So how did I do? More importantly, how are you doing? In my guest spot in this blog in November, I talked about the return of retail and predictions for holiday sales.
My optimistic prediction was a modest increase of 4% over Holiday 2008, and in the end, Holiday 2009 was slightly better than that with an increase of a little over 5%.
Even though retail sales appear to be on the rise, there is still a lot of apprehension about the retail sector.
Most experts agree that the retail sector will continue to rebound slowly and continue to face many challenges in 2010. Unemployment and underemployment is high, and living standards for Americans continue to erode, leaving little money for purchases outside of necessities.
In addition to the economy, there will continue to be issues in housing, banking, and health care. This combination results in a new consumer mindset referred to as the "New Frugality" which is also of the biggest retail supply chain trends. This recession has at least temporarily changed the behavior of some consumers, who are now holding on to their discretionary income and being very price and value conscious with their purchases.
This new frugality has manifested itself by consumers trading down in their purchases, less foot traffic in malls and shopping centers, and lower-cost purchases.
What are retailers to do? How do they combat the "New Frugality" and maintain profits and market share? As I see it, there are three areas where retailers can battle back, hold on to their customers and differentiate themselves from competitors. These are: merchandising, inventory, and online sales.
1. Merchandising: In the past, the merchandising mantra has been to put out as many products as possible and see what the consumer likes. This is no longer the case as consumers are more selective and cautious. Merchandising and product development decisions must be researched thoroughly and tested prior to new product launches and releases. A failed product launch could be catastrophic and cause serious damage to a retailer’s bottom line.
2. Inventory: In 2009, retailers cut inventory drastically and this, for the most part, had a positive effect on the bottom line. At first the cuts in inventory were done with little regard to minimizing stock-outs and maximizing customer satisfaction. This year, retail supply chain managers have the opportunity to get it right by not only minimizing inventory, but also making sure they have the right inventories in the right quantities in the right locations to meet customer demand.
3. Online Sales: Although foot traffic in stores has been down, sales on websites continue to rise drastically. The retailers who truly have a good grasp on online commerce are the ones who will differentiate themselves in the post recession marketplace. Strong web retailers like Amazon, Wal-Mart, and Target continue to improve their websites, fulfillment operations, and delivery options.
2010 will be a year of opportunity for success and failure in the retail sector. Those who focus on and adapt to the "New Frugality" of the post-recession consumer will be the winners. Those who ignore the customer and continue with "business as usual" will suffer and struggle to keep pace with those who do the opposite.
What do you think retailers should focus on in the coming year? If you are in retail, how are you handling the "New Frugality?"
As someone once said, Go!Go!Go!
Dan Avila, Partner, Global Supply Chain Services