by Quantum Retail • January 11th, 2011 • 4 Comments »
NRF 11 Tuesday Session
SPEAKING:
Mark Larson KPMG Bruce Besanko EVP, CFO, CAO, OfficeMax Herman Nell VP, CIO, Petco
Synopsis:
Key to retailers’ success in a prolonged difficult environment is insight into their competitors’ future strategic plans. In this session, a panel of retail executives discussed findings of the ninth annual state of the industry survey conducted in Fall 2010 in a conversation led by study partner and sponsor KPMG. The session covered a study of what hundreds of retail executives in nine functional areas revealed about key initiatives for the coming year. Panelists dissected key findings of thousands of specific data points in areas from customer insight to eCommerce.
NRF and KMPG Retail Horizons Report – Key Findings:
Despite sluggish demand, retailers stanch losses, stabilize profitability
To protect margins, retailers continued to focus on efficiency and process improvements
With the worst behind them, growth and expansion top the agenda for 2011
The battle for wallet share means marketing is getting more personal
Providing a semaless online and offline experience is a major focus
Good talent matters more than ever
Benchmarks for 2010
Cautious optimism and introspection
Sustainability and Efficiency: Retailers turned their focus to sustainability and efficiency, leveraging improvements and technology that would pay off in the long run. They gained awareness of the reality that some large investments turn out to be cost-savers in due time, especially when applied on a large scale.
Internal Restructuring: While retailers worked harder to stimulate demand on the front end, most took the opportunity to get their internal house in order; streamlining systems and processes, consolidating platforms, and integrating data across channels. With these internal improvements at the forefront of retail mindsets, inventories were aligned, productivity was improved, efficiency and value was key.
Customer-Centric Business: With fewer buyers in the stores, competition for the share of wallet intensified. To win shoppers the industry focused on improving customer interactions. Because buyers were more fragmented and product proliferation was on the rise, the quality of the customer experience quickly became a key point of differentiation.
Customer Data Gathering: Refined data gathering methods were put in place to monitor customer satisfaction.
Social Media: With the web’s growing influence on buyer decisionmaking, retailers also made wider use of social media like Facebook, Twitter, and Social sharing components in their eCommerce stores.
Talent: While smaller retailers continued to employ fewer people in 2010, larger companies added staff
Forecasts for 2011
Having steadied the ship, retailers face 2011 with renewed confidence
Expansion: For the first time in several years, expansion is back on the agenda.
New Store Concepts: Retailers are also ready to begin experimenting with new brick-and-mortar concepts, hoping to appeal to shoppers interested in buying for “wants” instead of “needs,” after years of belt tightening, but it is expected that the behaviors of value, responsibility, and frugality will likely remain.
Spending: Retailers will also loosen the grip on their own wallets, particularly in mission-critical areas, like IT, where headcount and budgets are expected to increase.
Improving Economy: Having made progress stabilizing balance sheets over the last 12 months, the industry seems well poised to take advantage of an improving economy.
Talent: More hiring is expected for 2011, especially in core business functions like IT.
2010 Stats
Average gross margins rose by a modest 0.7%
The number of companies reporting operational losses shrank by 11% year-over-year
The number of companies reporting average sales per employee of greater than $75,000 jumped 12% over last year
65% of marketing and advertising executives (one-fifth more than last year) stated that increasing customer insight and data gathering was a high priority in their 2010 initiatives
50% of respondents spent 20% or more of their advertising budget on direct-to-consumer marketing in 2010
A majority of respondents stated that they now match prices and make 80% of their merchandise available online
18% more organizations than last year ranked integrating their online presence with social media and other channels a high priority
59% of respondents to make social media their key focus for 2011
75% of respondents said customer service would be a top priority for 2011
75% of respondents advertise with links on Facebook, Twitter, and related sites (25% more than last year)
Nearly 80% of respondents have “fan groups”
80% of respondents said leadership development would be a top priority in 2011
4 Key investments for 2011
IT: Retailers plan to loosen their wallets, particularly in mission-critical areas, like IT, where headcount and budgets are expected to increase
Data integration: 74% of respondents in 2011 will increase their consumer insight and data gathering initiatives
Social Media: 69% of respondents identify m-commerce and e-commerce as a strategic initiative
Growth and Expansion: 41% of respondents plan to increase domestic store expansion, 25% plan to expand overseas
You can purchase the full Retail Horizons report, or sections of the report from NRF HERE»
by Linda Whitaker • July 13th, 2010 • 2 Comments »
This article, by our own Linda Whitaker, was published in RIS News»
As retailers seek out new business tactics to lure back the customers they lost during the recession, they will find that one of the most profitable strategies is creating a customer-centric supply chain.
However, one reality retailers must face is that the recession has created a new consumer paradigm. According to a new report by PricewaterhouseCoopers and Retail Forward, entitled “The New Consumer Behavior Paradigm: Permanent or Fleeting,” customers will not bounce back to their old shopping habits, as “seventy-two percent of all shoppers recently indicated that their shopping behavior has changed significantly or somewhat as a result of the economic environment”. The report suggests that shoppers will be more deliberate and purposeful in their spending, giving way to a more practical consumerism. However, it also predicts that these shopper behaviors may change as the recession eases.
Since we know no one can foretell the future to know exactly how and when behaviors will change, our take on this study is that consumer behaviors have changed and will continue to change, and that retailers need to actively seek new ways to engage them (especially the younger generations), and be ready to continually adjust their product mix accordingly.
With this new paradigm in mind, retailers must take a step back from their businesses to understand how to engage today’s new consumer.
Some questions that retailers should ask themselves:
What are your customers looking for when they walk into the store? Why are they buying that item? Does their buying strategy map to the one you have for the product? What are they not buying? How much are they buying? How often are they buying? Are they buying it at the same store?
To fulfill changing customer demand in your supply chain, you have to start at the store, and it comes down to the two basics: breadth and depth.
What and Where:
There are the tried and true ideas behind why customers select a certain product (the customer product strategy) when supporting customer demand: Price, impulse buys, destination items, etc. But customers today have a huge wealth of information at hand when deciding what to buy, and therefore they can include many new inputs (as well as the tried and true). These customer demand choices indicate their product preferences, and will be inputs into the customer buying strategy, and hence need to be included in your product strategy.
Ideally, you have a host of customer data that lets you not only map customers to purchases, but also link the changing customer buying strategy with your product strategy, and this may be different by location. If you do not have customer transaction and purchase information, you can use product/store level demand as a proxy, perhaps supported with market data. It will be important in this changing environment that these product/location strategies are continually monitored and updated.
Once you can assign the product strategy at a location level, you can tackle the breadth issue, i.e. the assortment. Most retailers cannot operationally manage unique store level assortments, and need to assign clusters that are often constrained. Care, supported by process, timely information, and optimal systems are needed to manage the conflicts between desired ranges, and operational constraints: space, fixtures, and assortment planning groups.
How Much and When:
When you assign a strategy to a product/location to drive assortment decisions, this same strategy should be used to drive depth. For example, a key destination item may need a very high service level so that your customer will not be disappointed.
In order to best meet these strategies and keep inventory performance high, the time phased aspects of the local customer demand need to be taken into account:
Circumstantial signals: The time of day or week activity occurs, holidays, local events and promotions, sports schedules, weather, seasonality and regional demand.
Putting it all Together
Retailers need to have the ability to assess and continually change with the patterns at each store based on the local signals and behaviors of their customers. In order to increase margin, achieve proper stock levels and align assortments with customer demand, top down simplifications in the inventory planning process must be removed.
Stores that can quickly process customer behavior and turn it into inventory execution will have an immense advantage in today’s marketplace. This means creating a dynamic inventory plan that is highly reactive to local demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving now. This enables the customer to have product available when and where they want it, in the right size, the right color, and the right style at every store and in every channel.
Linda Whitaker, Chief Scientist, Quantum Retail, is one of the leading practitioners of retail science in the country. She provides the research, innovation and advanced science for Quantum Retail’s solutions. Prior to co-founding Quantum Retail, Linda spent the past 17 years developing optimization and scientific solutions for complex retail problems in replenishment, logistics, pricing, promotion and consumer behavior at Retek Inc. and HNC.
This series will outline retail trends, innovation and best practices for retailers in 2010. To view part 2 click here. Look for Part 4 next week. Please engage! What are your thoughts and strategies for the new retail market?
It’s a whole new ballgame for retail
“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”
- Glenn Murphy, Chief Executive, Gap
The recession has brutally changed retailing. It has exposed and eliminated retailers that took consumer spend and loyalty for granted and rewarded others who have a defined strategy to maintain and grow marketshare. Retailers are competing in an era in which consumers have more information, more choices and more channels than ever before. The pace of change is increasing exponentially. Keeping up will require new and modern answers to the complex questions of our time.
What we see now are two kinds of retailers:
1. Retailers that survived the recession
2. Retailers that are thriving because of the recession
Retailers that have survived – are realizing that in order to regain lost ground, lost sales and lost customer loyalty – they need to quickly transform their processes, their strategies, their pricing and their marketing.
Retailers that are thriving – were able to cope with the changes in their customer’s shopping habits and adapt quickly. These retailers had a strategic model in place that allowed them to respond to consumer behavior – but they need to take new steps to maintain what is sure to be a short lived advantage.
Customer-centric
The customer has always been at the center of retail, but the concern for the individual customer has faded out. It’s not logical anymore as a retailer to look at what consumers were doing in the past. It’s all about now. What are your customers doing today? What are they buying? What are they not buying? How much are they buying? How often are they buying? Are they buying it at the same place? These trends have changed.
Retailers can generalize no more. Today is all about the individual. And if you don’t have what they need when they come in your store or search your website, chances are they won’t be back. And that’s not all, they want to see something new, something fresh, something green, and they want it for less and they want it now.
The market is asking new questions
Today’s new market is asking retailers some very difficult questions – questions that their existing processes and tools do not have the answer to.
How do you regain brand loyalty?
How are you doing more with less?
How will you protect your market share?
How will you align your business strategies with today’s customer?
How quickly can you react to the pace of change?
How do you plan to fulfill the local demands of your stores?
How do you plan to meet the needs of new channels?
How will you meet the challenge of internationalization?
How do you manage 1,000 stores like they are your only one?
And mostly, Where’s your sense of urgency?
Consumer mindsets have done a 180
Because the recession caused many loyal customers to seek out lower prices and better value, many brands may have lost long-time customers. Shoppers have become more intelligent about what they are buying and they are buying less of it. Frugality in a recession changes long-term habits, not just short term ones. Customers now know that they can survive off of less, they know where they can cut corners, and they have now learned exactly where to go to find the best deal.
How much has consumer behavior changed?
Retail Forward ShopperScape reports that seventy-two percent of all shoppers recently indicated that their shopping behavior has changed significantly or somewhat as a result of the economic environment, and only 7% have made no changes at all (Figure 1).
The New Consumer Behavior Paradigm: Permanent or Fleeting?
Will your shoppers return? If they have deserted you during the recession, you need to lure them back. However, you may need to change your branding to the tune of the new shopper.
The WPP Group discusses a new report that identifies a shift in shopping behavior and the need for retailers and suppliers to adapt to more conscious, practical consumerism.
New shopping behavior data and demographic trends indicate that an enduring shift has taken place as a result of the recent economic downturn. Retailers and suppliers will need to adapt to consumers’ new shopping behaviors to succeed in today’s evolved marketplace and during the post-recession recovery, according to a new report from PricewaterhouseCoopers LLP (PwC) and Retail Forward, a Kantar Retail company, entitled The New Consumer Behavior Paradigm: Permanent or Fleeting?
As outlined in the report, shoppers will be more deliberate and purposeful in their spending, as conspicuous consumption will give way to more conscious or practical consumerism. Rampant deal-seeking will be replaced by more purchase selectivity and the use of shopping techniques and tools discovered during the recession. Additionally, the affluent segment of Generation X and the young Generation Y will lead spending in the recovery.
The report states that companies need to recognize that there will not be a wholesale return to a pre-recession shopping mode and will need to adapt to changed shopping behaviors and patterns to win in today’s marketplace.
Where do we go from here?
Portrait of the New Consumer: Smart and Scared
Mike Duff, from BNET Retail reported the following from The AlixPartners Consumer Sentiment Index study, which queried about 7,700 U.S. consumers on what they buy and where they buy it. Consumers were asked about 63 factors in five major attributes – Access, Experience, Price, Product and Service – that influence their purchasing decisions at 135 retailers.
1. A new shopper emerges.Consumers have become sharper and better educated about the products they buy and where those are available. Previously, consumers ranked time as their most precious commodity, but now they are willing to drive the extra mile to get a product at a better price.
2. Shoppers search for “good enough.” Just a few years ago, shoppers wanted to purchase the best product in a category. Now they are more likely to accept good-enough products.Consumers won’t rebound quickly from trading down because many have been satisfied with their bargains.
3. Consumers continue their flight to value. In every retail sector, and at every price tier, value is far more important than brand loyalty in purchase behavior. A decade ago, service ranked before price in consumer purchasing decisions. Today, service is the least important attribute in every one of the 16 categories in the study. The danger retailers face is that, if they bungle the price/product balance, their customers may look for a better value elsewhere and never come back.
4. Winners and losers pop up in every retail category. Bargain prices aren’t a guarantee of success and a luxury orientation need not be the kiss of death. Luxury retailers can succeed but they must strike a balance by offering a unique experience – including product, atmosphere, and service – that can offset higher prices in the consumer value judgment.
5. Consumers are pickier: Just 15 of the 135 stores in the study met or exceeded customer expectations. According to AlixPartners, the shares of those 15 stores rose twice as fast as the Dow.
Yes, a recession causes consumers to spend less and reevaluate their spending, but at the same time the recession occurred, a green revolution occurred as well. Looking at the big picture, what we’re really talking about is a giant shift in U.S. consumerism akin to a second coming of the Consumer Revolution! What has occurred over the last year and a half is recession mentality spending, coupled with an onslaught of environmental concerns. So not only are shoppers looking for a better price, they’re also looking for greener, cleaner, sustainable, ethical, efficient, lower impact products.
Everywhere you turn there’s another sustainable project in the works or an eco-friendly fashion line being launched. Greentailing is officially “in” and we are all realizing that you can be green and more profitable at the same time. One of our clients is reducing waste on their perishable products while making sure their customer sevice levels remain high…surely you can’t be more green and profitable than that, can you??
Gap has partnered with Cotton Inc. in a new, exciting campaign, “Recycle Your Blues”, which encourages shoppers to bring in their old Gap denim in exchange for 30 percent off their next denim purchase at Gap, GapKids or babyGap. The two-week program began March 5 and ended the 14th. Talk about a great reason to shop!
Fast-fashion retailer H&M recently launched its first fully-sustainable clothing line, The Garden Collection. The 80-piece collection hit stores March 25 in a special section of the store and will also include a special shopping bag with a Garden Collection logo.
Target’s new eco-friendly skincare line, One, hit stores nationwide March 1 and offers 28 different product options including lip balms, body butters, solid shampoo bars and bath fizzers. One products come in recyclable, plastic-free packaging.
A few other retailers worth mentioning who are making huge strides in energy reduction and other sustainable efforts:
With a goal of cutting energy use by 20 percent by 2015, The Home Depot is well on its way having already reduced energy levels 16 percent since 2004. The energy the company has saved so far could power 203,000 homes for one year!
These forward-thinking retailers, and many others throughout the world, continue to find unique ways to do their part to save the earth for future generations of shoppers.
Retailers need to recognize the needs of their customers and give them products that meet these new expectations – and remember, these expectations will continue to change quickly and without notice. Those poised to recognize and react to this extreme volitility will have the advantage.
Customer-centricity + greentailing = Localization
The current state of the economy has driven the desire to understand the needs of the market at a lower level of granularity. It has caused a need to create local assortments and inventory fulfillment that reacts to local needs. Most retailers’ existing processes and systems were developed to meet the needs of the average, not the individual. In order to increase demand in today’s markets, the next step for retailers is to take on the challenge of localization.
Localization also comes from localizing distribution and utilizing vendors that produce products in a short vicinity of each store. This type of localization is most easily applied to fresh foods and markets – where customers prefer to support their local farmers and local brands.
Best practice now consists of removing the simplifications from the inventory planning process and instead focusing on real-time local demand and the individual product-location-consumer relationship. Retailers need to create an agile inventory plan that is highly reactive to local demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving now. This allows the customer to have product availability when and where they want it.
A leveled playing field
In a Financial Times article, Glenn Murphy, chief executive of Gap, discusses the new ‘roll up your sleeves’ challenges facing retail today.
“There will be some Kohl’s [department] stores that will open, and there will be a few more Forever 21s [fashion stores] … but by our crystal ball and the work we’ve done on the next five years its pretty much a level playing field.
“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”
Mr Murphy, who previously headed Shoppers Drug Mart, Canada’s biggest drugstore chain, delivered a frank assessment of the shortcomings he identified when he arrived, including an “almost criminal” weakness in ensuring return on invested capital, and lack of cost awareness.
“It had been a culture that didn’t necessarily embrace really rolling-up-of-sleeves work that needs to get done inside a really great company,” he said.
You need new answers
It takes the proper mix of science, retail intelligence and merchandising art in order to ensure that every store in a supply chain carries the right inventory, while maintaining a high service level and market share. There is a new market and and a new consumer. If they are to continue to survive and eventually thrive retailers will need to respond to the demands of the consumer in all channels at all times and ALWAYS with the right answer. It will be a lot of fun watching the retail market evolve over the next few years…without question this rabbit hole goes a lot deeper than we can even imagine!
Get back in the game
Are you ready this year to know exactly what your customers are asking for at every location and in every channel? Are you ready to have the ability to react the instant their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes, promotions, products and performance with ease. Create profitability in every tier of planning, forecasting, distribution, allocation and replenishment. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.
