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The New Retailer Imperative: Adapt to Survive

 

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Recently, I met with some very smart people who insist that Amazon and maybe Walmart will be the only major retail players still standing in the next 10 years. They believe that the only companies that worth investing in are Amazon, Apple, Google and Microsoft. Their dominance would overshadow anything else in retail according to my friends.

This is a rather strong assertion. Yet, in support of this statement is a new report by Moody’s that lists 24 store chains that may soon declare bankruptcy. The list includes Quicksilver, Bon Ton, Cole Haan, Charlotte Russe and Peek, Charming Charlie, J. Crew, Claire Stores, David’s Bridal, Eddie Bauer, Savers, Fairway, Neiman Marcus, 99 cent only stores, Nine West, Sears and Kmart, Toms Shoes, True Religion Brand Jeans, MAG Retail, Totes, Tops and Vince.

While this talk has affected my thinking, I am not that pessimistic and do not believe that retail is dead nor that these companies will disappear. Rather, I see glimmers of what a changed future can look like. I look at Best Buy and see a brick-and-mortar retailer fighting Amazon with competitive prices and outstanding service. Best Buy is cutting costs so it can stay on the competitive edge. Their Geek Squad gives excellent service.

Then, I look at Home Depot and see a company that advises on color and solves problems for the do-it-yourselfers (DIY). Or, I look at Ulta giving expert advice to fashion conscious women and Zara (Inditex) associates guiding customers to their best fashion look. So, knowledgeable service can drive stronger business; it is a must for trendy retailers to remain in step with customer demands.

Maybe wearables can be bought on the internet at 11 o’clock at night. And, certainly, replacement purchases can be made at night. However, the customers who want to create a fashion look for themselves or their home still want to try it on, feel the fabric and have opportunity to ask a savvy sales associate to confirm their choice. So, despite a trade-off of sales to the internet, many people still rely on stores.

There clearly has been a major shift in retailing to the internet. In 2016, online retail sales excluding car, fuel, restaurant and bar sales rose to 11.7% of total retail sales according to the Department of Commerce. At the end of this year, I estimate that number will rise to 13% to 14% of all retail sales. It is likely that online sales will accelerate for hardlines such as bedding, small appliances and housewares, as well as for toys, fashion and food.

And, there is no doubt that Amazon is a huge factor reshaping this shift. It accounted for 41.6% of those 2016 online sales. I recently called Amazon the 800-pound gorilla that is dominating the retail scene. Many shoppers trust Amazon and often go directly to shop on the site. Its spectacular growth has been driven by electronics, home and apparel categories according to Slice Intelligence. Electronics alone were responsible for 18% of the company’s sales growth, as the number of U.S. households that own an Echo device more than doubled from 2015. The next biggest contributors were home and kitchen categories (15%), apparel and accessories (12%), food (11%), and health and beauty (10%). Their recent acquisition of Whole Foods adds another dimension to their growth. They now own a national network of brick and mortar stores that gives them access to more customers and greater opportunities for growth online with food as well.

However, I take to heart what Guru Hariharan, CEO of Boomerang Commerce, said me recently about the future of retailing. In his view, this is the age of technology where art and science must intersect. Timely, data-driven problems and decisions must be solved by machines while experiential and relationship-driven decisions must still be made by people. For example, he says quick and timely pricing decisions reflecting both external market factors and internal data have to be made by artificial intelligence (AI) for business to business (B to B) and business to commerce (B to C) retail models. This approach will help retailers compete with Amazon’s rapid price changes that have been driven by sophisticated algorithms for years.

To convert merchandise offerings to sales, Hariharan recommends that retailers use AI-driven software algorithms to continually analyze changing market and company data and identify anomalies in that data to then determine customer preferences and appropriate actions. That way, decisions can be made that will improve price perception and trigger online and “buy online, pick up in store” purchases.

Traditional retailers must embrace this growing role and importance of internet commerce; consider it an ally and not the enemy. However, they must also transform their organization and manage their brands in a new way. There must be greater speed of delivery both from the source and to the customer. Some say that speed will shape the competitive race with the internet offerings.

Now, let’s talk to the power of experiential. Even as young millennial and Gen Z customers lives with their mobile devices, I think there are ways to motivate their shopping in stores. Beyond the power of buy on line, pick up in stores to create some traffic in stores, I think fashion shows, cooking demonstrations by famous chefs, children’s activities can all be attractions that will increase the traffic in stores. Opportunities to engage and interact personally with brands will drive customers to choose an in-store shopping experience.

Bottom line, retail is in transition. It will be more competitive, but I believe that innovative merchants will win through effective, timely inventory management, creative merchandising, and interactive customer services available in stores and on the internet. Such a dynamic retail environment is likely to keep inflation low. The customer will benefit and will shop more aggressively.

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