When Predictions Won't Cut It, Preparedness Will

I’d not be doing my job if by now I hadn’t read a lot of retail predictions for 2019. And having taken them all in, I concur with a lot of the pundits, whether it’s the prediction that brick and mortar retail will continue to thrive or that micro-warehousing will help retail finally realize its omnichannel potential. Yet, crystal ball gazing aside, the truth is we all have absolutely zero clue what’s going to happen in the year ahead. Between the nausea-inducing stock market patterns (which have been particularly unkind to retailers) and lack of clarity on who’s in charge these days, the uncertainty has never been more palpable. And yet, nothing sums up the last year better than “mixed signals.” In the US at least, the holiday season capped off a strong year in retail on the tailwinds of record employment rates, tax breaks, and strong consumer confidence. On the other hand, the brewing storm clouds of global geopolitical turmoil, slowing China growth, rising costs of borrowing, and tariff wars, all threaten to unravel everything that retailers may have gained last year, or worse, push those teetering over the edge. Mixed sentiments, indeed.

While admittedly I might come across as the proverbial pin popping retail’s balloon, ignoring what may lie ahead does none of us any good whatsoever. So we forge ahead, prepared for the best and, yes, the worst this year may bring us. With that in mind, what should be on retail’s preparedness list?

Get a Handle on Your Costs

E-commerce: you’ve got to have it, but it’s also going to cost you. This so-called paradox has been the focus of conversation for many retailers recently, particularly as e-commerce grows as a proportion of total sales. Christa Hart from FTI Consulting summed it up, “Online sales are growing at a respectable rate for many omnichannel retailers in large part because they continue to bear nearly all the associated costs of attracting and accommodating online shoppers.” Those associated costs run the gamut from technology investments and upgrades, competitive low price pressures, customer requirements of free shipping and returns, to increasing labor and raw materials costs. Retail star status hasn’t meant immunity from the problem either, with Walmart reporting a record increase in sales during 2018 paired with a side of declining operating profits, and Amazon owning up to selling “CRaP” (can’t realize a profit) products (and trying to offload some of these costs onto its sellers).

So with a lot of these being the price of doing business, what’s retail to do? First, when it comes to the cost of investing in technology and digital upgrades, more often than not, it’s a necessary evil and its ROI should be considered over the long-term. It goes without saying that any tech investment needs to be held to the almighty framework of increasing efficiency, reducing costs, and powering faster decision making.

While I could wax on for days about the intricacies of cost center reductions, the truth is that your customer also needs to carry their fair share of the burden. Lest you think that’s a sacrilegious notion, hear me out. It’s why you are seeing free shipping minimums, tightened return policies, and refocusing on selling “higher-value” (more profitable) items. At some point in time, your profitability requires that some concessions be made by the consumer in order to sustain that. It doesn’t mean you’re directly passing along all the costs to them. Rather, you’re maximizing what you get out of each sale and simultaneously ensuring the consumer value proposition remains intact. It’s an important and nuanced distinction, but one that retailers would be well advised to more closely consider in the year ahead.

Rethink Your Square Footage

The new order of retail has blessed the customer with increased convenience, while at the same time added layers of cost and operational complexity that pre-existing bricks-and-mortar literally wasn’t built for. The options are increasingly numerous: buy online, pick-up in store; buy online, return to store; try in store, have it shipped to your home. With the plethora of omnichannel options available, the evolution of front- and back-of-store space continues, as does the relevance of that boundary in the eyes of the customer. Some examples of how retailers are rethinking store space? For the increasingly common click-and-collect order, there’s square footage needed for lockers, customer service, or holding orders, and retailers including Walmart and Target are experimenting with efficient layouts to accomplish this. There’s also stores like Kohl’s who are shrinking their inventories altogether and leasing store space to outside brands. And, perhaps in the most drastic rethinking of the “store”, there’s those who have gone merchandise-free, as is the case of Nordstrom Local and its “service hubs.”

It’s important to remember that with all the changes underway, a functional shift in how the store operates necessitates a different way of measuring its productivity and how the staff function. So my advice this year? As retail’s ongoing curation efforts better align with customer expectations of what happens on the sales floor, the opportunity is for retailers to highlight their physical assets: be convenient and instantly-gratifying, provide knowledgeable and personal assistance, and of course, show the most important goods IRL. But let’s not forget the trick to success here is really in the mindset retailers bring to omnichannel, and a prescient report from Booz Hamilton in 2010 said it best, “Leading retailers treat their offline and online strategies as a single set of decisions, rather than separate ones...to maximize the opportunities and efficiently manage their space.”

Keep an Ear To The Streets

We’ve all got that person who’s got the inside track on what’s really going on. Or as I like to call it, the difference between what you see on the evening news and the word on the street. For retailers, I liken this to what the market data tells you about consumer confidence versus the data you have on your specific customer. We all know that consumer confidence is a broad measure that tells us how folks are feeling about their economic outlook. Are they going to be spending more or less in the short-to-medium-term? This is a very important statistical measure, one that the stock market is particularly attuned to, where a negative outlook can erase years’ worth of gains overnight. But it also gives retailers insight into which of their categories might be positively or adversely affected in upcoming quarters. However, as all broad measures go, it doesn’t tell you everything that’s going on in the nooks and crannies of your customer base. And that’s where your customer data comes in quite handy. They tell you, primarily by way of their spending, and secondarily via the feedback you collect from them, what’s really going on. In times of uncertainty, that feedback loop is crucial, as early detection and insight give you a head start in terms of responsiveness. Be looking for small but indicative changes in comps that might signal something bigger is brewing. Hey, who needs the canary in the coal mine when you’ve got your customer data?

Let’s be honest, none of us like an uncertain outlook, but we’re also an industry that knows better than most just how to come out on the other side, stronger than before.