2010 Review and Outlook
By Joe Skorupa
Open the retail record books and write "2009" in big, bold letters. Choose the color of ink carefully. But whatever you do, don't ask me to identify the year's major trends.
Why? Because I'd have to talk about store closings around 8,000. I'd have to cite bankruptcies more than 30 retail chains sought protection from creditors. And layoffs the retail workforce shrunk to a level not seen since the late 1990s.
Not a pretty picture. Fortunately it's not a complete one. Some retailers were able to quickly adjust to downward price sensitivity and reduced demand, and when they did they racked up huge profits.
While I dodged the big questions about recent lessons learned and what to expect in 2010 I did my best to find nine of retailing's most authoritative experts to provide you with answers. Here is what they had to say.
President & CEO
DSW SHOE WAREHOUSE
There are two very big learnings to absorb from 2009. First, balance sheet strength and flexibility is critically important. If a credit grantor or credit insurer senses weakness, they will withdraw support for that company very quickly.
Therefore, one big learning is that companies with strong balance sheets have a distinct advantage in this environment.
Second, while companies must adjust their cost structures and capital spending plans to conform to the level of consumer demand, these short term actions can only prop up short term results.
Ultimately, companies must resume topline growth in order to achieve sustainable profitability.
Right now in the marketplace the most vulnerable companies are smaller, financially weaker, or have a less well-defined reason for being compared to their competitors. The stronger players should use this period of time to build market share either by flexing their competitive muscles or by pursuing strategic acquisitions.
Regarding today's consumers and new shopping patterns that have emerged, they are savvier than ever before, because they have two scarce resources: their time and their money, which they insist should be invested wisely. Retailers who waste either of these resources cannot compete effectively.
Looking ahead to 2010 I believe retailers must become knowledgeable about what their customers are saying about them through social media.
First, it is an inexpensive way to conduct customer research. And second, this form of informal communication can be as powerful, positively or negatively, as a direct marketing campaign.
Dr. Jim Goodnight
Chief Executive Officer
The economic pressures of 2008 and 2009 have dramatically tested retailers. In 2009, successful retailers maintained and grew by quickly focusing on inventory reductions, expense and marketing management, while providing highly competitive prices. Retail leaders also are focusing on building their brand through cross-channel strategies and consumer communication through traditional, Internet, social and mobile marketing efforts.
The opportunities for 2010 and beyond include a focus on gaining market share while continuing to improve profitability and building the store brand by expanding private-brand and brand-exclusive merchandise.
The growth of cross-channel strategies is extremely important for success. The dynamic use of social media and mobility is a powerful way to interact with consumers. However, none of these strategies can be effectively implemented without a major focus on business analytics. Retailers are no longer just resellers of merchandise; they're now becoming powerful marketing companies as well.
The fundamentals of timely merchandise, value, and strong promotions continue to be essential to retailers. The amount of information available to consumers today makes a retailer's strategy and values transparent to consumers. Retailers who leverage Internet, social media and mobility to listen to customers have an enormous opportunity to connect and build strong, lasting relationships, resulting in more customer visits and higher average transactions.
Retailers, who have traditionally invested less in technology than other industries, have made enormous progress in the last decade. Success today requires predictive analytics to optimize management decisions and effectively implement and execute cross-channel retailing, brand management and marketing across traditional and new channels of communication such as social media and mobility.
Chairman & CEO
We have learned that in the "new norm" of retailing every interaction with the customer counts. Consumers are spending less and saving more. They are anxious about unemployment and becoming conditioned to discounts. We have to work that much harder to capture their attention, and ever more so, their loyalty.
As each interaction becomes increasingly critical, we recognize that every touch point could influence when, where and how the consumer does business. Consumer needs are quickly changing, and they are expecting retailers to adapt.
The "fittest" retailers, in Darwin's term, are now being defined by the consumer. They dictate the terms of their relationships and reward retailers that offer them customized convenience and choice of services. The industry will continue to see the evolution of consumers using self-service devices and digital signage to make their store experience more enjoyable, convenient and relevant. These new technologies and concepts can make shopping an effortless experience and bring information and access closer to the consumer. This is where evolution is separating the field. Retailers armed with self-service, mobile, social networking technologies and personalization agents will create innovative and effortless experiences for their customers.
I remember the day when I could walk into a store, and the person behind the counter knew who I was and remembered what I wanted. By bringing back personalization and catering to a shopper's wants, needs and desires through new technologies, such as digital signage and other multi-channel capabilities, retailers have an opportunity to deliver the enhanced experience that consumers are craving.
Disruptive innovation is taking place as once separate technologies and channels now converge. Retailers will need to look to mobile-aware technology that leverages self-service kiosks, digital signage and intelligent promotional software that will give the consumer much more control, save them time and deliver greater value.
Associate Partner, Global Retail
Industry Strategy Leader
IBM Global Business Services
We've moved from conspicuous consumption to finite demand. Retailers have been forced to move away from the "we will produce it and they will come mentality" and re-engineer their operating models to truly sense consumer demand and create capabilities to respond in an efficient manner.
Our research and client engagements show that consumer behavior has fundamentally changed. In these economic times, most consumers are not driven solely by price, but rather are loyal to retailers based on trust, quality, store experience and convenience. Retailers that can operationalize customer analytics at the point of customer and associate interactions are well positioned to turn shoppers into advocates.
The competitive landscape has shifted dramatically with much lower barriers to entry. Consumers have numerous ways to obtain product and pricing information and using multiple devices to enhance their shopping experience. A new IBM consumer survey shows that 36% of participants around the world are using two or more technologies at a time for researching a product and making a purchase. Retailers have to be aware of the shifts in consumer shopping behavior and deliver more personalized services accordingly.
There is certainly game-changing innovation in areas such as social and mobile commerce, but we urge our clients to not only explore technology for technology sake, but rather test it in the context and presence of the individual using it to increase usability and drive adoption. For example, we are currently helping a department store retailer embed advanced analytics into their merchants' workflow and daily cadence. And, we are currently working with a grocery retailer to pilot a location-based shopping and promotional application for cell phones. In these cases, the ability to easily access and navigate information is more important than the information itself.
Consumer Centric Retailing
I'm not sure "learned" is the right word for 2009. I'd suggest "re-learned." Success this year has occurred when companies focused on their consumers better than their competitors. Retailers who used key demand levers of price, promotion, markdown, assortment, inventory control and offer management did better than their peers.
The landscape of retail has and will continue to change, and major changes have created opportunities for survivors. Retailers like Walmart are picking up new shoppers, but they face a familiar challenge: Can they retain them over time? I do not believe consumers will return to shopping behaviors of a few years ago, even in the face of a better economy. The consumer has fundamentally changed.
There are a number of opportunities available to successful companies. Taking advantage of lower lease rates, locations, footprints and formats are just a few. It's a great time to start with a clean whiteboard and ask: What will appeal to the new consumer? How can we position the organization to become more agile and competitive? How can we leverage the digital consumer and the social aspects of the Internet?
Clearly the online channel continues to be disruptive. Optimization of merchandising decisions has proven to deliver competitive advantages, and these innovative technologies have only begun to scratch the surface of their full potential. The retail store of the future will be delivered through optimization of nearly every decision in the value chain. Would anyone think of retailing without a bar code scanner today? The same will be true with optimization technologies extended throughout the enterprise in the future.
Global Hunter Securities, LLC
The industry has learned that it must be a coherent, seamless multi-channel model in order to survive and thrive. This means more than just being customer-centric. It means cost rationalization must accommodate sufficient investments into technology. So the business may shrink, and the overall model might look smaller, but the concept has become more dynamic and flexible. Precision, flexibility, mobility and quick-to-change are the major concepts governing the business today.
Small is the new big. This means a narrower focus in merchandising by department, by category, by concept and by the target customer's profile. All of this requires a comprehensive revamp of the productivity of the business that includes tech spending for better multi-channel execution and for M-commerce retailing, to get ahead of the curve on the rapidly evolving world of smart phones.
Social networking evolved much faster than expected into a primary channel during 2009. The Holiday Season is already being transformed by this, with less store traffic and very specific spending. The Internet is the only channel capable of pulling together the data expectations of different demographic behaviors.
If everybody wants to know the answer in one device, it is the smart phone. Smart phones will do for retailing what Morse code did for the industrial revolution. The smart phone revolution will make the product and the service the protagonist of the relationship, not the merchant, not the consumer. Devices and the services and products are all teaming up to take control of our natural inclinations. Smart phones will link together everything through one powerful device.
VP Industry Market Strategies Retail
No doubt we will see social media/networking and mobile commerce skyrocket in adoption in 2010. Not all retail initiatives will be successful, and I'm not entirely sure the key platforms will be Facebook and Twitter.
But one thing is sure: Consumers will increasingly be talking about their retail experiences outside of retailer-controlled platforms. This should send a shiver down every retailer's spine. These consumers won't have to wait to get back to their houses and use the time to cool off before posting their thoughts. They can easily do it from the palm of their hand by using an increasingly powerful smart phone. The number of smart phones is just exploding and the impact it will have on retailing is exploding along with it.
The key words to watch going into 2010 will be "cost containment." This is not startlingly new and is instead a continuation of what we've seen in 2009. But it's crucial to understand what it does and doesn't mean. What it means is getting approval on new IT project will be just as difficult in 2010 as it was in 2009, but not impossible.
Areas that are ripe for higher levels of investment include e-commerce, mobile commerce and social media. Many retailers are still operating on first generation e-commerce platforms and few retailers will tell you their e commerce strategy isn't gaining in importance. That's a recipe for increased investment.
Since many consumers are already using mobile devices, retailers have to race to catch up. A few already are gaining traction. Social media is the power of word-of-mouth awareness magnified many times. Retailers have to understand that their early efforts in social media are not optional experiments. They don't have a choice, because their customers are already there. Where customers go retailers have to follow, and follow quickly.
The benefits of true cross-channel integration are inherently easy to understand, but the technology roadmap to get there can have many alternatives: integrate and extend existing systems, build new middle layers to share data or simply start from scratch. Whichever route the CIO decides to take institutional barriers can derail even the smartest technology infrastructure.
Very few small or medium-sized retailers have reached multi-channel synchronization. Those that have successfully transformed their organizations can not only give customers what they want, when and where they want it, but also benefit from streamlined, efficient management and greater inventory flexibility.
Today's informed consumer is well-versed in the principles of branding, and consciously defines herself by the stable of brands she chooses to buy. What she does not understand, however, are differing policies, procedures or information for the same item from the same brand when accessed through different channels. She expects consistent policies and a high-level of service from her chosen brands. She wants to buy anywhere, ship anywhere and return anywhere, all wrapped with a consistent message and level of service.
But the reality is this is difficult to achieve for retailers. They built each channel and its related systems in a piecemeal fashion. The legacy merchandising system runs brick-and-mortar. The catalog/call-center system manages that channel, and a new e-commerce platform is being positioned for growth. Tying together these processes, procedures and systems is what will give the consumer what she wants and retailers the success they want in 2010.
Our 2009 research shows that retail winners view times like these as an opportunity to steal customers and build loyalty. They maintain a relentless focus on the customer, and view demanding consumers as an opportunity, not a challenge. Also, they understand that they are part of a value ecosystem -- no longer are they "an island."
Winning retailers invest while others cut costs. They drive efficiencies in non-differentiating processes to pay for differentiating innovations. And they enjoy top-level leadership that drives a customer-focused strategy while also understanding the value in the information assets to drive both efficiencies and new value.
Loyalty programs are no longer enough. Smart retailers will focus on the lifetime value of consumers and market to them accordingly. Consumers have become more demanding. This has taken new form with the sudden rise of social networking and mobile tech as an empowerment tool for cross-channel shopping. So retailers will be under more pressure than ever to coordinate the multi-channel value offering.
New investments in BI are becoming critical for retailers to understand how best to target assortment, price, promo and services, as well as optimize operational processes to redirect efforts toward a more localized service and selection.
Technologies to watch include: consumer mobile tech, social media integration with marketing, new generation BI with retail-time integration between BI and operational systems, integrated multi-channel enterprise level systems, supply chain analytics with exception-based alerting, digital media and kiosks, task management integrated with workforce management, GPS within supply chain management, and network centric (or "Cloud") computing alternatives.
It's going to be an interesting year.