Marie Driscoll, head of consumer discretionary retail at S&P Equity Research, admitted that while various aspects of the labor market have continued to stay extremely poor, the 2011-year could be slightly positive for retail sales. Driscoll, along with other S&P analysts, presented a rundown of 10 trends for retailers in 2011 keeping in mind the current employment situation. Here’s a recap of the trends and whether or not these trends were on track.
1. International growth: Retailers such as Abercrombie & Fitch, Polo Ralph Lauren and Tiffany planned to increasingly focus on international growth with many retailers closing domestic stores to take advantage of emerging markets.
Driscoll and S&P were spot on with this prediction. Abercrombie & Fitch and Tiffany both sought international expansion in emerging markets this year. Tiffany’s international sales were even set to exceed sales of its U.S. stores. The retailer now operates 31 stores in Europe. More so, Gap is an even better example to demonstrate this trend. The retailer recently planned to close approximately 200 domestic stores in the U.S. to focus on global growth and expects China to become a billion-dollar business in three to four years.
Retailers are more aggressive than ever about global supply chain expansion as they don’t want to rely solely on U.S. revenue stream. Expanding stores to new markets means retailers need a supply chain that responds to customer needs and that is efficient at distributing product on a global scale; an international presence means understanding more than IT, it’s about everything retail.
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2. E-commerce growth: As the recession continues, consumers have begun to favor value and convenience more and more. With that said, Driscoll predicted an online growth of 10% in 2011. For retailers, the web has been the perfect place to test trends and assess customer interest. For those already involved with e-commerce initiatives, Driscoll stated it’s important that online sales don’t take away from store sales and inventory.
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What Driscoll and S&P have proposed here is very accurate in a sense that e-commerce has become a major trend and now accounts for a large percentage of sales for retailers. Most retailers have even begun to offer free shipping with no restrictions for the large percentage of consumers that prefer to shop online and, as a result of increased demand, retailers are also offering hard-to-beat deals exclusively for online shoppers. Online retailers have gone a step further and created a Black Friday counterpart: Cyber Monday. Cyber Monday is the one-day of the year in which retailers and e-commerce sites offer deals similar to those of Black Friday.
3. M-commerce growth: Becoming more common, increased price comparisons and retailer enabled Wi-Fi hot spots in stores have given rise to m-commerce. S&P speculated that 50% of consumers would have smartphones by the end of 2011 and that sales associates would also be empowered by this greater access to information.
Tablets and handheld devices are becoming staples for tech-smart retailers allowing associates to search online warehouses, other stores in a chain, and other retailers for specific products and prices. In turn, allowing consumers to make purchases right then and there. Google Wallet is making an appearance in retail store locations as well. OfficeMax added the new service to checkout terminals to make it easier for customers to pay, redeem coupons and utilize its loyalty program all through the use of their smartphones. Mobile services that enhance the shopping experience will soon become a necessity, not an option.
4. Social media growth: Driscoll determined that companies would more than likely rely on social media as an effective way for retailers to manage image and brand.
Retailers and companies are definitely capitalizing on all the possibilities that social media offers as its proven that consumers who connect with a brand via social media have a deeper emotional commitment to the brand or company and therefore, spend more money. According to a report by Bain & Company, those people that engage with brands through social media spend between 20% and 40% more on the products offered by the brands they follow compared with other customers.
5. Green/organic growth: S&P analysts expected consumers to increasingly seek out organic or green products in 2011.
This trend was not as predominant as anticipated. Companies are “going green” more often these days, but as far as green products are concerned, consumers are confused by what exactly ‘green’ means and are trying to request better clarification.
New research from Ryan Partnership Chicago and Mambo Sprouts Marketing determined that consumers would spend more money on sustainable products if they knew which products were “truly green”. The survey also concluded that more than half of shoppers prefer that sustainability information such as packaging and labels be displayed within the store.
6. Meeting individual consumer demand: It’s been important for retailers to personalize service, catering to individual consumer demands by providing greater service and marketing. But, the fact of the matter is that every store and consumer behaves differently.
More retailers are developing new sites and apps that allow consumers to input information about themselves for more tailored product searches. However, retailers such as Nordstrom don’t consider this a trend – it’s a best business practice for them in which each department within a store caters to a specific lifestyle. Moreover, Nordstrom offers free personal shoppers to help each customer find exactly what he or she looking for. For Nordstrom, it’s always been about the individual consumer.
7. Increasing the divide between high-end and value merchants: The success of high-end luxury stores benefiting from the wealthy and low-end retailers being aided by value-seeking consumers will continue throughout 2011.
This has been a very true trend for quite some time now especially as, despite the recession, the wealthy have continued to shop high-end stores and value driven consumers are taking a step back. Retailers that cater to consumers on the tightest budgets stand to lose the most.
8. Increasing the thrill factor: Consumers will seek out new and exciting experiences. S&P predicted stores that are able to thrill, surprise, delight and engage would probably win in this category.
It is not just the thrill factor that consumers are enticed by; it’s the ambiance of a store or the interactivity of a web site. Department stores, particularly, need to better enhance the shopping experience such as with the use of lavish displays, celebrity appearances or live music to attract more foot traffic.
9. Increasing consumer personalization: Brands are testing the waters of mass collaboration, providing the consumer with the opportunity for community input in product designs.
S&P analysts might be on to something with this prediction. Although it has not proven to be a major theme for retailers in 2011, this may be something to look forward to and something for retailers to consider in the future.
10. Increased coupon use to lead to decreased margin: More and more consumers have started searching for coupons as a means of creating value for their purchases.
Extreme couponing has become one of the most popular trends of 2011 especially in the grocery and household goods sectors. Consumers who engage in couponing are becoming less loyal to retailers, stores and brands, and are focusing on where the money-saving coupons take them. Shoppers are also seeking deals in different forms such as cash-back rewards, in-store contests and gift-card giveaways.
Retailers face the fear that all the effort and money put into coupons and deals is going to be thrown away to one-time buyers with no return. And with increased costs, heavy promotions and constant coupon use, margins have started to suffer.
Retailers have become considerably aggressive over the past year pursuing new opportunities to drive sales. Driscoll and her fellow analysts at S&P declared 10 ways in which retailers would improve sales in 2011 and while some of the trends were more prevailing than others, it’s best for retailers to keep an eye out for those that will become major game changers in the coming years.
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Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.
Stay posted for next week’s review with insight from Liz Dunn, FBR Capital Markets
