Retail trends

The retail industry changes like the weather. Here are the National Retail Federation’s Tracy Mullin and Sandy Kennedy of the Retail Industry Leaders Association with the forecast.

Acclimatizing to retail trends

The retail industry changes as fast as the weather – and is just as unpredictable. Tracy Mullin, President and CEO of the National Retail Federation (NRF), and Sandy Kennedy, President of Retail Industry Leaders Association (RILA), give their thoughts on how store chiefs can prepare for all seasons.

It’s all very well having a flashy store, cutting edge technology, the latest products and fashions, and the most welcoming staff on the shop floor but the retail industry changes as fast as the weather – and is just as unpredictable. Economic climate, property prices and legislative changes can have just as much of an effect on sales as how you display your merchandise or the age and efficiency of your point of sale system.

According to the National Retail Federation, the immediate challenge to retailers continues to be higher energy costs and a questionable housing market. As President and CEO Tracy Mullin points out: “While it seems like high prices at the pumps are nothing new, we recognize that every consumer has a different breaking point. Once we see prices rise above $3.00, there is cause for concern. High gas prices have the potential of acting as an extra tax on disposable income.”

Coupled with this is an even bigger concern over the flattening of the housing market. While Mullin believes the bubble isn’t expected to burst anytime soon, “it is safe to say that we are starting to see some leaks”. Over the past several years, the NRF has seen consumers fuel their spending power by pulling equity out of their homes or refinancing with lower rates. As interest rates have increased, consumers may be forced to find new sources of spending power. Which is why while first quarter retail sales were stronger than expected, it remains “very cautious” about the long-term outlook for the industry.

The Retail Industry Leaders Association (RILA) has also identified health care as a primary concern. President Sandy Kennedy says that the soaring costs and access for the uninsured are a critical issue for all companies and industries that calls for national dialogue among stakeholders. But what really concerns retailers is a trend in many states to try and shift the burden of health care costs onto one industry – their own. She argues that the entire retail industry should be concerned about these laws and be willing to enter into the health care debate with a “sincere focus on spiraling costs and expanding access.”

The backdrop to this is the more familiar problems retailers are still encountering, namely the efficiency of the supply chain and the acquisition and retention of staff. As one of the largest stakeholders in the maritime cargo supply chain, RILA is particularly interested in working with the government to enhance security for ports and all the cargo that passes through them. There is also a renewed focus on making sure companies are recruiting and training the right staff for the job. Kennedy says: “Though successful retailing is sometimes attributed to a company’s ability to drive out costs through the use of technology, many would argue that success in retail still comes down to having the right people in place to lead the company and to serve the customer. That realization is inspiring companies to use motivational and empowering strategies to attract and retain new talent. They are also thinking differently about skills assessment and training as key drivers to success. Retailers are shifting their cultures to reward and motivate people, creating a positive work environment and establishing loyalty. This in turn helps employee retention and improves the overall competitiveness of the business.”

Fuelling the boom

The good news for retailers is that they are still riding the wave of an extremely buoyant market, even if it isn’t all plain sailing. A combination of good prices and quality products available when consumers need them are the main driving factors. NRF research shows that the industry experienced strong growth in 2005, posting an increase of 6.1 percent. Mullin says that as energy costs began to creep up, many retailers focused on price and value, which helped offset concerns regarding consumers’ decreased disposable income.

While discounters and department stores were waging a war on price, the luxury sector “never looked back”, relying on quality and selection to lure their very loyal customers. The emergence of luxury merchandise as a must-have category along all retail formats has made high-end apparel, jewelry and electronics more accessible to a wider range of consumers, says Mullin. And, while cause for concern in the long run, the currently strong housing market has been an important factor in terms of spending power, giving consumers the opportunity to pull equity from their homes to help fuel discretionary spending. However, she does caution that even though the strong growth in the first quarter of the year was positive, “conventional wisdom” suggests that large increases over the course of the year could prove difficult. NRF is forecasting modest growth for 2006 between 4.7-5 percent.

Without a doubt, Wal-Mart has seen the most phenomenal growth over the past decade and is still managing to keep the competition at arms length from its spot at the top of the retail tree. It is three times larger than its nearest rival, according to the Deloitte 2006 Global Retailing Powers study, posting sales of $287bn in 2004-5. But despite this firm grip, there is still plenty of room for success and growth in the industry. The NRF has seen a lot of companies regroup. “The merger activity over the past few years has created new companies that are poised to grow faster and smarter. These companies can now negotiate better prices for their merchandise, streamline operations such as IT and supply chain, combine successful private labels and blend real estate holdings,” says Mullin. “We are also seeing regional companies become nationwide brands. Most of the merger activity has happened in the department store arena, suggesting a renaissance from this under performing category could be in the works.

“Competition will always be the main force that drives our industry. It forces companies to do things better. In the face of competition from big box retailers, I believe we are seeing the smart mom and pop shops become more specialized, offering a deeper selection than some of the big box retailers,” she continues. “The independents also have an advantage in terms of customer service. While large companies spend millions on advertising and CRM programs, the local mom and pops are already a part of their community. Customer service is an inherent part of their business model. By specializing and focusing on customer service, small retailers can create loyal customers and take advantage of the shopper traffic that larger retailers generate.”

Kennedy adds: “We believe the retail landscape is going to become increasingly competitive as different retailers expand their product lines. This puts a renewed focus on retailers to differentiate themselves in areas like price, service, selection and marketing, as well as having products in stock when the consumer needs it. We also believe there will be more global players in the future – US retailers are expanding abroad and more European retailers are expanding in the US.

“We will continue to see some mid-sized retailers become acquired by private equity firms as well as continued expansion of product lines from retailers who traditionally have played only in one space. A great example of this is the announcement that Home Depot will beging selling auto parts.”

Information super buy way

The biggest impact on the sector in recent times by far has been the explosion in e-commerce, a phenomenon that has set new sights on the retail landscape. Shop.org, NRF’s e-commerce division, estimates that online sales reached $110 billion last year, excluding travel. While these figures are staggering enough, it also estimates that the internet now influences one in five in-store retail purchases as well. In addition to buying online, many consumers use websites to browse for gift ideas, research products, and comparison shop, which is why it has become impossible for retailers to ignore the power of the online shopping channel.

Of course, the internet doesn’t appeal to every consumer. A lot of shoppers still prefer a trip to the mall rather than spending their recreational hours surfing online but there is no escaping the fact that the instant accessibility of the web and being able to shop for bargains from the comfort of your own home, 24/7, is adding an extra convenience that traditional stores are finding increasingly hard to compete with. “Some consumers choose not to shop online for various reasons. Many people like to touch and feel merchandise before they buy it; others want the instant gratification of selecting a product and taking it home immediately” Mullin confirms. “But consumers also tend to shy away because of shipping costs, though it usually just takes a free or discounted shipping promotion to turn those shoppers around.”

The happy medium for some retailers is multi-channel retailing – the best of all worlds with store, online or catalog shopping on offer to consumers. However, even though this gives people more of a choice in the way purchase their goods from a company, maintaining consistent service through all the mediums is proving a hurdle for some. Mullin says: “Retailers are beginning to understand how to integrate their websites and their stores, creating a synergy that one channel could not accomplish on its own. For example, many retailers now allow online purchases to be returned to stores or permit customers to buy merchandise online and pick up at a retail location. Other retailers offer online kiosks in their stores so merchandise that might be out of stock in a particular area can be shipped to a customer free of charge. As the internet continues to expand and grow, retailers will continue to challenge themselves to find ways to make the shopping experience even more seamless for shoppers.”

Technology can also offer benefits in a less visible way. Sophisticated POS systems that allow retailers to keep a more accurate track of their inventories as well as other back-end systems that track goods and improve the supply chain are becoming a must-have. “Many retailers are striving to acquire the ‘holy grail’ of one-to-one marketing with their customers. However, some understand that the best way to improve the customer’s shopping experience is to adhere to the fundamentals of retail: inventory management, pricing, merchandising, and exceptional customer service,” says Mullin.

“For large retailers, it is difficult to achieve that one-to-one shopping experience. To that end, they are leveraging technology across several areas to improve sales. The types of technologies that are being deployed differ by retail segment. For example, some retailers’ POS systems have the capability for real-time updates with head office inventory management systems. With this information, sales associates have access to instant inventory availability for both their store and at nearby stores. Since inventory levels are kept current, an associate can quickly search for items availability on the system, thus saving them for time consuming searches on the sales floor. This frees the associate to spend more productive time with the customer.”

Empowering the customer

Another area where technology is helping to drive sales is in the use of in-store kiosks, a practical multi-channel tool that combines the in-store experience with the web. NRF research confirms that the main lure for customers is the ability to access deep information about a product and, in many cases, order the merchandise via the kiosks and have it shipped home – all the benefits of online shopping with a more personal touch.

On a simpler scale, the self-service POS is also allowing customers to take more charge of their purchases. There has been some adoption in the grocery segment. However, grocers are continuing to look for other ways to enhance their customers’ shopping experience. “There is nothing more frustrating than waiting in line at the check-out. Anything that will speed up the sales transaction and get the customer through the queue is positive,” says Mullin. “One technology that promises to improve the customer experience and speed up the sales transaction is biometric payment. Having to search through your purse/wallet for your credit card, hand it to the sales associate, sign the receipt, and put the card back in your wallet takes time. In the next five years, we anticipate that biometric payment will become much more prevalent and consumers will demand it. Using your index finger and a four-digit PIN is secure, fast, and convenient.”

However, she cautions: “Privacy concerns will be one drawback to biometrics. The more the customer understands how this technology actually works and the convenience that it brings the more privacy concerns will likely be addressed.”

Still, technology will never be able to replace the one necessity on the sales floor – a well-trained and motivated workforce dedicated to customer service. Rather, retailers need to invest more in training their staff to ensure that the technology is being successfully utilized. “Training staff to fully use and understand the benefits of technology is imperative. Aside from structured classroom training, many retailers are leveraging the web to inform and educate their associates to new systems or business processes,” say Mullin. “The benefit of web-based training is that the associates can take the training at his or her convenience. Afterward, an assessment can be given to ensure the associate has adequate comprehension of the training materials.

Kennedy adds: “More retailers are looking at cost effective ways to train their staff, whether be computer based or whether it be instructional training. Retailers understand that having a well-trained workforce not only provides a significant lift in productivity, but also provides a happier work force, leading to better retention.”

The top 20 retailers

According to the Deloitte 2006 Global Retailing Powers study, US-based retailers represent 36 percent of companies and 44.3 percent of their sales volume. Increased dollar-based sales and the international reach of European retailers has played a role in their relative increases versus the US-only strategy of many US retailers.

Top 20 global retailers by retail sales in US$ million (financial year 2004)

1. Walmart Stores Inc. (US): 285,222
2. Carrefour S.A. (FR): 89,568
3. The Home Depot Inc (US): 73,094
4. Metro AG (DE): 69, 781
5. Tesco plc (UK): 62,505
6. Kroger (US): 56,434
7. Costco Wholesale Corp. (US): 47,146
8. Target Corp. (US): 45,682
9. Koninklijke Ahold N.V. (NL): 44,793
10. Aldi GmbH & Co. oHG (DE): 42,906
11. Schwarz Unternehmens Treuhand KG (DE): 42,793
12. Rewe-Zentral AG (DE): 42,782
13. ITM Developpement International/Intermarch (DE): 41,721
14. Albertsons (US): 39,897
15. Walgreen Co. (US): 37,508
16. Groupe Auchan S.A. (FR): 37,373
17. Lowe’s Cos. Inc. (US): 36,464
18. AEON Co., Ltd (JP): 36,345
19. Safeway, Inc. (US): 35,823
20. Sears, Roebuck & Co. (US): 35,718

Courtesy

GDS Publishing

www.extendedretail.com