It borders on the obvious to say that this is a critically important holiday season for retailers. Two questions no one yet knows the answer to:
- Will consumers make up for some of the spending they haven't done during the pandemic so far, due to less eating out and so on?
- Will safety concerns put a significant damper on in-store shopping? Will some brands overcome that, via a perceived safer environment or easier pick up options?
Anatomy of retail change - what will the holidays reveal?
Recently, Oracle pushed into these issues (and more) in their report, Anatomy of Change: Understanding Consumer Behavior in the New Next 2020. The report includes a survey of The survey 5,143 consumers across the United States, Europe, China, and the United Arab Emirates. Amongst the top findings:
- In-store shopping is bouncing back - While online shopping continues to dominate, many customers are ready to venture into stores. One in five shoppers plan to primarily do their shopping in-store, and nearly half (47%) planning to shop both online and in-store.
- Safety is key - Ultimately, consumers are desiring safety precautions for in-store shopping, with 82% noting visible cleaning efforts were important and 79% responding it was important to see staff and other customers wearing masks.
- Customers are wary of returns - While many plan to spend the same on holiday shopping, they don’t plan to deal with the hassle of returns. Last year, 77% of consumers planned to make at least one return, this year that number dropped to just 37%.
That provides a partial answer to my questions, but I wanted more - particularly on how retailers can excel in this environment. I don't believe all brands will fare the same, even if consumers are willing to spend. For context, I hopped on a video call with Mike Webster, Senior Vice President and General Manager, Oracle Retail. So what is Webster's biggest takeaway from the report? The surprising staying power of the storefront. As he told me:
I think what the survey helped inform the belief we hear from our customers every single day: what the pandemic has done is validated the really crucial nature of the store. What the survey indicates is that we, as consumers, are ready to come back to the store. We long for that experience; we yearn for the social interaction that shopping presents to us.
Of course, there is now a digital aspect, and that better be fluid:
About 20 percent [of consumers] indicate their primary physical store base retailing will be unchanged. But half of the respondents in our survey indicate they're going to participate in omni-channel journeys, both digital and physical journeys combined. A little less than 20 percent of the respondents indicate for the first time that they're going to take advantage of retailers extending the four walls of the store, and using curbside as the method by which they interact.
As for how much consumers will spend, the data causes Webster to be optimistic:
About 60 percent of consumers said that we're going to spend exactly what we spent last year.
Webster says this is reflected by the re-openings in other countries:
Without any question, if we look at what may be happening in markets that are a little further along in their re-opening phase, we have seen a very strong bounce back in consumer spending.
Addressing the retail safety imperative
Still, the safety imperative is changing things:
I think what [those curbside numers] reveal is that retailers are continuing to innovate, and are continuing to be very agile and how they approach the challenge that the pandemic has presented to us, which is: how do we protect customers? How do we protect our staff?
So what are consumers looking for when it comes to in-store safety? Oracle presented this chart:
Graphic via Oracle's Anatomy of Change retail report
Webster says one thing we're learning about safety: it's a visual judgment call by consumers.
What the survey told us - and what obviously we're sharing with our customers - is that trying to deal with the perception of safety is a very visual experience. Almost 80 percent want to see masks on store associates. Over 80 percent want to see physical signs that you are cleaning the store.
I believe that consumers are also looking for signs that employees feel safe also. From what Webster says, they hear something similar:
In addition to some of the physical things like plexiglass separators, what I think customers really want to see is that you are respecting them as much as they're respecting you. Many of the brands we talked to are continuing to put in various measures, again, to protect both customers and staff simultaneously. That's what we hear customers in the survey saying they expect.
Inventory and delivery - "prime" retail challenges
Beyond safety, there are two other factors consumer brands need to nail down - or consumers will look elsewhere. One is the obvious peril of not being on the shelf when your customer is looking for you. No surprise - consumers are showing a ruthless lack of loyalty on the shelf. If your brand isn't there, it's not likely they will go searching for it elsewhere. But presence on store shelves is a complex issue, exposing all supply chain weaknesses. New hoarding habits don't make this easier. Webster:
How do retailers make sure they have inventory on the shelves? As consumers stockpile certain categories of goods at home, it's challenged retailers' ability to accurately forecast and to efficiently fulfill inventory to the shelf. It's a supply disruption as well as a revenue disruption. So both the demand and supply sides have been challenged.
What we heard from our customers in the survey is that one bad experience with an out-of-stock item could force them not to visit that retailer again. But in about 60 percent of cases, they'll try another brand. So if you're a national brand, they'll try the private label brand.
And if they like that new brand or store better? If that question isn't disruptive enough, there are consumers' shipping and delivery expectations. As Webster says, the difficult comparison to Amazon Prime is always looming:
How do they profitably fulfill all of these digital orders? We're coming into the holiday season. There's going to be prime competition for the services of any of the carriers to get products to your home. And that has a cost to many retailers that they can't pass on. Because, you know, free shipping has become an expectation of many consumers.
What our survey indicated is that, again, about two-thirds of customers that order online do expect to have that delivered to their home. About a third of those retailers then will either buy it online and pick it up in-store, or buy it online and pick it up at curbside.
It's difficult to generalize about global consumers. Their holiday habits will depend on localized perceptions of safety, and the sophistication of their omni-options. But Webster did identify three issues that impact Oracle's retail customers globally. As he put it:
How do I protect my consumers and their associated data? How do I protect my brand as digital traffic creates the opportunity for more fraud and counterfeiting?
How do I get more speed to innovation? How do I get agility into every business process? How do I get more speed to innovation? Retailers have to materially change a lot of their store products, because they're not designed to be picking, packing and delivering the volume of orders out of a physical retail store.
How do I pivot to the customer? How do I put the customer at the center of my operation, and better understand her wants and needs? How do I personalize offers and tailor promotions, using some really sophisticated technologies to do that?
I think the winning brands are executing well across those three dimensions.
Personally, I don't put much stock in holiday retail forecasts. The idea this will be anywhere close to a normal shopping year in terms of total sales volume strikes me as ludicrous, for many reasons. In the U.S., for example, the new jobless reports are improving a bit, but the total collecting unemployment benefits is still high, at 21 million.
But: even a somewhat vigorous holiday season can help. As Webster told me, this holiday season is really about getting us to the other side. Retailers who fare well this year - you have to like their omni-futures when the post-pandemic retail economy kicks in.
What will be interesting, however, is whether retailers can manage the digital and logistical stress of an unprecedented volume of online orders. One alleviating factor: at least digital shoppers will spread their sales volume out. Sales won't be condensed into one or two peak days a la the "Black Fridays" of the past.
We've seen plenty of evidence in diginomica's retail analysis: retailers that pushed aggressively into omni-transformations prior to the pandemic have, by and large, fared better in apples-to-apples comparisons with similar brands. But that raises the question: is it too late for retailers who were sluggish on their overhauls to make up ground, or save themselves?
Webster doesn't think so - he believes retailers have multiple ways to differentiate - for some, it's on price, for others, it's on product, for others it's on "experience." It's about understanding your customer and adapting aggressively to their pandemic-era expectations.
I was glad to hear Webster didn't over-emphasize "experiences." That's not always the defining factor, or what a transformation should aim for. I recently tracked down some eye drops that perform better for me than all the others. I was so glad to find out from the manufacturer they are still making them - I didn't care I couldn't even order more for several weeks. Tracking them down wasn't much of an experience, and they certainly won't ship overnight - but who cares? In this case, an exceptional product is everything. In other scenarios, a two week delivery delay is a deal breaker.
Thankfully, we also didn't talk much about "AI." That's not to say AI isn't important to retailers. If you're willing to call it "AI," it's clear that so-called personalization on commerce sites (e.g. Amazon's "also bought") is a major sales driver. So are certain kinds of automated email promotions based on triggered behavior. As Webster points out, it goes back to deeply understanding your customer. That drives the tech decisions in play.
Well, we have the data and the forecasts. Now let's see what happens.