Predicting Retail's Winners and Losers for 2018

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Posted Jan 18, 2018 4:30:00 AM by Steve Smith & filed under enterprise mobility solutions, retail logistics, retail customer engagement

The 2017 holiday shopping season is behind us. And, as always, there were clear winners and losers in the retail industry. The winners view those holiday victories as precursors to a strong 2018, and will seek to capitalize on the things they did right. The losers, meanwhile, will scramble to distance themselves from their holiday failures. Many of them will have already begun pivoting to copy the success stories, attempting to turn their 2018 fortunes while also preparing for a better showing in next year's cycle.

In studying this year's winners and losers, it helps to first understand that shopper expectations have changed – dramatically, in some cases – over the past few years. The modern holiday shopper not only enjoys more choices than ever before, but also wields a technical sophistication to find and take advantage of those choices.

Indeed, the interdependency between brick-and-mortar and online channels was never more apparent than it was during the 2017 holiday. The biggest winners of that season – and the expected winners in 2018 – acknowledged and strategized the importance of both. This allowed them to better address the expectations and behaviors of modern retail shoppers, such as:

  • Shoppers want faster delivery
  • Shoppers hate out-of-stocks
  • Shoppers are more connected
  • Shoppers enjoy a variety of fulfillment options
  • Shoppers boldly "showroom" retailers
  • Shoppers hate strict return policies

Retailers who satisfied – or better yet, delighted – customers by creating strategies around those needs were the ones posting the most impressive holiday results. We'll look at several of those success stories in this post. But first, let's take a deeper look at those expectations and what they meant for retailers this season.

Shoppers Want Faster Delivery

It doesn't seem that long ago when "please allow four to six weeks for delivery," was the norm when shopping online. No more.

As shoppers demanded shorter delivery times – and as online retailers sought to capture more and more of the holiday season – the average wait shrank dramatically. Postal carriers such as FedEx, UPS, and USPS offered shorter delivery times at much reduced bulk business rates. Amazon.com's flagship service, two-day Prime delivery, brought online deliveries as close to the retail experience as it seemed online ordering could get.

Even then, shoppers wanted more.

According to Zebra Technologies' 2017 Global Shopper Study, 66% of shoppers wanted next-day or same-day delivery, while 37% would only be satisfied with same-day. Making this even more of a challenge is that 27% also expected shipping to be free.

This presents a problem for most retailers. First, there's a push to adopt the "new norm" of two-day shipping, even while acknowledging it won't satisfy most customers. Then, there's a race on to create working models for next-day and same-day delivery.

Here again, Amazon.com leads the innovation with their drone delivery program, chasing the elusive same-day delivery goal. But whether or not that will be a sustainable, scalable option for the future is still in doubt, waiting on FAA regulations.

One thing is certain, however: only real-time warehousing and modern distribution systems will be able to satisfy most shoppers in 2018. These systems help provide the efficiency and speed required to offer two-day deliveries. They also make it easier for retailers to offer a variety of shipping services, including free and expedited options. Retailers who do this will satisfy more customers, resulting in more online sales and fewer abandoned carts.

Shoppers Are More Connected

Another remarkable point in the Zebra study is that one-half of millenial shoppers feel that they are better connected than most retail associates. Rather than asking when they see an out-of-stock, they are more likely to pull out their smartphones and search for a store or online shop that has it.

This has huge implications for brick-and-mortar retailers. And it's not just millenials, either. 32% of Gen X shoppers feel they're better connected than the retail associates, too.

All of this means that many retail associates won't even get a chance to provide alternative products or fulfillment options. Ultimately, it means those retailers will lose those shoppers.

Unless, of course, they have a cloud-based back-end inventory system that can take those shoppers straight from the product tag to the relevant fulfillment options. And with those systems in place, arming associates with their own technology – especially tablets – is a clear sign that they could provide better assistance. According to Zebra, 57% of shoppers cited associates using tablets as a factor that improved their customer experience.

Shoppers Hate Out-of-Stocks

It comes as no surprise that shoppers hate out-of-stocks. That's always been the case. But today's shopper expects retailers to find a way to fulfill their needs.

Currently, however, there's a huge gap in that area. According to Zebra, 70% of all in-store shopping trips result in no sale. That's a huge miss on the part of retailers – and most of the reasons why are ones we're covering here.

Of those where out-of-stocks were the issue, retailers could recover an estimated 6 in 10 with discounts or alternate fulfillment options like ship-to-home. The trouble is getting that feedback from the customer.

Since many customers can't find associates (44% are not satisfied with staff availability) or don't like to interact with them anyway (feeling they're better connected), a customer encountering an out-of-stock is more likely to simply search for it elsewhere.

So what's a retailer to do?

Modern inventory and customer-facing fulfillment systems can win back more of those misses. QR codes can link directly to order sites with your available fulfillment options, making it easy for customers to see an out-of-stock, scan it, and place their order while still standing in the aisle.

These systems also enable retailers to set up and provide omnichannel distribution. This is where each retail location is treated – and performs – like a distribution center. For example, let's say that store A is out of a product, the regional warehouse is out of the product, but store B has it. When the customer (or associate) searches for the product on the company's site, they'll see that it's available and can be shipped straight to their home, regardless of where it is.

Omnichannel systems are increasingly popular because they minimize out-of-stocks for online orders. They also eliminate transfer costs between stores and warehouses for online orders, since each store can ship directly.

Shoppers Enjoy a Variety of Fulfillment Options

Offering a variety of fulfillment options when ordering online can win sales that would otherwise be lost, too. Don't take a cookie cutter approach and assume everyone wants products shipped straight to their home. While 64% of shoppers in the Zebra study said they've chosen ship-to-home for their online orders, there are several important reasons why others don't. Some of these are:

  • They don't live in secure locations
  • Their mail service is not reliable
  • They don't have a place to receive packages and would need to pick it up elsewhere anyway
  • It's a gift and/or they don't want other household members to see it arrive

For reasons like these, 34% of shoppers indicate they've selected ship-to-store options instead. And then there are convenience issues, where 15% of shoppers said they've chosen pickup-at-another-location as their best choice.

Needless to say, retailers who don't get all those options in front of their customers will lose out on some of those sales.

Real-time inventory and order fulfillment systems can minimize the loss from store out-of-stocks. Also, as we stated in the previous section, omnichannel distribution allows a greater range of fulfillment options.

Other best practices include direct linking from signage to fulfillment options to capture the self-serve crowd and connected associates (especially those with tablets) to help shoppers find the most convenient options.

Shoppers Boldly "Showroom" Retailers

It used to be that shoppers felt a degree of guilt if they engaged a retail associate for information and then made their purchase elsewhere. That no longer seems to be the case.

Fifty-eight percent of North American shoppers said they've used retailers as showrooms to view a product and then purchased it online.

Usually, this is a price decision. Sometimes shoppers know they can get a product cheaper online, and sometimes they assume it. But real or perceived, the idea that it's cheaper online drives the "showrooming" phenomena.

In cases where price mismatches are real, retailers with real-time pricing in their inventory systems can react instantly to their competition. Whether it's a local brick-and-mortar store or an online offer, stores with real-time pricing systems can update their prices on the fly. Retailers like Best Buy did this with Black Friday movie sales, matching prices with their big box competition seamlessly for their customers.

In cases where price mismatches are perceived, an aggressive price match policy can also minimize showrooming. To stick with the Best Buy example (a frequent target of showrooming for obvious reasons), they marketed their price match policy heavily this holiday season, which included matching online retailers like Amazon.com.

Shoppers Hate Strict Return Policies

According to the National Retail Federation's 2017 Retail Holiday Planning Playbook, return policies are a huge factor when holiday shoppers are deciding where to shop. About 75% of shoppers say they will check a store's return policy before making a purchase. Here are the basic expectations they look for:

  • The policy is not too confusing to understand
  • The return window is long enough to allow after-the-holiday returns
  • Returns are easily made in-store and without hassle
  • They can get their money back, not just store credit

Retailers who fail these expectations risk losing holiday shoppers to the competition. And with almost all of the major retailers now offering generous return policies, strict returns and restocking fees are sure to stand out like a sore thumb.

Online shopping is no different, either. According to UPS' Pulse of the Online Shopper study, 66% of online shoppers review the return policy before making a purchase. Of those, 15% will actually abandon their carts if the return policy is unclear.

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                             Graph courtesy of www.nrf.com 2017 Retail Holiday Planning Playbook

Predicting 2018 Winners and Losers from Recent Holiday Sales

So, now that we've discussed what shoppers were expecting this holiday season, who were the winners that met those expectations? Who were the losers that failed them? And how will those holiday results translate into 2018 success?

Let's take a look.

Winners: Retailers Who Use Big Data Analytics to Offer the Right Products

Bluemercury is a beauty and spa retailer acquired by Macy's in 2015. With hundreds of locations already and innovative plans for sites within Macy's stores, Bluemercury is poised to continue its rapid growth.

But what truly sets Bluemercury apart is its understanding of the modern shopper and its use of analytics to meet their needs. According to co-founder Barry Beck, "Shopping is a social experience." With more than 70 million Americans under the age of 18, embracing that social atmosphere will create the shopping experience of the future. Bluemercury's newest stores are high-tech and encourage social sharing.

At the core of this acknowledgement is Big Data. As Beck admits, "I pore over the data on a daily basis." That data has provided the insights not only to provide the customer experiences his shoppers look for, but also the right products.

Two recent private label brands – M-61 Skincare and Lune+Aster Beauty – were created because of insights gathered from analytics and customer research. Using Big Data analytics to find product gaps and fill them with new, highly profitable private label products is a great example of retailers taking advantage of modern technologies.

As a whole, Macy's posted a 1.1% increase in their holiday sales, thanks mainly to a double-digit increase in online sales – including Bluemercury. And while this wasn't enough to revive a dismal 2017 for Macy's, the innovation and energy seen from Bluemercury could provide early dividends for their beauty department in 2018.

Losers: Retailers Who Continue to Focus on What Worked in the Past

Most retailers floating out the same tired strategies did not fare so well during the 2017 holiday season, and consequently do not appear poised for a strong 2018. Deep discounting is not enough. The same products and brands are not enough. The same policies, rewards, and customer experiences are not enough.

And yet that's just what many retailers in the losers bracket seemed to offer.

The problem is that none of these will retain customers when the competition starts doing something better – and this year, there were plenty of examples of retailers offering that new and better experience.

Big Data analytics can help track those changing needs and plot a strategic course to meet them. By collecting all the data at a retailer's disposal, combining it into meaningful insights, and recognizing the trends before they're fully realized, Big Data can help retailers shift from follower to innovator... and maybe even from a holiday loser this year to next year's winner.

Winners: Retailers Who Promote Alternate Fulfillment Options

Urgency has long been the most common theme when it comes to Black Friday ads. "Get it quick or you're going to lose out," is the prevailing sentiment. Unfortunately, this tactic emphasizes customer concerns about out-of-stocks without offering any real solutions.

Best Buy decided to change that this year. Instead of trumpeting the limited quantities of doorbusters, they instead focused on a better customer experience. Free shipping and financing were heavy themes throughout their promotion. Ship-to-home and store pickup were presented as options for hectic shoppers.

This softer touch proved to be just what shoppers wanted. Not only was Best Buy one of the most successful of this year's brick-and-mortar retailers, they also received more "positive" social media references than any other.

Because they focused on using multiple fulfillment channels to get the products customers wanted, and made it both cost and pain-free to do so, Best Buy was able to play the hero.

Surprisingly, another winner was JC Penney. While initially touted as one of the failures of the season due to their uninspiring ads, they posted a 3.4% same-store sales increase instead. The big difference? Double-digit growth in e-commerce... fueled by its ability for the first time ever to fulfill e-commerce orders from all of its brick-and-mortar stores.

Losers: Retailers Warning Consumers to Grab In-Store Inventories Before They're Gone

While this tactic is far from obsolete, only relying on limited quantity doorbusters is swift becoming a recipe for failure. Especially as the retail calendar has shifted from Black Friday into Thanksgiving, and opening times are all over the board.

Stores that open on Thanksgiving Day could find their doorbusters sold out before Black Friday even starts. Some retailers have tried staggering their doorbusters to account for this, but most shoppers don't want to visit the same store multiple times to get the deals they want.

A cloud-based inventory system allowing multiple fulfillment options and omnichannel distribution is one of the best ways to minimize customer disappoints and connect more shoppers with the products they want throughout the holiday season. Cloud-based systems offer also smoother tie-ins with social media and mobile shopping, where much of the projected growth in retail is expected.

Winners: Retailers Who Strive for Marketing Innovation

Even though Amazon.com was a driving force behind the recognition of the "Cyber Monday" phenomenon, they didn't allow it to constrain them. This year, their "50 Days of Black Friday" not only downplayed their competition's efforts, but also turned the "one day" event into something much more. They got in the game sooner and played it longer than anyone else.

Amazon.com also continued evolving with more brick-and-mortar locations, while their anticipated warehouse expansions could pave the way for more experiments with same-day delivery.

It should be noted that much of Amazon.com's success comes from investments in their ultra-efficient warehousing and inventory systems. These were critical to allowing their prolonged success over the holidays. And while some of the automation might be out of most retailers' price range, real-time warehouse management systems are more easily attained.

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And how about one of the boldest moves of the season from Kohl's? By announcing they'd handle returns for Amazon.com at 82 of their locations, they guaranteed themselves a sizable bump in traffic. They made good on that traffic, too, posting a 7% increase in same-store sales – more than double the gains seen by most of their department store competitors. How that relationship will evolve over the coming year bears watching, but there's no doubt Kohl's stands to benefit from being the first physical retailer with this innovative strategy.

Losers: Retailers Who Think Black Friday Deals Will Save Their Holidays

As we've mentioned a few times now, deep discounts alone did not win the 2017 holiday season. While some retailers, such as JC Penney and Macy's, saw nominal growth saved by upticks in e-commerce, one can only imagine what might have been. JC Penney didn't publicize their fulfillment options well and lacked creative spark in their marketing. Macy's failed to capitalize on their new loyalty program during a time when so many infrequent shoppers were visiting.

Other retailers relying solely on traditional discounts were less fortunate. The one thing almost all the 2017 holiday success stories had in common? Some sort of focus on e-commerce and fulfillment options.

Winners: Retailers Who Bridge the Gap Between In-Store and Online Sales

Consider these top 10 companies from STORES Magazine's list of Top 100 Retailers:

  1. Wal-Mart
  2. Kroger
  3. Costco
  4. The Home Depot
  5. CVS
  6. Walgreens
  7. com
  8. Target
  9. Lowe's
  10. Albertsons

Of these, it's remarkable that only Amazon.com is almost exclusively internet. In fact, other than Amazon.com, the only other non-store retailer in the top 100 is QVC at 58.

This is important in an age where the media commonly portrays brick-and-mortar retail as dying. What it tells us is that we should regard all the retail apocalypse stories as the hyperbole they truly are. While e-commerce might provide the best outlet for growth in many of these companies, their physical locations remain hugely important. Vital, in fact.

Despite all the talk of store closures in 2017, 42% of retailers reported net increases in number of stores versus only 15% with net decreases, according to an IHL Group report.

Many of those at the top of this list are companies that excelled in physical retail and are now trying to reinvigorate themselves through initiatives such as real-time systems, social-mobile shopping, and omnichannel distribution. Wal-Mart was a great example over the holidays, trying to compete with Amazon.com online while dominating in-store sales. On the other hand, Amazon.com sees advantage to be gained the other way, experimenting with their own brick-and-mortar locations and purchasing the grocery chain, Whole Foods.

Consider Target among the winners, too. They recently announced a 3.4% sales increase for November and December, outperforming their estimates by a good margin. In addition to being more aggressive on pricing than usual, Target made investments to improve their supply chain last year, which included emphasis on expanding their fulfillment opportunities. The result? 70% of their online orders were at least partially fulfilled by a store location. They also purchased delivery start-up Shipt, entering the chase for the retail grail of same-day delivery.

The lesson here is that bridging the gap between in-store and online sales is a necessary "next step" that even the retail giants are taking. Mobile-enabled solutions such as omnichannel at the front and back-end of the retail experience are where these companies are reinventing themselves for the modern era.

Losers: Retailers Who Fail to Adapt to the Way Customers Use Both In-Store and Online Purchasing Info

As the Top 100 Retailers list showed, online only companies will struggle to gain market share despite the prevailing attitudes of the press. That's not to say they can't be successful – they can, and many are – but it's much harder for an online company to compete in volume with their brick-and-mortar counterparts than it is the other way around.

The losers in 2018 will be those brick-and-mortar retailers who fail to see their entire business – both in-store and online – as one giant, living, breathing organism. Growth in one area fuels growth in another, and the healthiest organisms will be the ones whose systems are attuned. Retailers with outdated websites, or with websites not optimized for mobile shopping, will miss out on some of the best growth opportunities this year.

Moving into 2018

Now that we've discussed the winners and losers of the 2017 holiday season, let's review some of the lessons learned:

  • Online and mobile shopping must be key contributors in 2018
  • Real-time inventory and warehouse systems create huge strategic advantages
  • Omnichannel distribution allows the fulfillment options customers want
  • A connected workforce stands a better chance to match shoppers with the products they want
  • Generous price-match and return policies are a must
  • Retailers are just scratching the surface of innovations possible with their cloud-enabled systems

What this year showed more than anything else was that the convergence of in-store and online shopping experiences is happening now, whether retailers want it or not. With shoppers just as comfortable placing orders online as they were at the registers, both their online and in-store experiences must be efficient, reliable, enjoyable, and seamless from one to the other.

While the winners from this past holiday are in great position for a successful 2018, they must continue driving for innovation. And how they continue to develop their cloud-based systems and strategies – in both their marketing and operations – will likely determine the winners and losers for the next holiday season.

Retail Technology

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