The holidays are over, the dust is settling on post-holiday clearance, early spring arrivals are nudging marked-down scarves, winter coats, and cashmere sweater programs off the prime spots on the selling floor. The NRF Big Show, held in New York, from January 17-19, has been packed up and the booths have been shipped off. It’s a good time to reflect on retail’s past, present and future. What can we learn from this past year? Where is the industry right now, and where is it going? After reading holiday post-mortems, attending the NRF Big Show, and walking through numerous malls, stores, lifestyle centers, and independent retailing operations, I have a few thoughts I’d like to share.
Online Retail is Here to Stay
Year on year sales grew approximately 3.1%, below most analyst estimates but slightly above the 10-year average (counting the disastrous 2008 and 2009 holidays). As was the case in 2014, 2015’s holiday sales were disproportionately driven by online sales growth. While e-commerce accounted for an estimated 13% of core retail sales this holiday season, it drove more than half of total retail growth. That means that physical stores were not much better than flat overall (the US Census Bureau suggests a stores-only growth rate of 1.7%).
But as most retailers intimately know, attribution of sales to traditional channel definitions is a murky business at best and getting murkier as more and more retailers enact more customer-friendly and creative ways to separate the demand signal (“I want to buy this product”) from the supply mechanism (“Here’s how we will get it to you”). The increasingly important role that mobile shopping played this season also exacerbates the lack of clarity around channel growth metrics.
While overall results were generally lackluster, and many retailers struggled with the unusually warm weather during the most critical part of the holiday season, there were some standout performances from the likes of L Brands and the Children’s Place posting growth rates of 7-8%. Other big retailers – for example Macy’s, Best Buy, and hhgregg – struggled through the holidays and saw declines. While some of these differentials can be ascribed to industry level headwinds that affect different subsectors differently, I believe individual company strategies, and the tactical execution of those strategies, matters a great deal and can affect performance as much as the macro-environment.
For a more complete breakdown of the holiday sales dynamics, I direct readers to Bain & Company’s excellent holiday wrap-up newsletter: Bain Retail Holiday Newsletter Wrap Up.
The Year of Mobile Shopping Experience
So where does the end of the holiday season leave us? For a number of retailers, January and February are likely to be revenue-positive, but a profit struggle. The weather turned colder early in January, prompting more shoppers to seek bargains at stores with plenty of scarves, gloves and hats at steep markdowns. Not a good situation for margin but room needs to be made for fresh arrivals and cash flow reigns supreme.
I believe this will be a significant growth year for mobile in a number of ways: continued growth of consumer use of mobile apps for various parts of the customer journey; more retail innovation around in-store/near-store marketing capabilities to fine-tune offer relevance to individual shoppers; and more deployment of mobile devices to store personnel to improve the shopping experience and to streamline operational activities. It’s been talked about for a long time, but I see a convergence of factors to support this growth. Bandwidth has been upgraded in thousands of stores; Apple, Microsoft and Samsung are battling for more share of the enterprise mobile market; apps are maturing for consumers and associates alike; and consumers and sales associates have greater expectations about what tech they see enabling their shopping experience. Mobile payment has gained acceptance. The ROI of mobile is becoming clearer, which makes the decision to role out more devices easier for store technology groups.
This is also a year where retailers will fine-tune their recently created omnichannel organizations. Forced by the market to recraft their internal reporting relationships, performance metrics and workflows, many large retailers will be getting deeper into the operational requirements and details of making omnichannel really work at a tactical level. Process change comes hard in retail, so it will be important to make sure that old, single-channel core workflows don’t just get “paved over” to accommodate omnichannel requirements, but are zero-based to really represent new thinking and faster workflows. That’s hard work but it needs to be done if retailers want to stay competitive.
Secure, Controlled Cloud Services Are the New Face of Retail
From what our Box team saw at NRF, the future of retail will be much more dependent on a myriad of technologies that have to work effectively together to deliver strategies that can no longer be done manually. In turn, that means that retail IT departments need to adopt more agile development capabilities, bring on technologies and the underlying infrastructure that can be deployed faster, updated more regularly, and that are more user-friendly. This requires interoperability at a level not seen in the last wave of big-tech rollouts in retail. Inevitably, cloud-based services with appropriate levels of security and control will replace significant portions of on-premise, customized software that retailers rely on today. If the past few years saw the dominance of “omnichannel” on the floor of the NRF Big Show, this year’s show reflected a new focus on cloud in a variety of ways, along with new analytical capabilities. The ability to ingest vast, growing amounts of information, make sense of them in a strategic context, support modern workflows to translate strategy into execution, and do so efficiently will be a big factor in separating the winners from the has-beens. As the data show from this past holiday, even in a lackluster economic environment, outstanding performance can be delivered if strategy and execution come together.