The retail industry has been forced to keep pace with the evolving consumer buying habits. Consumers today are knowledgeable, more inquisitive and choosier. Importantly, today’s customers have numerous shopping options at their disposal like in-store, online, mobile, social media and so on, that influence their purchasing decision. Satisfying customers and enriching their buying experience require new strategies. Modern retailing, interestingly enough, is a new game with new rules.
The U.S. retail and food services sales data for Sep 2014 was up from last year but was marginally below the previous month. According to the U.S. Census Bureau, retail and food services sales rose 4.3% year over year while declining 0.3% sequentially to $442.7 billion.
Some of the trends that are expected to rule the retail sector going forward include increased technological solutions, incorporating customer feedback and targeting additional audiences with products and services.
Omni-channel Retailing the New Norm: The sluggish U.S. economy along with persistent weakness in Europe motivated retailers to focus on the buyers’ needs and lure them with innovative products, attractive discounts, free shipping and the ease of shopping through smartphones and tablets. However, as these efforts failed to pay off, retailers felt the need for a better channel to connect with customers.
This gave rise to the “omnichannel” approach, which focuses on providing more touch points and multiple channels to customers. This approach facilitates the use of all possible mediums to engage consumers, including brick and mortar stores, online and mobile at the same time or alternatively.
This strategy provides customers with the ease of selecting, purchasing and exchanging a product through multiple channels. For example, a customer may select a product online, buy it through phone and exchange the same at a store without any hassle. Some retailers who are already benefiting from this strategy include Staples Inc. , Macy's Inc, Nordstrom Inc and Chicos FAS Inc (NYSE:CHS).
Personalized In-Store Experience: With evolution to the .com era and advancement of consumers, retailers are working hard to reinvent their marketing style, gradually shifting from the mass advertising and promotion format to a more personalized method to impress today’s omni-channel customers. The consumers today seek a more direct communication and hence prefer to interact with an executive through their smartphone app or to chat with them on the company’s website. Moreover, the customers prefer tailored offers and recommendations online as well as in stores.
Increasing Use of Mobile Wallet Technology: With everything in retail undergoing a sea change, the modes of payment used when shopping have also evolved drastically. The increasing use of smartphones, tablets and mobile technology has given rise to a new mobile application called ‘mobile wallet,’ through which customers can be make payments instantly by using their smartphones or tablets. Though cash and credit cards will remain the primary payment methods, the use of mobile wallet is catching up quickly among mobile users for the convenience it offers.
The popularity of this app among customers is driving retailers to adapt this payment mode by collaborating with some of the mobile wallet providers available in the market like PayPal, Google Wallet, Square Wallet, Dwolla and more.
In a recent stride in this direction, leading car rental company Avis Budget Group Inc. (Avis Budget Group Inc (NASDAQ:CAR)) fused its express rental service “Avis Preferred” with the Google Wallet application. Moreover, the PayPal app has gained recognition with a wide array of retailers including Abercrombie & Fitch Co. (NYSE:ANF), Advance Auto Parts Inc. (NYSE:AAP), Aeropostale Inc. (NYSE:ARO), American Eagle Outfitters Inc. (NYSE:AEO), Barnes & Noble Inc. (NYSE:BKS, Foot Locker Inc (NYSE:FL), JC Penney Company Inc Holding (NYSE:JCP) and Office Depot Inc (NASDAQ:ODP).
Technology-Friendly Brick & Mortar Stores: With shoppers increasingly becoming tech savvy, the brick and mortar stores need to leave their old-fashioned layouts behind and improvise by adopting innovative in-store technologies. The simplest way to execute this is the implementation of in-store mobile devices, through which customers can make payments, see product demonstrations, gather information and connect to social networks.
This has been well demonstrated by Apple Inc. (AAPL), which equipped its associates with iPhones enabling them to assist customers and receive payments anywhere in the store. This reduces billing queues and ensures efficient management of space, making stores less congested.
Further, retailers are exploring new ways to use mobile devices in-store. They are looking to develop mobile apps that can track customers as they shop, send them tailored offers related to the store’s section they are in; recommend items based on past purchases; or allow shoppers to program automated shopping lists.
In-store technologies, that customers look for these days include mobile point of sales, price checkers, self-checkout payment lanes, information kiosks, digital signage, etc. Other innovative technologies that will prove effective to engage customers both in-store and elsewhere are smart shelves, Wi-Fi hot spots, point-of-sales (POS) systems, virtual storefronts and endless aisles.
Reinvention of Loyalty Programs: Loyalty programs offer an edge to retailers as customers keep coming back for more offers. However, the age-old reward programs are losing popularity among shoppers as the offers are sometimes irrelevant and benefit accumulation is slow.
With the trends changing in the industry, retailers are now perking up their loyalty programs replacing loyalty cards with customized offers based on social information, behavioral patterns of shoppers, frequently bought items and other such details. Retailers who have shown stringent focus on enhancing rewards on their loyalty schemes include Nordstrom, Rite Aid Corp. (RAD), Office Depot and many others.
Impact of Social Media on Shopping Decisions: With the growing use of social networking sites by the masses, business firms have also entered social media to promote their business. Through the social media platforms retailers can advertise their brand and launch new products and campaigns. Companies also offer mobile coupons exclusively through these platforms, largely influencing shoppers’ buying decision.
Additionally, these social networking sites provide an insight into customer preference based on the interest expressed by them on the products featured on these sites.
Investing in Big Data to Track Shoppers: With the growing need for giving personal attention to shoppers, retailers are widely investing in analysis software like “Big Data” that help accumulate information regarding the behavioral patterns, history and background of customers. The analysis of this data facilitates the prediction of customer reaction, formulating pricing strategies, offering shopper-specific discounts and providing personalized recommendations to shoppers. Amazon.com Inc. (AMZN) is one retailer which has been involved in data analysis for quite some time now, offering tailored product recommendations based on the customer’s previous purchases.
Growth of Retail in Emerging Markets: Having tapped most of the potential in the domestic market, retailers have started venturing into the emerging markets. Most retail chains are witnessing growing demand for their products in countries like Brazil, the Middle East, China and India and aims at growing their exposure in these countries over time. Some of the retailers venturing into these markets include The Gap (GPS), Ralph Lauren Corp. , V.F. Corp. (VFC) and Tiffany & Co. (TIF).
Bottom Line
Retailers are trying to remain competitive primarily by shifting focus to the long-term horizon and finding innovative solutions to create value, reduce operating costs and mitigate risks throughout the enterprise.
Right-sizing inventories, enhancing efficiency and competence while bringing in technological advancements are the key agendas that retailers are focusing on. Moreover, cost-containment efforts and merchandise initiatives to improve margins are top priorities.
Retail, owing to its huge spectrum, remains a lucrative investment avenue for investors. But the changing landscape wouldn’t kind to all operators and/or concepts. It will require flawless execution on the part of management teams to stay relevant in this day and age. The industry hasn’t done much in terms of stock price performance this year and the trend will likely remain in place some more.
As you can see, there are plenty of reasons to be optimistic about the retail industry over the long term. But what about investing in the space right now?
Check out our latest Retail Industry Outlook here for more on the current state of affairs in this market from an earnings perspective, and how the trend is looking for this important sector of the economy now.