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Staying Alive in an Ever-Changing Retail Landscape

The traditional holiday shopping season is shaping up to be a microcosm of the big changes that are roiling retailers every day.

New market entrants, creative delivery requirements, forecasting uncertainties, rising customer expectations - all are writ large in the frenzied period running from Halloween through New Year's.

The mantra is change. Call it the age of the rogue retailer. Emboldened by the consumer's evident appetite for novelty, merchandisers are embracing the concept of the popup shop: now you see it, now you don't.

It’s not a new idea; we’ve seen the popup strategy deployed successfully for Halloween items and calendars, to name just two examples. More recently, it has expanded to include any number of additional products, as shopping malls look to attract specialty retailers or make use of dormant space.

This season, expect popups to be more prevalent than ever, says Melina Cordero, Americas head of retail research with commercial real estate giant CBRE. No longer are these temporary tenants viewed as “last-resort undesirables” by mall owners, she says. They’re key to furnishing consumers with a fresh experience — and, not incidentally, doling out a measure of the hype accompanying stuff that’s subject to deliberate scarcity or impermanence.

There’s a limit to the popup concept, however. A constant barrage of “novelty” tends to lead to consumer fatigue. And malls can only tolerate so many short-term leases, considering the financial and logistical difficulties of swapping out tenants on a constant basis.

More long-lasting, perhaps, is the popup concept online, where e-tailers can showcase short-term discounts or products that are only available for a few days, or even hours. (Aping the venerable model developed by home-shopping networks.) Either way, expect products and assortments to come and go much more quickly than in the past, both online and in physical stores. And that makes it even harder for manufacturers and retailers to forecast demand and manage inventory.

The problem of returns is anything but new. The return rate during the holiday shopping season can be as high as 40 percent for online purchases, notes Cordero. And consumers today are expecting faster, cheaper (actually, free) options for purchases moving in both directions.

A more recent phenomenon is the rise of ride-sharing or on-call delivery services along the lines of Uber and Lyft. Uber’s acquisition last summer of Otto, a developer of technology for self-driving trucks, was a sign of the company’s interest in handling freight as well as passengers. In the shorter term, Uber and its competitors have been venturing into package deliveries, employing their existing army of independent drivers.

At the same time, the array of delivery options is widening. It’s no longer simply a choice between buying product at the store or ordering online and having it delivered to your home. Retailers are starting to offer in-store pickup of online purchases, hoping the consumer will purchase additional items upon arrival. (That happens a high percentage of the time, Cordero says.) While a relatively small number of buyers are currently taking advantage of that option, it could become more popular as Christmas nears, and the chances of receiving last-minute orders before December 25 diminish.

All of this saddles merchandisers with new and tougher logistics challenges. The cost of delivering items ordered online can cut deeply into e-tailers’ already thin margins. For all its attractiveness and stunning growth rate, e-commerce still isn’t as profitable as brick-and-mortar sales, says Joe Dunlap, CBRE’s managing director of supply chain services.

On the reverse logistics side, third-party logistics providers could possibly help, says Dunlap. That’s an area in which most merchandisers lack sufficient expertise. Success in managing the cost of outbound deliveries, on the other hand, depends more on the size of the shipper, and its ability to score volume discounts from parcel services. An will pay less on a per-package basis than a boutique retailer. (The latter is also less likely to convince customers to pony up “membership” fees like Amazon Prime, which offsets at least a portion of Amazon’s shipping costs.)

One untapped area of potential savings, at least with some shippers, is packaging optimization. Dunlap says companies are working on getting the “air” out of their boxes, a move prompted by the adoption of dimensional weight pricing by UPS and FedEx.

In addition, says Dunlap, there’s more attention being paid to creative replenishment strategies, keyed to order profiles of individual stores and customers. But anyone who’s just beginning to think along those lines won’t see benefits this holiday season — from design to implementation, it’s a 12- to 18-month process, Dunlap says.

The challenges of servicing finicky consumers in an omnichannel world will only grow. E-commerce sales will account for a record 10.7 percent of total retail activity this holiday season, eMarketer predicts, and that number is likely to be even higher next year. Then there’s mobile commerce, which is expected to represent nearly half of all e-commerce sales by 2020, driving yet another round of technological innovation. For retailers today, the industry is looking like one giant popup shop — full of surprises, always new, and forever changing.

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