Some telling retail stats out of the US Department of Commerce yesterday reflect the reality that is fuelling the need for effective omni-channel transformation strategies.
In Q4 of 2018, department store sales hit a low since 1992 to hit $37.1 billion. That’s a 37% collapse since the high of 2001. Meanwhile e-commerce sales for Q4 were up 12.1% year-on-year to a new record of $132.8 billion. And for the full year, e-commerce sales were $513.6 billion, the highest figure to date.
At diginomica we’ve tracked closely some of the bell-weather transformation projects at retailers such as Walmart, The GAP and Target. But it’s a challenge that needs to be faced up to by every retailer. With that in mind, four fashion and apparel companies own efforts are worth examining, with varying degrees of success - or otherwise - on display.
Abercrombie & Fitch
A&F clocked up north of $1 billion in digital sales last year, with those accounting for over a third (36%) of total revenue. It’s a validation of omni-channel thinking that also sees the firm comfortable with the ‘loving the store’ concept that others have struggled with. CEO Fran Horowitz says:
We believe in stores, and they play a key role in delivering the fast omni-channel experience for our customer. We are one of the specialty retailers still committed to investing in physical space.
As for digital focus, it’s heavily slanted towards mobile devices and apps, says Horowitz:
Within the digital platform, our customer is mobile-first, with mobile accounting for the overwhelming majority of our digital traffic and sales and our highly rated apps representing our fastest-growing platform from both a dollar and traffic perspective.
But its the coming together of digital and physical worlds that is the goal:
Our digital and in-store shopping experiences are becoming increasingly integrated. We see strong engagement with Purchase Online, Pick-up in Store, which we refer to as POPinS and order in-store capabilities. Sales are up double digits for both and the POPinS customers make incremental purchases while in store. We are rolling these capabilities out globally, and they are now available across brands in 10 countries.
We have a highly developed global infrastructure. We currently operate 20 websites around the world and ship to over 120 countries. In addition, we've had success on Tmall, China, where we saw a strong performance on Singles' Day.
All told, the progress made is clear, but there’s much still to do, admits Horowitz:
While I am proud of these omni-channel and digital accomplishments, including 36% digital penetration in 2018, we cannot sit still.
An omni-channel work-in-progress, but with clear successes on show.
Across its 3 brands - Urban, Free People and Anthropologie - Urban Outfitters is indicative of wider retail trend with digital sales now accounting for around 40% of total revenues. It’s tempting to theorise that having a younger target demographic has fuelled this, but CEO Richard Hayne demurs:
I'm not sure it's as age driven; it is a certain type of customer. I do think in general, the Urban and Free People customers are a little bit quicker to adopt fashion. But I don't think it's necessarily because the Anthropologie customer doesn't want to adopt new fashion. I think they're much more satisfied with a basic look that they enjoy. It's not as if they want to go out and chase every new trend.
There is however a clear cross-brand demand for digital, he adds:
The customer definitely is evolving. And I think that there's no question that the customer’s evolving and becoming more digitally integrated. I guess this is the way to put it. I think the customer is discovering their brands and most of their products online and mostly through social media. And they want quick access to the product and they want to be rewarded for their loyalty.
To that end, necessary investment has been made, he says:
Each brand has a stronger connection to its customer, is better able to create compelling products and can source and deliver them faster and more efficiently. Each has better digital functionality and can offer customers a true omni-channel experience. Each has stronger marketing capabilities, including best of class website and imagery.
But again, there’s a lot to do yet:
We are always trying to develop new ideas and we make more and more investments in the digital space and new ways to engage her. That includes things like our marketplace, endeavour and things like payment with after pay. So I think that, yes, we're seeing a lot of experimentation. I would expect that. I would expect it to continue and we are doing the same.
Things have moved on since 2016 when Hayne seemed more focused on the physical stores. Three years later, the omni-channel mix is more balanced, if still not fully calibrated.
All retailers need to understand and connect with their core customer demographic, something which Robert Wallstrom, CEO at Vera Bradley, feels very strongly:
The Vera Bradley brand is like no other. Our authenticity and emotional connection with our customers have allowed us to build a dominant share in the cotton quilted handbag space and successfully expand into other categories.
In today’s climate, that means investment in analytics and data collection to build and enhance an understanding of the customer. Wallstrom says:
What we have been doing first is really focus on data from a customer standpoint. So we have done a lot of different things, like building a Voice of Customer practice here, where we hired somebody to really come in and look at all of the different areas we are getting customer feedback and turn it into actionable tasks that we can get done to really focus on our customer more.
Expect more of this in 2019:
We are continuing on the data side. We have hired more people into our organization with strong data statistical backgrounds. We believe that that is a talent we will continue to build up. And then we are continuing to just invest in technology of how to make sure our technology is quick and then we are able to respond. We are looking at systems at the same time. So we have started to bring a lot of our customer work back in-house, which we think is really helping us become quicker, more knowledgeable and really able to leverage those learnings much quicker.
We are building up our internal customer data and analytics capabilities and becoming more agile in testing within our digital and social advertising platforms while improving the effectiveness of traditional advertising vehicles micro catalogs.
This better understanding has allowed the firm to roll-out some new customer-centric features and to adapt its operating model. On the first of these, Wallstrom points to customization capabilities:
We launched customization, where our customers can design their own bag by mixing patterns and solids, along with creating embroidered personalization both on the outside and inside. Customization gives our customers another reason to visit verabradley.com and is a great opportunity to learn about what they respond to in product design.
And on the operating model side:
Completing the rollout of our Vera Bradley online outlet flash site allowed us to transition to our more full-price selling model on our digital flagship, verabradley.com. The flash site allows us to sell through our clearance merchandise in a much more discrete manner. We took further steps to segregate Vera Bradley from the online discount driven marketplace by exiting our partnership with eBay, and we pursued rigorous prosecution of illegitimate distribution and closed partnership with Amazon.
As for the overall online plan:
In the e-commerce arena, we are building a holistic e-commerce plan offering a consistent customer experience, whether on verabradley.com and a third-party marketplace or with a retail partner.
When you look beyond the pretty patterns, there are some big problems still. In its latest quarter, comparable store sales dropped by 2.4%. More alarmingly though, e-commerce sales plunged 27.4%. A lot of work still to be done on this one.
We are at an inflection point as a business.
So says Matt Moellering, currently interim President and CEO as well as COO at Express following the departure of CEO David Kornberg in January. Who takes over as full-time successor remains to be seen, but he or she will have a big turnaround project to execute. For its most recent quarter, total sales fell 10% to $628.4 million with a loss of $1.1 million, compared to a profit of $27.4 million for the same period in 2017. Across the year, while store sales declined, e-commerce growth was north of 20% to account for around $600 million.
As caretaker CEO, Moellering concedes there are problems, but, inevitably, predicts an upturn ahead:
We are confident because, first and foremost, Express is a resilient brand. It has remained a $2 billion-plus brand for many years, despite a challenging competitive landscape and a rapid shift of customer shopping preferences toward e-commerce.
Express is also a relevant brand. We have had more than 130 million customer visits to our stores and more than 150 million customer visits to our e-commerce platform over the past 12 months. This means more than 280 million opportunities to make a sale to our customers, providing us a very solid platform for growth, and that is where we are directing our work.
But, but, but…the e-commerce numbers don’t tell the whole story. While there’s a 21% growth across the whole year, for the most recent quarter the year-on-year growth rate was only 5%, far lower than the 17% clocked up in the comparable quarter in 2017. Moellering has an explanation for why e-commerce isn’t going at express speed any longer:
The number one issue from the e-commerce growth standpoint was product issues, more so on the women's side of the business than the men's side of the business. So, we are, obviously, with three focus areas, working on addressing that as quickly as possible, more so in tops than in bottoms.
As it relates to product, obviously, for a fashion apparel retailer, we must understand our customer and know that everything starts and ends with the product offering. We are going to double down on customer insights and how we acquire and use customer data to make buying decisions. We are reassessing our testing and buying processes to ensure we have the right data to inform our decisions.
There’s another problem - loyalty. Express customers seem to be a fickle bunch. Moellering admits:
There are a fair amount of ‘one-and-done’ customers. We're doing a lot of analytical work around reasons for the ‘one-and-done’ customer. What we do know is that when we have a new customer under the brand, there is about a 90-day window where that customer is very receptive to returning to the business. [The] initiative that we are putting in place is aggressively going after that customer to get a second and third visit and turning them into a customer full-time. That is what we are focusing on and we think there is significant opportunity to improve.
In terms of customer acquisition, there will be a new marketing platform in place by mid-2019 as well as an increased focus on social media to generate “customer engagement on key platforms”. There is a basic objective here, Moellering explains:
Express built its business and brand by being a destination for fashion. Going forward, we will re-assert ourselves in the market by underscoring our conviction in our fashion items. And we will support it with clear and consistent messaging aligned with our brand narrative and value proposition across all of our customer touch points.
The mission statement at the end is sound enough. Whether Express can recover enough to deliver on it is quite another matter. Until the new CEO is in place, it’s hard to know whether the firm can improve on its omni-channel balance and kick-start online and offline sales.