Outlook 2009

It didn't seem like it was the best of times and worst of times last year in retailing. Where was the equitable distribution? It seemed like the worst of time had free reign, but this is not really true. Although the pain caused by retail bankruptcies and store closings will long be felt, the U.S. Department of Commerce is reporting for 11 months in 2008 (excluding motor vehicles and parts) retail sales are marginally up from last year.

Also, let's not overlook the many retail winners in 2008, including BJ's Wholesale Club, Walgreen's, Kroger, Ross Stores, The Buckle, Aeropostale and too many others to list. Plus entire retail categories showed great strength, too, including food and beverage, grocery, liquor, e-commerce and health and personal care.
But overall 2008 will be remembered for recession and a financial crisis not soon forgotten. So, the big question on everyone's mind right now is what will 2009 bring? To answer this we tapped into some of the smartest brains in retailing. Here's what we found.


Bob Willett
CEO
Best Buy International & CIO

The year 2008 can be truly described as the year when traditional orthodoxies were stood on their head and cash flow became king.

The year 2009 will be a time when 'strong brands get stronger' if they are diligent about seeking to offer better bundles of product and services at great value to customers in this difficult time. It will also be a year of greater collaboration with vendors to mutually act to benefit customers by simplifying respective processes.

It will also be a time to retain and develop further the key differential of Best Buy - our people - as they will become even more critical to our future. Another emphasis is on reducing general and administrative expenses to the maximum to simplify our operating model, so that when we come out of this depressed demand phase we will be even more responsive to our customers.

While our technology investments will be reduced, as will all other elements of capital, we will focus on a multi-channel wireless enabled services infrastructure that will help build out our 'connected world' strategy. We are also investing in telepresence to increase our human interaction and effectiveness while reducing the amount of travel normally undertaken.

Finally, we are going to focus on four key elements of our business: 1. Get closer to the customers that really matter and innovate to increase share of wallet; 2. Focus on organic growth, sweat existing assets and rely less on new and heavy capital expenditure; 3. Take out work that does not add value to our customer experience, and use the time to challenge the 'status quo'; and 4. Over communicate with our people and be honest about opportunities, because there are plenty of them in these times as well as risks.


Gary A. Williams
CEO & Founder
wRatings Corporation

With all the twists and turns in 2008 the key takeaway is flexibility. The uncertainty of consumer demand means that retailers must be able to surgically adjust resources, inventory, pricing and promotion quickly. Technology has never been more critical to a retailer's survival. This requires supply and demand chains to be synchronized into a feedback loop system.

Disparate sources of data must come together seamlessly. Because past purchasing habits are not extrapolating well to future sales, retail winners will be those able to see data on a daily versus monthly or seasonal basis. And more importantly, retail CEOs need to tie what motivated a consumer to purchase a product at a certain price point from yesterday's store receipts, not waiting for the analysis to be done weeks or months from now.

Think of 2009 as taking 52 (weekly) steps where most investment decisions are made at the last minute.  Each weekly step is another opportunity to adjust inventory, price, promotion and resources. We see many clients shifting to shorter and more fluid budget time frames. They have conducted intense analysis on their strengths, and what worked in the past is being favored over completely new, innovative ideas.

With limited capital available for improvements in 2009, we are advising clients to invest in staff training. The best retailers have the opportunity to widen their competitive gap through their customer service. Training not only helps reduce turnover, it serves to maximize each customer's sales per visit. In economic downturns, the difference in making a sale can be in customer service.

Bill McDermott
President and Executive Board Member
SAP AG

All industries are impacted by the current macro economic climate. However, at SAP, we see opportunities in this crisis. Our experience helping thousands of customers through many economic cycles gives us insight into how the strongest brands react. Those companies maintain their commitment to strategic projects, while slowing down or eliminating programs that can't provide immediate returns.

This is the time when companies narrow their partnerships to those that are most strategic. In this environment, leading companies invest in their brand and build "muscle mass" so they become stronger when they emerge from the crisis.

The following are four major trends we expect to see in retail in 2009 as retailers must respond to shrinking wallet size: 1. A challenging economy; 2. Empowering shoppers; 3. Faster product lifecycles; and 4. Globalization. Retailers will need to focus on a balance of initiatives to address these trends. The balance consists of a blend of ROI and transformational initiatives.

For retailers, the shopper must be at the center of any initiative, and to connect with the shopper the retailer will need to focus on people, product and price.
For people, the focus will be on how retailers can maximize their workforce to drive shopper loyalty and continue to maximize wallet share. Also, in the current economic condition, there will be more top talent available, allowing retailers to continue investing in the leaders of tomorrow today.   

For product, the focus is all about consistency, ensuring that retailers bridge all channels to allow shoppers to "pre-tail" before they retail. Then it's all about ensuring that retailers have the right inventory to meet shopper needs.

For price, being competitive does not mean dropping prices across the board, but rather ensuring responsiveness to shopper expectations and by having the right prices on the right products.

Terry Morgan
CIO
Delhaize Group

The best way I have found to manage through tough economic cycles is to make prudent decisions and implement efficient organizations during the best of times. This is not to say we should not make investments in technology today. Technology is an important leverage point for helping organizations become more competitive, efficient and profitable. We have to work with our business partners to ensure we make investments in areas that produce the best business results.

Economic uncertainties and the difficult capital markets will undoubtedly result in lower technology spending and investment in 2009 and possibly into 2010. I believe the areas of greatest investment focus will be in supply chains to drive greater efficiency and consumer experience consistency, and in e-commerce as a growth alternative to the capital intensive option of building and expanding retail space.

Mike Griswold
Vice President Retail
AMR Research

I think spending on IT will continue, but in a much more pragmatic fashion. Retailers will focus on three areas: 1. Better understanding of who the customer is through customer intelligence, segmentation and attraction/retention; 2. Cost containment; and 3. Process improvement. In the latter two categories some technology areas that will remain active are workforce and task management, space management, lifecycle pricing and HR infrastructure.

Retailers will focus on technology solutions that have a clear and measurable impact and proven ROI. Expect to see retailers deploying very tactical cost reducing initiatives in areas such as lowering and optimizing payroll costs, lowering credit card processing fees and lowering direct order fulfillment costs.

There will be a slow down in brick-and-mortar expansion. Further, we may see some retailers shift to online only or a combination of online and catalog. Retailers who remain will be lean, focused on delivering exceptional service, adding precision with more localized assortments and higher than industry average inventory turns.

Retailers should analyze their current merchandising and store operations to identify ways to improve customer experience and value; increase localization of assortments, pricing, promotions and markdowns; leverage alternative channels (like e-commerce) to extend the reach of their brand; and lower the cost of selling their goods.

Many retailers have active HR projects for talent acquisition, workforce management, store communications, task management and learning systems. To quote a large retailer: "While we know that our turnover rate will significantly decrease during these trying economic times, it doesn't change the fact that talent acquisition and strategic human capital management is core to our retail business."

Duncan Angove
General Manager SVP
Oracle Retail

In today's challenging environment, retailers must seek opportunities to create short-term value while also focusing on long-term competitive advantage. Technology has a vital role in supporting this.

We are seeing retailers employ short-term strategies such as controlling inventory, driving near-term revenue growth and reducing costs in order to create value for long-term investments in customer centricity, innovation and operational excellence. We believe retailers that maximize these opportunities will be much better positioned to succeed and thrive when the market inevitably recovers.

It is also important for retailers to recognize that today's consumer is more empowered than ever before. They are mixing online shopping with store visits and they expect the retailer to know immediately who they are and what they are likely to want.

We are seeing a very interesting dynamic happening in the market around the dimension of customer intimacy. Customers are looking at innovation and freshness in the proposition that retailers bring to them. This requires retailers to move away from a mass markets centralized framework to managing by clusters and targeted segments before eventually getting to personalization.

Our perspective is that the best way for retailers to achieve customer intimacy and redefine their business is to put the customer in the center of the organization. From there, retailers must find ways to inject innovation on behalf of customers into their offerings as well as continue striving for the next wave of efficiency gains and productivity.

Now more than ever, retailers need better insight into what their customers want on a location-by-location basis and the capabilities to tailor every step of that experience. Technology is a key enabler for not only connecting the merchant with the right information about the customer, but allowing them to do it quickly.

Michael T. Merhab
Vice President E-Commerce
CBS Interactive Sports

With most organizations experiencing unexpected revenue shortfalls and budgets being cut, the internal challenge is how you plan for growth with reduced spending to improve technology and less manpower to implement it. It will be crucial for companies that are required to cut in key areas, such as marketing and technology, to come up with a strategic plan to supplement those areas.

Contract/commission work is an example of a strategic plan that I feel will be successful. With the current state of unemployment, there is a vast pool of qualified individuals in all areas of business. I have found that many are willing to work on a contract/commission basis. One example is in the area of search engine optimization and paid search. It is fairly simple to quantify the increase made by a contract worker who would be willing to take a pay-only contract for increases produced. Similar types of accords can be reached with technology experts and marketing executives. Those companies that just cut staff and/or spending without a strategic plan for supplementing it with other approaches will suffer the most.

From a merchandising standpoint, I think we are going to see a significant reduction in brands on the manufacturing level and SKUs on a retailer level. Inventory will be the retail killer in 2009, and those who plan and execute correctly will be the ones that thrive and survive.

From a technology standpoint, there are going to be fewer dollars to experiment with. So, while we will obviously continue to advance in technology, it will likely be at a slower pace. Mobile will be 2009's new frontier and greatest opportunity for growth. Most companies have little or no presence in the mobile space, and this will be a great opportunity.

Stewart bloom
CEO
Escalate Retail

Today's economic realities have created an array of challenges for both retailers and their technology partners. As retail comp store sales decline, store counts shrink and budgets erode, it becomes more important than ever for retailers to find ways to extract maximum productivity from all key assets, including employees, stores, inventory and customers.

History has taught us that long-term success comes to those who find ways to make strategic investment choices that help them survive tough times and position them to thrive when market conditions improve. In spite of historic challenges, we continue to meet with retailers every day who have made difficult budget choices to fund strategic investments to help better understand their customer's shopping and purchasing behaviors; to invest in the tools their store associates need to better serve every customer that walks through the door; to leverage every hard-earned dollar invested in inventory to its maximum potential; and to fine-tune their organizations to meet their customers' expectations of choice, flexibility and cross-channel transparency. It is our belief that these retailers will be best able to weather the storm and position themselves for greater competitive advantage in the long run.

As cross-channel shopping will influence close to 40 percent of all retail transactions and smart phones become ubiquitous, consumers will demand more flexibility, mobility and brand transparency. We expect mobile commerce to begin to gain real traction in the North American market as forward-thinking retailers leverage the possibilities inherent in mobile devices. We expect consumers to look for more creative ways to complete their transactions across channels. And we firmly believe that retailers who are best able to anticipate, respond to, and satisfy the new consumer's expectations will most successfully earn their customers' loyalty and wallet share.


Paula Rosenblum
Managing Partner
RSR Research

The economy is now inextricably global. That means we have to think about global supply and local demand. Technology is critical to support execution across both domains.

For retailers during a time of recession, the most important message to send to consumers is one of value. It doesn't help to ask them to spend money on big ticket items they can't afford. Instead one can gain their loyalty by understanding their situation and helping them maintain enjoyment even during hard times. Pricing should be sharp and shelves should not look empty.

I believe the most important technologies will be those that help retailers manage private label merchandise, inventory levels, prices and cost-savings, such as green initiatives at the store level for HVAC and power consumption. Customers will appreciate seeing this in stores and retailers are guaranteed to see cost savings and ROI.

Our goal is to extend our global research focus. One thing has become clear, while the United States may be a nation of consumers, in fact, the rest of the world needs us very badly. The world makes the items we consume.

Here at home, we want to understand the continued impact of cross-channel retailing. My personal experience was shaped on Cyber Monday when I discovered the Bloomingdale's site had gone down. Cross-channel retailing is still not a seamless operation and it needs to be in 2009.

Prashanth Palakurthi
Founder and CEO
Reflexis

Key takeaways from 2008 include a reduction in capital spending by retailers to adjust to weak sales growth. This means there will be fewer store openings, international expansions, refurbishments or mega-IT projects. In fact, I expect to see fewer IT projects but more business projects going forward.

Technology vendors will not be able to get away with "voodoo" ROI calculations as they might have in the past. Real ROI is critical. And there will not be "long march to Beijing" IT implementations. Rapid "time to value" will be required and preferably guaranteed by rewards/penalties. Also, software as a service (SaaS) deployments will grow significantly.

Retailers will reduce staff, making efficiency of lean staffing paramount. Retailers will face increasing pressures to synthesize their workforce and create profitable execution.

A vastly different retailing landscape will greet retailers in 2009. Many prudent retailers will not plan for growth in 2009. There will be a greater need for synchronization across channels and an increased focus on customer service. This means there needs to be better utilization of store resources to act as a differentiator.

To improve agility, retailers need to align store and staff to organizational goals and more tightly couple them to KPIs. Retail winners will know that stand-alone labor scheduling and time and attendance applications do not address the larger retail execution challenge of aligning store labor and activities to corporate goals.

This will be a year of conservative IT spending, and a great time for IT vendors who can prove their value. Technologies that will remain high on the retailer priority list are those that can enhance staff efficiencies by enabling fewer people to do better-directed and more-profitable work to improve a retailer's promotional effectiveness, reduce inventories and integrate multi-channel selling.