe to say that the U.S. doesn’t really need as much retail space.
- Even though current mall occupancy rates are still running around 87% according to Green Street Advisors the mix of tenants in new malls is in flux.
- For the first time in current mall openings retail makes up less than one half of the tenant mix with the remainder coming from entertainment and food choices.
Since 2017 major retailers have closed or plan to close nearly 21500 stores according to Coresight Research. Once new store openings are netted out 9400 store closures will most likely be on the books since 2017 as of the end of this year.
Given that as a preamble there are some trends in retail that do seem to be working well – trends that should be discussed.
The Meaning of “Value”
It has been suggested that thrift shopping – or selling second-hand or other used clothing – may take over.
Fast-Fashion Within a Decade
This niche is on the rise in many areas as customers continue looking for “value.” “Value” used to refer to price. Today however “value” means more about “convenience.” From liberal return policies to free shipping for online purchases customers today demand that the shopping experience make their lives easier. If not their default is a world of internet shopping that never closes maintains an infinite selection clearly has the best pricing and offers next day delivery “for free!”
Coupons and Customer Enticement
Actually the use of coupons has proven to be a more effective way of enticing customers than merely offering a discounted price. A study by Claremont Graduate University revealed that coupons create “happiness and health.” Retailers too would be happier and healthier at least financially if they knew that a $25 coupon is more effective than a simple “25% off” coupon. Dollar amounts are tangible.
The Reciprocity Principle
Have you ever gone to a Costco on a weekend and been offered a free sample? You probably felt somewhat of an obligation to buy the product assuming you liked it. They gave you something for free so therefore you should give something back. That is the Principle of Reciprocity in action. I can speak from firsthand experience that this works and I have the Costco receipts as proof.
Generosity and Brand Perception
Ever notice how many solicitations for “worthy causes” are in the mail?
Studies have shown that shoppers prefer getting something extra for free to getting something cheaper. Over time a retailer’s perceived generosity makes the merchant more likable and leads to positive brand associations.
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Published in the November/December 2019 issue of Shoe Retailing Today Copyright © 2019 National Shoe Retailers Association Tucson AZ www.nsra.org. All rights reserved.
9 NSRA.org
Actual Currency Inside?
I receive several each week that contain not just dimes and nickels but half dollars – and in some cases actual dollars. The senders know that not only will I take the time to open their letters but I might engage with their messages and send in a contribution. (If you would like to learn more about this action/response check out a book entitled Six Principles of Persuasion by Stanford University’s Dr. Robert Cialdini.)
The Cosmetic Industry’s Marketing Concept
The cosmetic industry has used this marketing concept to its advantage for years. Why you ask? Because it works! What if a shoe retailer were to offer a free pair of socks or a shoe care product as a promotion? Studies have shown that shoppers prefer getting something extra for free to getting something cheaper. Over time a retailer’s perceived generosity makes the merchant more likable and leads to positive brand associations. As your mother might have said “You have to give to get.”
Best Practices to Review
Year’s end is approaching with all of the economic unknowns of the upcoming election year. Despite the uncertainties retailers still have to plan ahead – and there are several best practices that bear repeating:
- Preserve cash whenever possible.
- Mitigate all unnecessary risk.
- Review expenses monthly looking for pockets of potential savings.
- Review your P/L and balance sheets monthly.
- Do an annual break-even analysis by store – and if conditions change do it more often.
- Perform a cash flow exercise through year’s end. Then do it again with a 5-10% reduction in revenue.
- Consider paying people on performance instead of paying them hourly only.
- Move dead inventory out! Now is not the time to leave cash tied up in under-performing inventory.
- Conduct a thorough brand analysis at year-end to make sure all vendors are performing up to par with your business needs.
- Streamline vendors and assortments where necessary.
Needed
“Narrow and deep” always trumps “wide and shallow” when it comes to assortment planning.
- Remember the newest and freshest merchandise is the catalyst to increased profitable sales. How disappointing would it be for a customer to make a trip to your store only to be offered last year’s carryover merchandise?
- Use your merchandise plan as the buying guide that it is. It is a great insurance policy that will help inventory levels stay within a profitable range.
- If you need an objective opinion seek independent outside counsel.
Ritchie Sayner is with Advanced Retail Strategies LLC an affiliate of merchandise planning company Management One. Sayner’s book Retail Revelations: Strategies for Improving Sales Margins and Turnover is available on Amazon. Contact him at advancedretailstrategies.com.
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Retail Industry Trends and Strategies
The article discusses the fluctuating economic conditions affecting retail such as tariffs and potential recessions yet highlights the robust retail sales growth in July. It emphasizes the inevitability of change in the retail sector noting the decline of traditional malls and the rise of thrift shopping and convenience-focused consumer expectations. Retailers are encouraged to adopt strategies like preserving cash offering generous promotions and conducting thorough financial analyses to navigate the uncertainties.
“Everything will change. Today’s hot line is tomorrow’s markdown.”
Real-World Examples of Retail Trends
The article discusses various trends and strategies in the retail industry highlighting the importance of adapting to changes and understanding consumer behavior. Here are some real-world examples that reflect these insights:
- Thrift stores and second-hand retailers like Goodwill and ThredUp have seen a surge in popularity as consumers increasingly seek value through sustainable and affordable fashion options. This reflects the shift from price-based value to convenience and ethical considerations.
- Retailers like Amazon and Walmart have revolutionized the shopping experience by offering liberal return policies and free shipping meeting the modern consumer’s demand for convenience and reinforcing the importance of value beyond just price.
- Costco’s strategy of offering free samples in-store exemplifies the Principle of Reciprocity effectively encouraging purchases by giving customers a sense of obligation to buy after receiving something for free.
