5 Challenges, Opportunities, and Imperatives for Retailers in 2015
This Q4, retailers will see the biggest test of all of their existing processes and newest initiatives – from IT infrastructure, product assortment, and customer analytics to in-store operations and digital customer acquisition.
We bring together observations from the experts and consultants fueling the strategy behind the Retail industry’s premier players–including Best Buy, Nike, Gap, Dick’s Sporting Goods, The North Face, Indigo, Vans, Nautica, Lego, and Petco–to boil down what retailers should expect in the foreseeable future.
This is not a practical, quick tips style article.
The takeaways in this piece are focused on driving strategy over the next 12 months – a strategy that addresses the most pressing challenges, opportunities, and imperatives for even large-scale, sophisticated retail businesses.
Meet the Retail Experts
Ken Morris, Principal: Boston Retail Partners
Ken Morris helped found Boston Retail Partners in 2009 and is currently a Principal at the firm. Previously, he was CEO and President of LakeWest Group and founder of CFT Consulting and CFT Systems, a retail software company.
Earlier in his career, he held retail information technology executive positions at Lord & Taylor, Filene’s (Macy’s), Talbots, Stop & Shop Supermarket Company, and Sears. His experience is with strategy, selection development and deployment of retail management systems and processes.
Jon Weber, Managing Director and Partner: L.E.K. Consulting
Jon Weber is the managing director and head of the retail and consumer products practice at L.E.K. Consulting.
Doug Fleener, President: Dynamic Experiences Group
Doug Fleener is a veteran retailer with over 25 years of hands-on retail experience. He is the former director of retail for Bose Corporation and has also owned and operated his own specialty stores.
Doug is president and managing partner of Dynamic Experiences Group LLC, a Lexington, MA-based retail and customer experience consulting firm dedicated to helping retailers dramatically improve their sales and performance.
Rob Henneke, Executive Vice President: RPE Solutions
Rob Henneke works closely with retailers providing insight into processes and best practices to improve bottom line performance. Henneke’s depth of retail experience and rich knowledge of the IT industry allows for a complete understanding of the business process to make recommendations leading to improvements.
Heather Raines, Partner: R3 Consulting Partners
Heather brings over 20 years of consulting and management experience within the hospitality and retail industries. She has a deep knowledge of both direct commerce and multi-channel retail specializing in merchandising strategy and planning, merchandise related systems implementations and drop shipping program design, implementation, and execution.
Bob Phibbs: The Retail Doctor
Since 1994 companies worldwide have turned to Bob Phibbs, the Retail Doctor® for the proven expertise necessary to grow their sales. An American retail expert, Phibbs has been engaged as an entrepreneur, sales trainer, author, franchisor and customer service champion.
Tony Ward, Partner and Director of Hard Lines Practice: Kurt Salmon
Tony Ward leads the Hard Lines Practice within Kurt Salmon, a global management consulting firm specializing in the retail and consumer products industries. Mr. Ward has more than 20 years of experience in supply chain management, global product flow, transportation, sourcing and enabling technologies.
5 Key Challenges Retailers Face Now
1. The Omnichannel Dilemma
The top 3 challenges our clients are facing are focused around creating an Omni Channel, or as we like to call it the Omni Commerce experience. In no particular order:
- Data and data management – The amount of data available today and the increased customer expectation to have access to a lot of product information has made data management a priority. Many of our clients are looking to PIM and MDM solutions to supplement or even replace their legacy item master and data repositories.
- Inventory visibility and availability – Our clients are looking for ways to maximize the inventory they have and to ensure that it is accessible via all selling channels and customer engagement points. Although the solutions may be different by retailer the goal is the same.
- Technology and innovation. Many of our clients are leveraging technology that needs to be updated or replaced. Technology and system capabilities are changing and innovative solutions leave IT departments scratching their heads as to how to keep up.
A key challenge is to deploy a real-time retail model across all channels to enhance the customer experience. Retailers need to create a single, unified commerce platform which eliminates individual channel silos and offers a holistic customer experience across all customer touch-points.
By far the biggest challenge is the drop in [in-store] traffic as a result of consumers taking less shopping trips. This is especially a problem during the holidays.
To tie online and offline, putting mobile apps in the hands of store associates truly empowers them to be more efficient and better serve customers.
Mobile is a big pain point. While marketers can text to shoppers either at their home or as they stroll by a store, there is a still a creep factor retailers are trying to figure out. How much is too much interaction and how much is beneficial?
The top challenges we’re seeing all have a consistent theme: We know omnichannel is here, but how are we going to do it? How do we operationalize omnichannel? Retailers are wondering how to create a consistent customer experience, particularly when many are behind on having any e-commerce and mobile presence, now considered table stakes.
On the back end, the omnichannel movement is also raising a lot of questions about fulfillment. What are our needs, and how will we mobilize to meet customer demands? And all of this is happening at a time when sales are slow and top-line growth is elusive. Last, but not least, how will we make this profitable?
2. Point of Sale Security & Payments
The top challenge in retail today is securing the POS and all customer data from a breach. This is a pervasive issue that even some of the biggest chains haven’t figured out yet.
Data Security is high on everyone’s list of concerns. Regardless of the level of compliance with PCI, this is one issue that keeps not only CIOs, but also CFOs and CEOs up at night.
Payments tie in well here. While Apple Pay made big news the other day, there are other providers looking to get their share – and they all put fraud and security costs ultimately back on the retailer – see Home Depot and Target. And how much attention should be paid to mobile payments when adoption seems sluggish?
3. The Evolving Customer Profile
Today’s consumers are also highly informed, enabled by new technologies and tools which provide them unprecedented access to information like pricing, product reviews, etc. This, combined with the fact that the universe of retail options for many products is seemingly endless given online alternatives, makes it very challenging for retailers to win consumers’ spending dollars.
Finally, today’s consumer is markedly different than even a few years ago. Their expectations are extremely high….they expect the best of everything, 100% availability, fast delivery, and so on….and even the most affluent consumers find it silly to pay full price for most things, so stimulating purchases without being aggressive on price or delivering exceptional value is nearly impossible.
4. Customer Acquisition
The biggest challenge facing retailers today is how to drive traffic to their stores. At a macro level, store-based retail sales are not growing – virtually all growth in consumer spending is being captured by e-commerce – so evolving the store’s role and function is critical, as a means to add value to the consumer and being productive for the retailer at the same time.
With fewer shoppers making the trek to a mall to buy apparel, electronics, and other items, the key focus is on how lookers are being converted into buyers.
5. Maintaining Employee Efficiency
Finding and keeping good employees has always been a challenge in retail.
Effective use of existing applications is a challenge that many retailers face.
As staff turns over and the business continues to evolve and change, it is important to revisit the use of existing applications to ensure they are being used to their full potential.
5 Opportunities for Growth in the Next 6 Months
1. Embracing Omnichannel Systems and Processes
Consumers expect a seamless experience in the store, on the Web, or anywhere customers choose to shop. This idea of real-time retail will change the face of retail in the coming years and this is why “real-time retail” is the new imperative. Unfortunately, most retailers don’t have real-time retail capabilities today and first mover advantage is still available in this game.
With advanced networks and sophisticated software and analytics, the technology is readily available to enable unified commerce. Now is the time to align the people and processes with the technology to make real-time retail a reality!
The omnichannel movement has made end-to-end supply chain visibility more important than ever. Retailers who are able to see across the entire enterprise have the flexibility to make near-real-time decisions to reroute products and streamline transportation to get the right products to the right locations at the right time. That’s going to be key to success this holiday season and beyond.
2. Market Segmentation
Another trend creating an opportunity for growth is the rising income inequality gap that is squeezing the middle class, resulting in an “hourglass” economy. Retailers should ensure they don’t get caught in the middle, but look to exploit opportunities at the top or bottom… and I’d argue skewing to the top, where consumers account for a disproportionate amount of consumer expenditure and have the means to spend, is the more intriguing place to play for many businesses.
3. Optimizing The Offline Sales Process
A huge opportunity for growth will be having a much more effective frontline sales staff. With offlinetraffic dropping retailers must be able to convert more customers, and increase the average sale. It will also be important to use events and other activities to drive incremental visits. Third, buy online and pick-up in store has become an essential offering, and must be executed flawlessly. We also see text marketing as a better way to engage some customers.
Price and promotion are dead. The only way to be competitive in a sluggish economy is your people. Can they do a better job than a competitor? It takes money, it takes thought and it takes skill. Employees are no longer arriving into a single job looking to make a difference; they’re looking to get a paycheck. Hiring masses of part timers is diluting the brand strength in the stores.
4. Inventory Management Processes
Selling seasons are short. Stock outs cause lost sales. Transfers are costly. Markdowns are a hit to the bottom line. Getting the right inventory to the right store/channel at the right time has a significant impact on overall performance. Proper Planning, Allocation, Replenishment (and the related issues such as Size Scaling) will make a big difference in a retailer’s bottom line.
The consolidation we’re seeing in the discount and grocery sectors is indicative of the fact that there are fewer and fewer opportunities for growth. A few years ago, retailers were laser focused on cost-cutting to improve margins, but now the focus is on flexibility and speed to market. We’re seeing this specifically with inventory management.
Mobile. Mobile. Mobile. The number of shoppers leveraging mobile devices (smart phones and tablets) at some point in their purchase path continues to rise. Regardless if the customer is purchasing, showrooming, browsing or bridging in-store and laptop/desktop experiences via their mobile device, the engagement is greatly impacting the overall purchase journey. A clunky mobile experience no doubt will impact a retailer’s holiday sales expectations not to mention customer loyalty and brand perception long term.
Retailers should evaluate how their customers are using or would like to use mobile to engage with them then target some key areas that will improve the customer experience. When making improvements, don’t forget to address experiences by device type and operating system.
If you are not already embracing digital (online and mobile), than you are behind the curve – the pace of growth in the online channel is significant and will only continue.
5 Imperatives to Stay Competitive in 2015
1. Understanding and Retaining Customers
Retailers have to listen to the voice of the customer, differentiate their offerings to the multi-generational customer base with drastically different needs, shopping habits and interactions with the brand. Once retailers master this challenge, they will become intimate with the many customer personas at store level to truly drive competitive advantage.
Retailers need to find compelling reasons to communicate with consumers. Because they are so empowered with digital tools (e.g., smartphones, tablets, social media, blogs) and inundated with information and so many other stimuli, it’s imperative to find ways to cut through the noise and strike a chord on something that actually matters to them.
They also must get better at using data to understand who are their most profitable customers and how to increase their sales and visits.
The simple answer is that retailers need to continue to study and understand their customer. They need to understand their customers’ needs, satisfactions, and evolving shopping expectations. It goes beyond basic demographics.
The best way to be innovative is to be your own customer. Experience what your customer experiences and then solve for the most painful points in the purchase path. We think no matter what is right for a particular retailer, all need to be thinking about creating a seamless customer experience across all customer engagement points.
2. Omnichannel (…Of Course)
Retailers must also clearly define the role of the store vs. other channels (e.g., e-commerce) so that each plays a distinct part in their model and offers incremental value to the consumer. Whether a showroom, transaction / fulfillment center, return center, source of inspiration, educator, or a combination of these or other roles, each channel needs to work together to deliver value to the consumer.
Everyone has their own name for it, but bringing all channels together so that:
- There is one view of a customer across channels
- There is one view of inventory across the enterprise
- Order anywhere, pick up anywhere, ship anywhere can be deployed effectively
3. Shaping the USP (Unique Selling Proposition)
Finally, the world is changing so fast that it’s so easy to get leap-frogged or disintermediated today. So, retailers must always challenge the status quo and ask themselves, “Are we really delivering a compelling value proposition to the customer that is differentiated vs. alternatives?”
Innovation doesn’t necessarily mean creating something new. Innovation can also be rethinking and repurposing what you already have to make it fresh or improved in some way. Not all retailers are going to be able to implement the latest technology or come up with the leading edge concept for every aspect of their business but all can evaluate their customer, their customer needs and their competition and come up with creative ways to leverage some of the infrastructure they already have but in a fresh way.
4. Optimize the In-Store Experience
Retailers must continue to elevate the customer experience to make the in-store experience even more compelling.
Employee sales training to convert those who your marketing did attract to your doors into buyers. Less part-timers, more stable shifts and more 30+ hour employees who have a stake in your success.
In addition to the challenges and opportunities already noted, retailers should be looking closely at their sourcing strategy. As retailers look to become more nimble, they are updating their entire supply chain and fulfillment strategy, and it starts at the source. We’ve seen a really dramatic shift over the past few years, with more and more retailers looking beyond China for sourcing opportunities.
Retailers are considering moving production closer to their customers and identifying other attractive locations for sourcing. Those who make the right moves and tweaks will have a competitive advantage in the years ahead.