As retail takes stock of another up-and-down year and gets ready for 2020, several key themes are emerging. In addition to the expected global economic slowdown and ongoing trade uncertainty that is likely to affect all businesses at some level in the coming year, retail is facing additional trying headwinds. Key among them is the fact that many retailers have taken on increased debt and, consequently, are needing to service this debt rather than make investments in the businesses and drive revenue. Combined with declining topline pressure, this has led to a downward spiral for overleveraged retailers.
In addition, brick and mortar traffic has continued to decline as the industry tries to balance out excessive store space per capita and starts to rethink the role of the store. Thus far this year, U.S. retailers have announced 9,052 store closures. At the same time, wages are going up, as are advertising costs that are necessary to survive and compete in the ecommerce economy. Meanwhile, newer business models are continuing to emerge as technology plays a more prominent role in the sector. For example, the rapid and continued growth of the rental and secondhand market is reducing new product sales. The secondhand apparel market is on track to cross $50 billion by 2023.
This may read like a doom and gloom scenario for legacy retail, but it would be foolhardy to not think of creative solutions to these unprecedented developments and find opportunities to thrive. AlixPartners research has shown that the most reliable way to find strategic direction at this turbulent time in retail is to focus on one main element: the consumer.
Today’s retail consumer is self-centric and has new standards on where, when, and how she or he wants to shop. The consumer is demanding access anytime and at any place, personalized product that reflects the buyer’s personal values; the ability to validate and compare price, one-on-one, customized service, and a seamless experience.
As retail continues the work of right-sizing itself, the winners emerging at the end will be focused primarily on the consumer and will excel at providing the following:
- Access: While omnichannel presence is now fundamental, retailers are needing to evaluate how to provide even increased access to product for consumers. This often looks like marketplaces, such as Chanel joining Farfetch, and subscription platforms, examples of which include Urban Outfitters, Rebecca Taylor, American Eagle, and Bloomingdales launching monthly rental subscription programs in the vein of Rent the Runway.
- Product: Consumers don’t just want product that is high in quality. They want it customized and personalized in several different ways, and for it to reflect their own personal values. Many retailers now offer the ability to create product to a specific customer’s color and style choice, such as the Nike By You customized shoes and personalized denim products at The Gap, Levi’s, and Zara. In addition, retailers are being forced by their demanding consumer to give increasing importance to issues such as sustainability and labor rights.
- Price: Consumers are expecting to validate and check prices for every product they buy. Dynamic pricing based on factors such as demand or price at a competitor is increasingly being deployed by many retailers as consumers become more aware and habitually compare prices on various websites before completing a purchase. A need to offer these extra services is also forcing retailers into new mergers and partnerships.
- Service: Retailers are offering improved one-to-one service to consumers in every area from product targeting and marketing to purchase options. Sephora’s personalized and targeted marketing messages over email and social media are a prime example of this. Consumer data and other behavior insights are also increasingly being incorporated into decision-making, such as Stitch Fix’s algorithm-driven apparel curation service.
- Experience: Consumers don’t want only a transaction but a relationship and an experience that adds value and provides more than just an opportunity to buy product. Retailers are right-sizing their store footprints and giving their remaining stores a makeover for better customer connections. Nordstrom Local shops hold no inventory but offer options such as buy-online-pickup-in-store, return to store, alterations, personal stylists, etc.
This is a time of reckoning for retail. Consumers are rich both in opinions and options and will readily switch loyalties if they feel that their needs are not being met. Retailers must listen and work on understanding how to offer what their specific consumer wants from them and deliver in order to slow down declines, closures, and bankruptcies.