Omnichannel, Unique Offerings, Fewer Stores Among Keys to Survival

Brick and mortar retailing had a disappointing year and holiday season. We are witnessing a sea change in consumer buying which we can learn from. The shift to ecommerce and specialty store sales is weighing heavily on department store results.

First, let’s take stock of the announcements made in the past few weeks:

Hudson Bay Co., the Canadian department store giant which owns Saks Fifth Avenue and Lord & Taylor, suffered its worst stock decline in a year because of dismal holiday results. Same-store sales declined 0.7% and lower than expected sales are projected through the fiscal year ending Jan. 31.

Macy’s cut its forecast and is closing 100 stores and cutting 10,000 jobs. When all is said and done the chain will have closed 200 stores since 2010.

Ascena Retail Group cut its outlook after slow customer traffic forced the company to deepen discounts. Shares of the retailer, which owns the Ann Taylor women’s apparel brand, plunged as much as 16%.

Private equity firm Sun Capital Partners announced it would shut down The Limited’s 250 stores and cut jobs. Ecommerce remains open with speculation it will close when all its merchandise is sold off.

Kohl’s has said its holiday sales were weaker than expected, and Neiman Marcus abandoned its plans to go public.

Long-struggling Sears Holdings said it would close 150 more stores and that it had sold its nearly century-old Craftsman brand to Stanley Black & Decker.

A recent study by McKinsey & Company analysed 450 companies and interviewed 150 fashion industry leaders. In McKinsey’s 92 page report, State of Fashion 2017, I have cherry picked and quoted directly a few of McKinsey’s findings:

  • With 2016 revenue growth forecast at just 2-2.5%, the industry generated its worst operating profit since the financial crisis of 2008-2009, while before-tax profit margins stagnated at just under 10%
  • 62% of executives surveyed said they will invest in omnichannel integration, ecommerce and digital marketing in 2017
  • 27% said they will reduce costs in 2017 by increasing employee productivity and leveraging lean processes
  • “Always-on” consumers will become ever more sophisticated, technology- driven and harder to predict for fashion brands
  • Off-price shoppers account for 75% of apparel purchases across all channels, and some traditional retailers now have more outlet and discount stores than full-price shops.

As I reflect on the sea change, here are some key points that every multichannel business needs to consider as it maps out 2017 and beyond:

Omnichannel Mandatory for Retailers to Survive 

Overall sales might be flat or down but traditional retailers I know about had excellent ecommerce and omnichannel growth of 8%-20% annually. Because direct-to-customer is not their business model it requires a large investment in infrastructure and a shift in thinking.

power shopper

The Customer is in Charge 

The Internet has made price comparison and item availability simple. No more trips to multiple stores only to be disappointed by the assortment, lack of availability and lost time. As McKinsey points out, customers have become shrewd.

Too Many Stores 

Sales per square foot for many brick-and-mortar retailers have been declining for many years. There were too many stores in the late 1970s and 1980s and far too many today to sustain earnings. Macy’s acquisition of long-term competitors led to many marginal locations while also adding pressure to expand into new mall complexes.

It’s All About the Merchandise 

Consumers are looking for unique product. I am working with two businesses under $10 million in sales that design and manufacturer their own product. Both had sales increases of more than 20% in 2016 and are making money. One has an average order value of $135 and 1.5 items per order, and the other has a $175 AOV with 1.1 items per order. In both cases they have unique products that aren’t discounted and are sold online. 

In the 1970s specialty stores like Ann Taylor, The Limited and Toy R Us emerged and reduced department stores merchandise categories. Big-box stores and shopping clubs came on the scene and changed retail again.

Internet shopping continues to shake retail to its core and has levelled the playing field. If you shop online you see it every day. Tens of thousands of start-ups have emerged because the cost of entry is not prohibitive, especially when compared to a chain of specialty store. While companies like Amazon and Wayfair have eaten the lunch of traditional store chains, there are also tens of thousands of competitors going after those disposable dollars, with more coming every day.

These are exciting and challenging times for retailers and ecommerce companies. Put your emphasis on creating unique product and services which are competitively priced. For me that is a key strategy which will serve B2B and B2C companies well.

Curt Barry is Founder & President of F. Curtis Barry & Company

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