Tips for retailers

Facing global retail challenges

June/ July 2009

Just as the current business challenges are the direct consequence of a new integrated global economy, so too are the solutions, and retailers can no longer afford to operate or think in isolation, delegates to the 2009 Word Retail Congress heard. More than 2,000 retail leaders have attended the World Retail Congress since its launch in 2007 as a forum where global retailers can discuss mutual issues of concern. Some of the issues that were highlighted at the 2009 congress were:

Recovery is coming

Retailers should keep their nerve and prepare for new opportunities in the global market, as leading economists predict the first signs of economic recovery by the end of this year. The global recovery would depend on the US and China and we could see the first signs of an upturn in the US economy by the end of this year or in early 2010, said Dr. Ira Kalish, Director of Global Research with Deloitte. He said that despite the continued downtown in the US, fiscal and monetary stimuli were helping. Consumer spending was holding up well in China, as the rise in joblessness was largely among lower earners, rather than the more affluent middle classes.

Echoing the view that the start of recovery may only be months away, Ajay Kapur, Chief Global and Asia Strategy with Mirae Asset, highlighted three key trends that would influence the global economy in future:

» A shift from wealth-driven economies to more middle-income spending;
» A swing from export to domestic consumption in emerging markets, and
» A reduction in violence in the Middle East, reflecting a reduction in the numbers of disaffected youth.

But, government’s measures to minimise the impact of the financial crisis on their economies could lead to a new era of protectionism, warned Dr. William Fung, Managing Director of Li & Fung, the leading global sourcing company. He is concerned that we may see a fundamental change in attitudes that could result in the type of trade barriers that emerged in the wake of the Wall Street Crash. “We must be careful that history does not repeat itself,” he said.

Retailers should stick to what they do best and avoid the temptation of knee-jerk responses to recessionary conditions, like value offers, cautioned Jerry Storch, Chairman and CEO of Toys R Us. “Do what you do that’s better than the others. Don’t try to be someone else. Strategies must be company specific,” he said.

Retailers face two major challenges in the post-crisis economy, said Richard Simonin, CEO of clothing retailer Etam: ensure that marketing responds to changes in consumer mentality; and maintain strong staff leadership in a market where the future is uncertain.

New concepts to weather storm

Focusing on new concepts that enhance shopper appeal and introducing a new communications strategy are key elements of getting the basics right during recessionary conditions, said Etam’s Simonin.

» Upmarket Harvey Nichols has, for example, unveiled plans to dedicate the 4th floor of its flagship Knightsbridge store in London to young fashion, targeting the 15–21 year old shopper who have never experienced previous recessions and are therefore less likely to curb their spending. They previously targeted the older affluent consumer.
» “eBay is a great place for items that are one season old that merchants want to get out of their stores,” says John Donahoe, President and CEO of eBay. He highlighted how retailers can form a partnership with eBay to provide a market for older season’s ranges or returned items. “Think of us as an online outlet mall. It is clear that buyer and seller behaviour will change in the next five years. We’ve got to embrace the fact that online and offline retail is merging… e-commerce is still in an early stage representing about 5% of the market. We believe this will become 15-20%.”
» Retailers also called on suppliers and credit insurers to be more transparent, in order to help them remain secure during the downturn. As Ron Marshall, CEO of Borders US remarked: a retailer nowadays needs to be as concerned about his suppliers’ creditworthiness as his own. He further told retailers to “get back to basics” and become more responsible for their own cash flow.
» Retailers were also urged to “open up the doors and share trading forecasts” by Dan Murphy, director of AlixPartners. “Retailers haven’t felt comfortable in sharing data and sharing future forecasts, so suppliers had no idea whether they would come back for a second repeat.”

Opportunities from behaviour shift

“Great merchants will have the courage to try new strategies. Now is not the time to shy away from innovation and uniqueness,” said Marvin Traub, former President and CEO of Bloomingdales, who led the store’s transformation between 1950-1991. “This is the most difficult and challenging time the industry has ever faced. The issue is survival and success depends on leadership.”

The fundamental shift in consumer behaviour is “not a weather change, this is climate change,” said Jim Stengel, CEO of Jim Stengel LLC and former Global Marketing Officer of Procter & Gamble. While consumer confidence is returning, spending is not increasing, he continued. “A recessionary mindset has taken hold.”

According to him “ripples of opportunity” can be turned into “waves of growth” if you:

» stand for something that matters;
» play a deeper and more important role in consumers’ lives — customer centricity is a new buzz word as retailers and brands are urged to interact more intimately with their customers. An example is the Nike iD concept that allows consumers to design their own shoe;
» focus on ownership, not purchase;
» cultivate smart and savvy shoppers by supplying relevant product knowledge;
» create joint value for retailers and brands.

He advised retailers and suppliers to work collaboratively, based on “a deeper, shared understanding and shared goals. Understand the shopper in ways that only suppliers and retailers do.”

Staff key to customer satisfaction

Engaging with staff is essential to succeed in meeting customers’ needs, a panel of leading retailers told delegates. Customer-centric retailing, a philosophy that puts customer analysis and understanding at the very heart of the business, is on the rise, they said.

» Retailer Best Buy, for example, encourage all their 180 000 employees to act entrepreneurially, said CEO Bob Willett. He warned that retailers should align everything holistically, including segmentation of profit and loss by customer lifestyle.
» Staff participation in the logistics structure is essential for success, added Inditex chief communications officer Jesus Echevarria. They can replenish stock globally within 48-72 hours, because store staff take responsibility for the restocking process and create the right image of stock depth in stores, removing customer frustrations.
» Motivating staff — the best advert a retailer has — was vital in the downturn, advised Simon Herrick, finance director of speciality electrics retailer Kesa.
» A successful retailer from India, Shopper’s Stop seconds staff to other big retailers like Marks & Spencer to foster particular skills and experience. According to store founder BS Nagesh their transparent succession system ensures that they retain good staff members.

Money-saving store designs

A panel of store designers have urged retailers to revise, remix, reinvent and reuse in order to make the most of what they have to save money during the downturn. Some ideas for saving on store designs were:

» Consider graphic, rather than structural, makeovers for your store as it permits greater flexibility and avoids the danger of a format being locked into a particular look, advised Lewis Allen, director of environment at London-based Portland Design.
» Consider changes to the look and layout of your store, rather than trying to completely remodel the interiors, said James Tippman, CEO of US design consultancy FRCH.
» Even existing mannequins could be refreshed: “Paint them a different colour and you have a whole new look,” suggested Denny Gerdeman, chief executive and co-founder of US design consultancy Chute Gerdeman.

The panellists also agreed that even when the recession has run its course the way in which store design is conducted will have undergone a permanent change — the trend to reuse, remix and revise will continue.