A rash of retailers filing their quarterly numbers over the past couple of weeks has provided some useful insight into how the sector might be shaping up as the Vaccine Economy kicks in. The broad message from many looks to be that the e-commerce boom born of necessity during the pandemic lockdowns is levelling out as consumers emerge blinking into the sunlight with a pent-up desire to browse the aisles of the physical store.
But as diginomica has noted on multiple occasions, the online genie is very much out of the bottle and not going back in, so the need for retailers to seek out the omni-channel balance between digital and physical has never been more important as a strategic priority.
A number of major retail players have popped up at some key analysts conferences over the past few days to make just that point, such as John Furner, CEO of Walmart US, who told Barclays 2021 Global Consumer Staples conference that his firm’s biggest learning coming out of the peak of the COVID crisis was the need to be flexible:
We all know if we’re looking at history in the future things always going to change. But the rate of change clearly accelerated in March of 2020 and beyond at a rate we haven't seen before. And the best way to describe it is that it feels like we just skipped a few years of transition as customers became more digital and became more omni in nature in terms of the way they shop.
Part of Walmart’s response to this was to re-organize its internal structure so that the e-commerce team in California and the retail stores counterpart in Arkansas came closer together, explained Furner, bolstering omni-channel capabilities in the process:
We had our e-com team and our store team come together and then we changed really from thinking about how we measure things internally and externally and in terms of channel businesses to a customer business. That led to the work on the customer value proposition. Ultimately, what we're trying to do is understand intent in any situation, whether it's physical or digital.
The firm also looked at its app strategy, he added:
A couple of years ago, we had two apps. We call one the Orange App because it was orange and it represented grocery shopping and then we had the other app, which was called the Blue App because it was blue, and it was our Walmart e-commerce business. Both worked well and served a purpose for the time they were there, but they did create some friction for customers.
Consolidation was needed here:
Last year, we put both of those apps in one tile. So you had one Walmart tile, but you still had to pick either shopping e-commerce or stores. Up to about last week, we had about ten percent of our traffic on one single shopping application with universal search, with universal checkout. It's a great experience. We're now scaling to traffic now and hope to have it in front of all users by the end of the month. So we're making a lot of progress there.
Picking up the theme that a balance of online and offline is going to be needed in that new normal, Macy’s CEO Jeff Gennette told Goldman Sachs Annual Global Retailing Conference that that bulk of his customers, almost 70%, now want to engage with the retailer on an omni-channel basis. And those customers have money to spend, he added:
We brought in almost 4.6 million new customers in the first quarter, it was 5 million in the second quarter [and] 3.2 million of those 5 million were brand new to the Macy's brand. Where the remainder were basically players that had not shopped with us for the previous 12 months that re-engaged with us.
That customer pick-up has been in part triggered by the acceleration of digital priorities. CFO Adrian Mitchell recalled:
We know that many of our customers start their journey in digital channel, particularly those younger customers. And we knew that our active customer count was declining pre-pandemic and also acknowledged that we could not grow our business without more customers and getting those customers to visit with us more and spend more with us. So we really prioritized customer acquisition and felt that digital was the fastest and most efficient path for us to achieve this.
Digital penetration this year is likely to be around 35%, he added, while pointing to the stated goal of $10 billion in digital sales by 2023:
Our experience in 2020 really increased our conviction to take bolder actions to drive our omni-channel business forward with a digital channel playing a more meaningful role in our customer shopping experience…Our investments will continue to be heavily focused on strengthening omni-channel with investments that are appropriately supporting our omni-channel capabilities. These investments include digital shopping experiences, data and analytics, technology infrastructure, and efficient fulfillment capabilities, which support digital growth, omni-channel growth, into profitable growth of our business.
As to that elusive omni-channel balance between offline and online, that remains a Holy Grail to pursue in the changed Vaccine Economy, Mitchell confirmed:
We announced 125 [store] doors for closure over a multiple years and that was right before the pandemic hit in 2020. Prior to the pandemic, a lot of these locations were some of our least productive locations. And while today we’ve closed about 60 of those locations, we're continuing to assess the right balance of stores within our markets as we develop this ecosystem in order to focus on the actions that help us accelerate market share growth…So how many stores we ultimately close and what the timetable will be remains to be determined as we look at the appropriate mix and size of those stores in order to help us grow market share. Now, our expectations is that we will exit the recovery as a stronger company than when we entered and we want to ensure that our store base appropriately reflects that.
Overall, there’s a new consumer mindset that needs to be recognized, acknowledged Marvin Ellison, CEO at Lowe's Companies at the same Goldman Sachs event:
The data tells us that by 2035, the Millennial generation will be the largest group of homeowners in the US. I remember, years ago, there was a lot of future risk predicting that Millennials would pull back from home ownership based on the devastation they observed their parents and grandparents go through during the financial crisis and that has proven not to be true.
What we learned last year more directly is that Millennials are demanding flexibility in how they shop. If you are a single channel or you're limited in how you can give choices to the Millennials on how they choose to shop - whether it's online, whether it's in-store, whether it's buy online, pick-up in a locker, curbside, inside - you have to have the agility to provide a high level of service in all those areas.
And Lowes has made progress on the omni-channel front, he added:
Three years ago, we had roughly 400,000 SKUs [Stock Keeping Units) online; we have over two million today and growing. Three years ago, our Buy Online, Pick-up In Store process had over 14 steps for our associates to execute it and now everything's digital and mobile. We have touchless lockers in every store in the chain and we have curbside pickup in every store and 60%-plus of our online fulfillment comes out of our stores. That kind of gives you a sense that we're very serious about continuing to be a very efficient omni-channel retailer.
The Delta variant has provided an unwelcome reminder all around the world that it’s far too simplistic to be talking about an end to the COVID crisis. That said, there is clearly a growing appetite to find ways to live with the supposed new normal across so many areas of daily life. The retail sector is no different to any other in that respect. What does emerge from front line testimony so far is that token deference to the concept of omni-channel capabilities as a tactic is a thing of the past. The past 18 months have made that crystal clear to everyone and whatever lies ahead, the agility demanded by consumers of their retailers is not going to go away.
Final word to Walmart's Furner:
There's nothing I would see today or the last couple of years that would suggest we’re going back to where we were or landing in the spot that's temporary because of how fast the shifts have been. So I think we're all looking forward to what the new normal may be.