As the latest bunch of retailers turn in their quarterly numbers, there’s been an underlying trend among consumers towards shifting spend to higher end items. Walmart and Target both cited this in their poor numbers earlier in the month, while Gap’s lower end Old Navy, usually the savior of that retailer in recent times, has slumped, while its higher end problem child Banana Republic has risen year-on-year.
So as the omni-channel retail sector shapes up in the Vaccine Economy, are we all after a bit of ‘me time’ when it comes to discretionary spending? And are we looking to get the real world experience when we’re spending it, with in-store sales up and e-commerce down?
On that latter point, clearly the fact that stores are now re-opened is a factor, while e-commerce growth is stabilizing after nearly two years of COVID-induced acceleration. We’ve also seen online-only retailers watch their numbers collapse as the temptation to browse the shop floor in person comes back into vogue.
But there is a trend emerging perhaps that needs to be factored into achieving that elusive omni-channel balance between digital and physical that so many retailers were struggling with even before the pandemic.
The Macy’s mix
According to Jeff Gennette, CEO of Macy’s, his firm’s recent Q1 has some lessons to take away. For a start, digital sales were up, but only by one percent year-on-year:
We saw a notable shift in consumer shopping behavior between channels, with better-than-expected sales in stores and lower-than-expected digital sales. This dynamic underscores the resilience of our omni-channel strategy. Macy's sales were also affected by an accelerated category shift, away from the popular pandemic categories, such as casual and activewear as well as 'soft home', and into more occasion-based apparel, like dresses, women's shoes, men's clothing and furnishings. This shift accelerated faster than we expected. It contributed to an increase in store foot traffic as consumers are more likely to shop in-person for occasion-based apparel.
Our Bloomingdale's brand performed strongly, exceeding expectations both in stores and online, as luxury consumer spending remained robust…This was driven by strong sales of dresses, men's tailored, men's and women's contemporary, and luggage. About 4 million people shopped the Bloomingdale's brand for the trailing 12 months ending Q1. That's a 21% increase compared to where we were as of the first quarter of 2021.
And the lesson here? Gennette argues:
It's clear that our customers were changing how they shop during the quarter, and we were ready. As COVID-19 restrictions loosened in the US, people grew more comfortable returning to normal activities. They went back to the office at least a few days a week. They attended group events and celebrations and resumed in-store shopping…As consumer shopping behavior shifted from digital to in-person, we took steps during the quarter to increase traffic, including paid search and personalization, which helped to attract more visitors.
At the same time, Macy's saw conversion declined by 5%, driven by consumers online shifting back to in-store purchases, which was partially due to the return of occasion-based apparel. We know that the consumer shopping journey often begins online even when the ultimate purchase happens in the store.
He adds that the firm is thinking about the second half of the year in terms of the trends it’s seen in the first half:
The first one is the pullback on the pandemic categories, the acceleration of the dress-up. The second is really the gifting strategy. Based on what we did on Mother's Day, what we're planning in Father's Day, the Holidays, we’re planning gifting off-price to luxury, great price points. We feel very good about that. We're very focused on the new categories. So, when you think about Toys ' R' Us, you talk about Marketplace and just what we're doing with premium brands, brands like Ralph Lauren or Pandora or Prestige Fragrances, [there are] lots of growth initiatives coming there.
Nordstrom racks up
It’s a similar story over at Nordstrom where CEO Erik Nordstrom says:
We know customers look to Nordstrom for the occasions that matter most to them. This quarter, we saw customers shopping for long-anticipated in-person occasions, such as social events, travel and return-to-office. Beyond occasions, customers also re-evaluated and refreshed their wardrobes. We are encouraged by this opportunity, because it favors the core categories of our business and the core capabilities of our service model.
In fact, he suggests, Nordstrom has been waiting for this shift:
Our integrated digital and physical assets continue to allow us to be nimble and enable us to quickly adapt to the channel shift in the quarter, as customers increasingly choose to shop in-store. We were staffed, well-stocked and ready to serve customers as store traffic increased. And our dedicated employees delivered an experience that was clearly reflected in our store level customer satisfaction scores.
At the same time, as with Macy’s, digital sales growth has slowed dramatically as Nordstrom notes:
With more customers returning to stores this quarter, digital sales were flat versus the first quarter of 2021. Digital remains an important part of the business with 39% penetration and digital capabilities are an important part of our in-store experience. We'll continue to leverage our digital platforms to deliver personalization at scale, especially as we connect with customers through our upcoming anniversary sale in the second quarter
None of this should be taken to suggest a slowdown in digital investment as part of the wider omni-channel balance. Nordstrom explains:
Customers clearly value our inter-connected model, with order pick-up comprising 10% of nordstrom.com demand this quarter…Customers utilizing in-store pickup have higher engagement and spend three and a half times more than customers who don't utilize the service. Buy Online, Pickup In-Store also remains our most profitable customer journey and one of our highest satisfaction customer experiences.
The mixed bag of quarterly reports that we’ve seen from the retail sector over the past few weeks show signs of a Vaccine Economy readjustment of consumer behavior. Digital acceleration couldn’t have continued at the pre-vaccine rate so a slowing down to a steady pace was inevitable there, while the fact that stores have re-opened was always going to improve growth numbers there.
But It is really clear at this stage, even as there’s still a lot of settling down to do, that (a) despite inflationary pressures, people are ready to treat themselves to something nice after two years of confinement and disease and (b) as diginomica has consistently argued, retailers who get on top of the necessary omni-channel balance in their operating models are going to be the winners in this new reality…but that balance is shifting, again.