There are three fundamental mantras that will fuel growth, drive profitability and nurture stronger relationships with consumers for 2020 and beyond.
By: Ann Bennett Dale, VP Sales North America, DynamicAction
While it’s not news that individual retailers across all sectors are struggling, the macro retail landscape is growing; albeit slowly. We live in a world of a zero-sum game. Modest growth, more players and too much inventory have created a capital crunch and drain on profit, making it hard to get out of bed on Monday.
As we embark on this next decade, it is imperative to understand the scope of current landscape as well as arming businesses with winning strategies and tools to shape a successful future.
The 3 Mantras for Stronger Consumer Relationships:
Retailing today is 100% non-linear
Today’s world of retail is messy, highly fragmented and anything but a straight line. We yearn for the simpler times when brands fit into a tidy puzzle of positioning; highly differentiated in price, service, assortment and end use. Being extremely relevant and often inspirational, brands naturally created an emotional connection with their most desired customers through offering highly differentiated, well designed and high-quality product at a fair price.
The barrier to entry in the tournament of today’s retail industry is very low
Social media has democratized the ability to launch a brand, which is great for micro-segments of consumers. In aggregate, however, it has whittled away at many branded businesses. How do retailers find success in this situation?
The curse of the Endless Aisle
For customers, convenient yes; great for buying, yet terrible for “shopping”. Remember those years ago when the digital business comprised a small fraction of the overall business. It was a “demand grab”. Revenue was king, profit held less weight, and, in truth, the business was a rounding error to the total. The difficult and “expensive” way to drive online revenue was to obtain more customers. The easier way is to drive revenue by adding assortment – ergo the birth of the endless aisle. Today, the supply of product has far outgrown the demand, fostering a disconnect evident through low conversion rates, declining profit and increased inventory.
Competition is fierce and the complexity level is high
You can’t out play the competition or simplify complexity by thinking about the business in the same old way. Executing with an old or fixed approach and antiquated tools is a recipe for failure, and not the good kind that one may evolve from. The clearest visual that comes to mind is a bad game of tennis - the ball can come from anywhere; forehand, backhand, volley, lob. You have to be on your toes to scramble in any direction. At least that’s what it looks like when I play. American tennis champion Serena Williams on the other hand is calm, cool and collected – yet intense. How does she embody those strong qualities? She faces her competition head on, recognizes patterns, incorporates new thinking, uses the best tools and executes flawlessly and consistently. She creates time during the match to nimbly devise a winning strategy.
So, what does that have to do with retailing today? Quite a lot actually..
Here are some things to focus on in 2020 that will help you achieve that Serena state of mind:
Your Customer – of course.
Solve a problem and be a resource. Help your customer by making choices for them through curating the product and assortment they want and need. Understand your customer so deeply that you are able to anticipate their next move. Serena studies her opponent before and during the match. Perhaps your customer bought a bow blouse and wide legged pant this past season– what does she want in her next purchase from you? Probably not more bow blouses or wide legged pants. Even if you trade in basics, they constantly evolve – just look at multitude of offerings in the men’s underwear category.
So, don’t buy or create product for product sake to release x# of styles over y timeframe, just because that is what has worked in the past. Be strategic. How will you comp your business profitably and what’s your strategy to grow?
When you know your customer and strategy, you can shift from a transactional mindset towards connecting with their longer-term mindset. Consider the extended value of a purchase. Each time a consumer sees your brand in their closet or opens their dresser drawer, it’s an opportunity to reinforce your brand - and that is valuable. The sale doesn’t end when the customer receives a shipment or walks out of the store with a bag, it ends when that item has served them well and they are willing to purchase again – from you! Give them something they will love, that performs well and where they feel they’ve paid a fair price to drive an emotional connection.
Bring back the Value Equation
Matching product design and quality with a fair price is what brings integrity back to the retail business. A strong value equation in the eyes of your consumer will always come down to STYLE/QUALITY/PRICE/EXPERIENCE.
Be relevant to your customer in product, brand and message – no more pulling the promotional lever and hoping for the best. And remember, not all customers are created equally.
Your best and most profitable customers don’t care about sale – of course others do. A “one size fits all” approach doesn’t satisfy those best customers – and gives profit dollars away. What’s worse, building those deep discounts into the product disrupts the value equation. The ticket price has no integrity, so the discount is meaningless.
Revive the Craft of Curation and combine with consistent quality – in all channels, but especially in eCommerce
Create personalized assortments that inspire your customer, meet your strategic objectives and deliver a sense of surprise. Surpass their expectation, so when they receive their shipment, they are delighted, not disappointed. Specifically, North American retailers saw holiday returns roll in even earlier in 2019 with the value of returns increasing an average 28% mid-November 2019 through the first weeks in 2020 vs the same time the previous year. With the cost of returns easily decimating recently won profit, position your business with every advantage possible for success.
Breakthrough organizational silos and align KPI’s that drive to value to the business AND for your customer
Effective marketing, profitability and stronger relationships with consumers have been undermined by silo’ing organizational functions around particular KPI’s that are at odds with each other. Put the customer at the center and hold everyone accountable to bottom line performance. Instead of, for example, singularly evaluating the Marketing department on driving traffic en masse, encourage the focus towards cultivating profitable customers, who through their transactions, power a return in the investment saving overall marketing costs and mitigating profit erosion. Everyone who touches the process should be evaluated on net margins, as well as, revenue growth and inventory ROI. Each of these functions have an effect on those outcomes.
Align ongoing decision processes and actions to objectives
Ensure that all functional activities align to seasonal objectives. Get the group focused and in sync. Imagine Serena and Venus playing doubles. Each has their role, but together they are a synchronized picture of success!
I see this as a hopeful message for this new decade. Champions play to win and winning requires a creative approach based on solid fundamentals. The brands that are successfully navigating today’s market have a few things in common. They are hyper focused on understanding their customer, they have a strong value proposition, execute flawlessly and they have the courage to constantly evolve and innovate. This allows them time to understand the big picture to plan a winning strategy for continuous growth. Just like Serena.