In the current retail world, where historic sales and margin leaders are struggling while watching the typical underlings in the discount world not just surviving, but indeed thriving, one has to wonder about the challenge for all brands to win consumer wallet share across spectrums of channels, price points, and promotions.
In the midst of sweeping store closings and announcements of retailer Chapter 11 filings, TJX recently announced their 21st straight year of same-store sales increases, as well as beating expectations on income and revenue results. Ross Stores continues to post steady gains in sales and earnings, and the retailer expects to open 90 new stores this year, while Dollar General and Dollar Tree have also been aggressively growing through new store openings as well as merger & acquisition activity. A retailer somewhat in the middle, JCPenney is closing stores, but just announced a fairly strong 4th quarter through refocused merchandising efforts and a bit of brand re-imaging.
It’s easy to blame the Amazon effect on the current demise of many traditional retailers, but consider the fact that most value retailers are not really focusing efforts on their digital channels. While they all do have capabilities for e-commerce and m-commerce, and there are likely inherent growth opportunities, digital is certainly not where they’re placing big bets.
From a recent Chain Store Age article, “TJX continues its amazing winning streak” Neil Saunders, managing director of GlobalData Retail, noted that TJX’s size and scale, and its “highly impressive” buying and merchandising operation, give it a major advantage in acquiring the best product selections and also in ensuring merchandise is distributed efficiently and effectively to its stores.
So is a key ingredient in these value retailers’ “secret sauce” essentially just Retail 101? Not digital, not mobile, not unified commerce or omnichannel, but….basic retail merchandising blocking and tackling?
The traditional discounter model of buying over runs and late inventory at better prices and providing consumers the “thrill of the hunt” has evolved, and in many ways the buying and inventory management processes are more similar to traditional retailers – or at least what traditional retailers are becoming. The chief reason is easy: inventory. Discounter models almost always disdained inventory, instead pushing whatever was bought straight to their stores. Traditional retailers however typically bet early on their assortment, and withheld some inventory, providing the ability to replenish or re-allocate based on what was selling and where. There is naturally more inventory in their value chains.
However, even with low interest rates, inventory is still inventory, and, like last week’s garbage, it never gets fresher. Aged inventory translates to handling costs, discounts, markdowns, and eventually, lower margins – all not only very bad for the bottom line, but also negatively impacting customer perception – few (if any) retailers have mastered the art of clearance merchandise. Traditional department stores and other retailers may still have some advantage in assortment creation and buying, but today’s savvy and value conscience consumers have seen that even discount apparel retailer assortments have evolved, and there is less distinction between the availability of brands and selection.
In fact, we’ve recently seen many traditional retailers – especially department store brands – place more focus on their off-price outlets as well as morph some elements of their operations to emulate discounter models. A good example is Macy’s Backstage, which has a completely separate buying organization from its big sister brand, as well as notable differences in assortments. Macy’s is working on reducing their private label product development timelines so they can more nimbly react to consumer trends. Within their stores, Macy’s is also moving toward a self-service environment in some departments (like shoes), where customers are often more comfortable helping themselves as opposed to relying on (or waiting for) a salesperson for help. As a tactic to better manage and simplify clearance merchandise, Macy’s is rolling out a section of the store called, “Last Act,” seemingly providing consumers a value retail shopping experience in a sort of shop-within-a-shop model, but also preserving some margin capture. Macy’s also continues to explore other shop-within-a-shop partnerships.
Further, Parker Avery is working with several retailers in addressing their merchandising effectiveness – covering the gambit of process, systems and organizational alignment – to address the changes in consumer shopping behaviors and preferences. We have seen an emergence of our clients seeking help in focused improvements in efficient and effective processes across planning, buying, allocation, and price management – again, the basics.
Despite the fact that these efforts are considered retail fundamentals, strong consideration must still be given to managing the change required. If a more traditional retailer needs to think leaner and faster, or if a typical discounter is expanding or simply improving their basic processes, it may be similar to turning a large container ship – it’s not easy, and it certainly doesn’t happen overnight. Of course, initiatives today also must consider all channels, focus on improving traffic, align store roles and responsibilities with the brand’s value proposition, and ensure that product presentations and promotions are resonating with consumers.
Next week Parker Avery will be publishing and distributing our quarterly newsletter, the Retail Advisor, where we discuss these dynamics and focus areas a bit deeper, but essentially, we advise retailers to take a step back from the flash, hype and catch-phrases and focus on the “boring stuff.” The results typically will follow in comp store sales increases, higher margins, and improved inventory turns.