By Steve Rowen, Managing Partner
December 8, 2009
In our recent benchmark report on merchandising, released at the end of September 2009, one of our primary goals was to take the industry’s “temperature” in the run-up to the holiday season that is currently in full swing. At the time we conducted the research, holiday inventory levels were a top-of-mind concern for everyone involved.
From that report: Wall Street has rewarded retailers whose inventory reductions out-pace their comparable store sales declines. Juxtaposing this with the overarching challenge of out-of-stocks and fear of under-buying, we can see the true extent of retailers’ conundrum. Wall Street may reward them in the short term, but they know if the cut too deeply, or create unappealing looking, too-narrow assortments, customers will just walk away.
Yet from most expert reports – and our own anecdotal reporting on Black Friday - apart from a few craze-related items, (Zu Zu pet hamster toys, for example, which really just boggles the mind) it doesn’t seem that inventory issues are plaguing retailers at all. What do you think?
Back in September (and in all fairness August, as well - the time when retailers were being surveyed for the research), the top opportunities our retailers saw in overcoming their business challenges were process-oriented: integrated planning with cross-functional teams, and improving the ability to adjust to deviations from sales forecasts. The latter is an imperative, given the unpredictable nature of our economic times. For Retail Winners, however, there was/is no greater opportunity than localizing promotions offered to their existing customer base. The goal of course, is to hold on to existing customers, and avoid losing market share to mega-retailers.
Here are some of the most important ways Winners and laggards behave differently:
We can see that Winners are still very much focused on scientific opportunities. Laggards, on the other hand, appear to be thrashing, looking for new “magic bullets” to improve performance. Only laggards eschew the power of science-based localized promotions (32%). For Retail Winners (67%), there is no greater opportunity in tough times than localizing promotions offered to their existing customer base. This sentiment was echoed in our recent report on customer loyalty, CRM and Loyalty 2009: Increasing Relevance to Drive Customer Demand, where we discovered Winners are much more aggressive and pragmatic in targeting their customer communications, promotions and offers. Winners remain much more interested in localizing their product assortments using technology-based solutions, demonstrating the enhanced focus they continue to place on the customer. Customers are not all the same, do not all want the same products, and do not all want to see the same store look and feel in different regions or around the world. Retail Winners recognize this far more than their underperforming peers.
Ironically, laggards cite the opportunity to market on a one-to-one basis at a much higher rate than do Retail Winners (68% vs. 38%, respectively). This begs the question, how can one aspire to attain one of the most difficult aspects of retail – true one-to-one, customer-centric marketing – without incorporating the necessary tools and processes (such as localized promotions and goods) to make it feasible? It is a classic case of laggards wishing to grab the brass ring, without regard to the work and tools required to even reach for it.
This trend continues in the perceived opportunity that social networks provide: laggards see great opportunity (47%), while Winners remain cautiously optimistic (29%). This is further proof that laggards latch onto new technologies as the impending cure for all that ails them. While all of us agree that the coming dawn of social networks will one day change the face of how customers shop, few retailers have yet figured out how to monetize social networks. Winners are focused on the “right now” opportunities of technologies that are readily available; laggards hope their salvation solution is right around the corner.
In one final note on the differences of Winners’ and laggards’ perception of opportunities, it is worth calling out that Winners are slightly more interested vendor managed inventory (24% vs. 16% of laggards). From our point of view, this is neither surprising nor discouraged. Given the prevalence of inventory management concerns during Holiday 2009, pushing the responsibility for and ownership of inventory back onto a supplier is hardly an ill-advised tactic.
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