Article Written for SAP by Shah Karim
2016 and 2017 have been exciting years for internet retail. Of the 154 million shoppers during Thanksgiving weekend, more than half of shoppers shopped online than in stores.
Over the same period, however, US retail has seen thousands of store closures due to bankruptcy or scale-back by companies including Payless, Wet Seal, Aeropostale (NYSE: ARO), Macy’s (NYSE: M), and JC Penney (NYSE: JCP) and Sears (NASDAQ: SHLD). The key driving force behind both these phenomena is a continuing and profound shift in consumer shopping driven by technology and different behavior. In this article, we discuss how management can guide their companies through this economic turbulence.
Total US retail sales were $4.879 trillion for the 12 months ending February 2017, with $569 billion, or 11.7%, coming from non-store retail. Retailers will face a tough financial year through 2017, cutting margins and increasing clearances and liquidations – Finish Line noted this honestly while experiencing a 46% year-over-year decline in profits and a nearly 20% decline in value following its earnings call on March 25, 2017. Game Stop’s stock declined 14% after announcing on March 24 that it’s YoY comp store sales were 16% lower. While this means great deals for consumers in the short term, it leads to increasing losses for shareholders.
A new reality has dawned on retail, where consumer experience naturally combines omni-channel shopping, mobile, and social media. This is synchronized with the excitement of store visits, and we experience this in our daily lives. Yet much of retail is struggling to master this and there is little time until the Grinch arrives next holiday season with more store closings. Accordingly, here are three things management can do to adjust their company’s course.
Harness performance in a combined way across all channels: By regularly and systematically measuring the ROI of all marketing and merchandising programs and customer-facing offers across all sales channels, management can focus on increasing sales, conversion, and profits instead of being buried in trying to attribute shopping behavior to different personas. Focus on the basics of conversions, customer engagement, and cash flow.
For survival, focus on bottom line and cash flow: Management has to focus on improving profits and generating free cash flow. They should understand with precision how much additional sales and profits specific brands bring in, and how incrementally productive one offer or promotion is over another. Use this to drive sensible, desirable assortments that customers have indicated they want.
Connect Customers and Invest in in-store experience: Retailers benefit when they help the customer shop “on the go” and influence the store from outside. The “Internet-of-Things” will lead to more connected devices, improved in-store systems and better customer support. Accordingly, the in-store experience for shoppers needs to improve. Customers want to be more informed about items, understand proximity to their friends, and be able to share with others.
Summary
In this digital age, nimble leaders listen carefully to the customer’s voice and act accordingly. When management does this with purpose and clarity, the process builds loyalty.
Eventually this leads to a closer and more valuable relationship between management, staff, and customers. This greater engagement improves value for shareholders as well – one transaction at a time.
Shah Karim
Shah Karim is the CEO of Saferock (www.saferockretail.com ) and welcomes any comments on this article at shah@saferock.com. For more than 20 years, he has advised retailers on digital transformation, cost reduction, and turnarounds. He has developed systems and algorithms to precisely measure retailer ROI performance, Big Data analytics, personal learning, and enterprise content management.