SRT-Nov/Dec
Title Ideas
- Are You Prepared For the Upcoming Year?
- How Will You Prepare for The Upcoming Year?
As I write this in late August there is much discussion 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 of a possible economic recession. All things that could happen and if so most likely would have an effect on retail.
That said in July (the latest data available at time of writing) retail sales 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. That doesn’t mean it will stay that way. One constant you can count on in retail is that everything will change. The hot line today is tomorrow’s markdown. One need look no further than what has happened to shopping malls the past few years for additional proof of change. Since 25% of our nation’s malls have already closed since the peak of the retail expansion with more expected to close 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 retail in current mall openings 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.
Trends in Retail
Given that as a preamble there are some trends in retail that do seem to be working well that should be discussed.
Thrift Shopping: The Future of Fashion?
It has been touted that thrift shopping or selling second-hand or used clothing may take over fast-fashion within a decade in some stores. This niche is on the rise in many areas as customers continue looking for “value”.
Redefining Value
Value used to refer to price. Today however it means more about convenience. From liberal return policies to free shipping for online purchases the customer today is demanding 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 next day delivery…for free!
The Power of Coupons
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 simply a 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.
Notice how many solicitations for “worthy causes” are in the mail with actual currency inside. I receive several each week that contain not only 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 the letter but I might engage with their message and send in a contribution. You might find Dr. Robert Cialdini of Stanford University’s book entitled “Six Principles of Persuasion” interesting if you would like to learn more about this.
The Cosmetic Industry’s Marketing Strategy
The cosmetic industry has used this marketing concept to their 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? Shoppers prefer getting something extra for free to getting something cheaper. Over time a retailer’s perceived generosity makes them more likable and leads to positive brand associations. You have to give to get.
Best Practices to Review
As we approach year-end with all of the economic unknowns of the upcoming election year 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 breakeven analysis by store. More often if conditions change.
- Perform a cash flow exercise through year-end. Then do it again with a 5-10% reduction in revenue.
- Consider paying people on performance instead of only hourly.
- Move dead inventory out! Now is NOT the time to have cash tied up in underperforming inventory.
- Perform 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 needed. Narrow and deep always trumps wide and shallow when it comes to assortment planning.
Remember the newest 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 keep inventory levels stay within a profitable range. Seek independent outside counsel if you need an objective opinion.
Ritchie Sayner…
Summary
The retail industry faces potential challenges such as economic uncertainties and evolving consumer preferences yet retail sales showed strong growth in July. Trends like thrift shopping and the power of coupons are reshaping consumer behavior while strategies such as offering free samples leverage the Principle of Reciprocity to boost sales. Retailers are advised to focus on best practices like preserving cash mitigating risks and optimizing inventory to navigate the changing market landscape.
“The hot line today is tomorrow’s markdown.”
Real-World Examples of Retail Trends
The following examples illustrate how various retail trends discussed in the article are being applied in real-world scenarios.
- Thrift shopping has seen a significant rise in popularity with platforms like ThredUp and Poshmark which allow consumers to buy and sell second-hand clothing online reflecting the shift towards sustainable fashion and value-driven shopping.
- Retail giants like Amazon and Walmart have redefined convenience by offering services such as same-day delivery and easy return policies meeting the modern consumer’s demand for a seamless shopping experience.
- The cosmetic brand Sephora effectively uses the principle of reciprocity by offering free samples to customers which often leads to increased sales as customers feel more inclined to purchase full-sized products after trying samples.
