Retail Forecast: Steady As She Goes
Steady as she goes. That old nautical phrase, urging a firm hand on the wheel and an unwavering eye on the compass, seems apt for today’s retailers. While economic waters remain troubled, an improved economic forecast promises retailers a smoother route to profitability in 2014.
“The economy is on the verge of stronger growth, more jobs and lower unemployment,” said Sophia Koropeckyj, managing director of industry economics at Moody’s Analytics (economy.com), a research firm based in West Chester, Pa. After four years of recovery, she added, the economy has made big strides. “Business balance sheets are as strong as they have ever been, the banking system is well-capitalized, and households have significantly reduced their debt loads.”
The more optimistic outlook is reflected in an anticipated rebound in the nation’s gross domestic product. In 2014 the GDP is expected to climb at a 3.1% rate, according to Moody’s. That’s good news, given that the increase for an economy in average growth mode runs at 2.5%.
“We think things should be looking up considerably next year,” said Scott Hoyt, senior director of consumer economics for Moody’s. “The economy should be significantly better not only than the past 12 months but also the past several years.”
Maybe it’s expected to increase rapidly, but the 2014 GDP number is being calculated off a pretty low base. Many retailers won’t be surprised to hear that 2013 did not measure up to economists’ expectations. Indeed, when numbers are finally tallied, the GDP increase is expected to weigh in at around 1.6% for the year, well below the anticipated 2.1% rate. The culprits: global economic weakening and governmental dysfunction — two factors that shocked consumers in 2013 but that are expected to be less important to economic activity in the months ahead.
Consumer attitudes — and shopping patterns — are expected to rise in tune with the rosier economic melody.
“Core retail sales are expected to grow 4.1% by the time 2013 figures are finalized, and by 4.5% in 2014,” Hoyt said.
That’s a pretty good showing, given that average annual core retail sales grew at 4.6% prior to the 2008 financial crisis. (Core retail sales exclude volatile revenues from auto sales and gas stations.)
Keep in mind, however, that these numbers are not as high as the 4.9% figure clocked in 2012 and the 5.4% of 2011. What’s going on?
“A lot has to do with continued weak income growth,” Hoyt explained. “While we do have some job growth, there is continued high unemployment. A lot of people have dropped out of the labor force, and employers have more power to restrain wage growth.”
No rapid relief in that sluggish employment picture is within sight. Moody’s
expects the current unemployment rate of 7.3% to slowly decline to 6.8% by the end of 2014. A “full unemployment” 5.5% figure is not expected to be reached until early 2017.
Many shoppers, to be sure, are constrained by this less-than-bright employment picture.
“Some retailers have been telling me that shopping activity tends to fall off dramatically toward the end of each month,” said Walter Simson, principal of Chatham, N.J.-based Ventor Consulting (ventorllc.com). “This seems to indicate that many people are living hand to mouth. While they are willing to spend for what’s necessary, there’s a big part of the population that has no extra gas in the tank. This pattern has to be broken for any dramatic improvement to occur in the economy.”
While employment has not fully rebounded, Simson said retailers will still benefit, on balance, from the generally improved revolving debt picture.
“Consumers have repaired their credit and are willing to put a little more on their cards,” he explained. The lighter weight of consumer debt should free up the marketplace for livelier selling.
To benefit from the economic rebound, retailers need to resist the urge to cut too deeply into labor costs.
“Shoppers are complaining about having no one to help them,” Simson said.
Store personnel, he added, must also be trained in the art of giving customers good reasons to buy. “We will not go back to the days when customers plunked down their cards unthinkingly.”
Philip M. Perry is a New York City-based business writer.
HSN’s Retail Evolution
To describe the HSN of today as a TV shopping channel is both woefully dated and reductive. The company, a division of HSNi, has evolved into a multichannel leader, where digital commerce accounts for 36.8% of its $2.2 billion in annual sales.
HSN’s 24/7 shopping format, which bowed in 1981, now seems positively prescient amid the rise of e-commerce.
Bill Brand, chief marketing and business development officer of HSNi, spoke with Chain Store Age contributing writer Barbara Thau about HSN’s rebranding efforts — designed to better reflect its evolution into an interactive entertainment and lifestyle retailer — and how mobile shopping and exclusive brand partnerships will drive further growth.
Who is HSN’s target shopper today, and has she changed in recent years?
Our customer continues to be 84% female, with an average age of 55 and median income of $78,000. Additionally, 26% of our customers have an income of more than $100,000.
Our mobile customers are younger and more affluent; the average age is 48. Mobile is our fastest-growing channel and represents more than 10% of HSN’s business.
How would you define HSN’s current niche?
We are a 36-year-old brand that has evolved into a leading interactive entertainment and lifestyle retailer that is more relevant today than ever in our history. We incorporate entertainment, inspiration, personalities and industry experts to provide an entirely unique shopping experience at HSN. This sets us apart from other retail destinations.
We have become an entertainment destination for our customer. She is not just coming to us to shop — she is discovering and engaging with blockbuster movies and top music acts, playing games and socializing with her friends at HSN. We offer a level of engagement that is beyond other shopping channels.
Earlier this year, we rolled out a complete refresh of the HSN brand, focusing on everything from our website and digital channels to our packaging, direct-marketing materials and even our external advertising. We wanted the way we presented ourselves to our customers to truly reflect the shopping environment we have created — fun, social, entertaining, etc. — and we wanted that tone to be there through every step of the customer cycle: from discovery to purchase to receipt.
Our tagline says it all: ‘It’s fun here.’ It grabs consumers’ attention, tells a story and unites our current customers with our prospects.
How is HSN addressing the growing trend of product-driven philanthropy?
We started the HSN Cares philanthropic program several years ago to empower women and support families in need at a local, national and global level. It gives our organization a soul and is part of our DNA here at HSN.
Our customers have responded positively to this program. They feel they are partnering with us to be part of a larger cause.
Two of the largest organizations that we support are U.S. Fund for UNICEF and St. Jude Children’s Research Hospital. This year, for the first time, HSN, along with two of our sister brands Chasing Fireflies and Grandin Road, came together to support the U.S. Fund for UNICEF’s Trick-or-Treat for UNICEF campaign. Special Trick-or-Treat for UNICEF stores were established at HSN.com, GrandinRoad.com and Chasing-Fireflies.com. We donated a minimum of 10% of the purchase price for each Halloween item sold during Sept. 1 through Oct. 31.
Digital accounts for 36.8% of HSN’s business today. What’s driving the growth?
Some of the key drivers of digital growth are mobile and the HSN Arcade, which launched in 2011 and marries entertainment with casual games, and has hit new levels of customer engagement. We have reached more than 150 million game plays with more than 760,000 arcade members.
We also use the Arcade to promote cross-marketing initiatives. As part of our Toyota partnership, for example, we had 8 million impressions of Toyota-related promotional material on Arcade.
What about mobile? How will HSN further maximize its potential in 2014?
Mobile has been a key part of our overall business since we launched our first iPhone app in 2009. It deepens our customer relationships and enables us to tell the story behind the product.
What’s driving this growth is our ‘Favorites’ tool that connects her with what she loves and makes it extremely easy for her to shop with us. For example, when she has ‘Favorites,’ we send her push notifications from within our apps that one of her favorite brands is on sale or a ‘Today’s special.’ The alerts are personalized to her preferences.
In 2014, some specific mobile tactics include offering mobile-only exclusives for our customers across smartphones and tablets, continuing to optimize our apps and driving awareness of HSN through social media channels.
What are HSN’s key initiatives this holiday season?
We are launching the More the Merrier holiday campaign, our first HSNi holiday event, where we’ve brought together our family of eight leading lifestyle brands to showcase a curated assortment of holiday items.
We believe that the potential for growth through cross-brand marketing is enormous — and this is an important part of our strategic vision for the company.
For example, HSNi’s brands’ Ballard Designs, Frontgate, Grandin Road, Chasing Fireflies, Garnet Hill, Improvements, HSN and TravelSmith are collaborating to create the ultimate More the Merrier holiday Pinterest board, with products pinned from each of the brands. Holiday shoppers can follow HSNi’s official board to learn about the season’s top giftable items, purchase directly from the different brands and get the scoop from experts on how these items can complete their shopping lists.
HSN shopping events tied to entertainment launches are now a hallmark of your strategy. How is this evolving?
Our entertainment integration strategy has been very successful for HSN and has become a powerful marketing vehicle for the film industry.
Earlier this year, we created a specialized online boutique called Dallas inspired by the [return of the] show. The boutique was a fashion destination that offered curated looks hand-selected by the show’s costume designer Rachel Sage Kunin. This partnership created additional brand awareness for our fashion and jewelry businesses and drove customers to HSN from the millions of engaged ‘Dallas’ fans.
We will continue to look for partners in the movie, TV and the music industry that are the right fit for our brand.
Changing of the Guard: The Millennials
A generational shift is afoot that’s about to upend the retail landscape.
The root cause of the impending transformation lies in changing demographics. By the decade’s end, millennials, also know as Generation Y, will displace baby boomers as the biggest consumer-spending group in the United States. Broadly defined as the generation born from 1980 to 2000, these “echo boomers” will account for approximately $1.4 trillion in spending by 2020, or about 30% of total retail sales, according to Accenture research.
Based on the most recent projections by the U.S. Census Bureau, millennials over age 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19% of the U.S. population by 2020. By contrast, the baby boomer generation will fall to below 20% of the population in the next eight years.
For retailers, understanding a fundamental aspect of millennial consumers will become crucial to earning their dollars: They are digital natives whose lives have been shaped by technology — from smartphones and e-commerce to social networks — that has rapidly, and unprecedentedly, transformed how consumers live and shop.
As a result, millennials are leading the trend of fast adoption far faster than anybody would think and also influencing older generations’ shopping habits, according to Renato Scaff, executive partner of Accenture’s retail practice and co-author of the Accenture report, “Who are the millennial shoppers? And what do they really want?”
“Whereas radio took more than 30 years to earn a 50% consumer adoption rate, mobile phones took only 15 years to reach the same level, and social media a mere 3.5 years,” noted the Accenture report.
These tech-savvy consumers are hankering for digitally enhanced, personalized retail experiences that anticipate their wants and needs. At the same time, merchants must rethink their executive ranks to reflect the fluid, technology-driven changes altering how this consumer shops. And they must also address a multiethnic demographic that values peer input more than traditional advertising messages when making purchasing decisions.
For retailers, time is of the essence. “While the boomers are aging and working their way into retirement, millennials are hitting their peak years of spending more and earning more,” Scaff said.
Consequently, retailers would be wise to promptly ask themselves: “How would I change my store and the messaging I do if nobody over 35 came into my store?” said Les Berglass, CEO of executive retail search firm Berglass + Associates, which counts such merchants as Neiman Marcus and ModCloth among its clients.
Earning Gen Y Loyalty
The rap on Generation Y is that loyalty isn’t part of their DNA. Not true, experts say. It’s just that courting this group is an entirely different ballgame since millennials’ notion of privacy is very different than their older shopping cohorts. This selfie-taking generation has come of age in the era of digital footprints, when personal and professional public profiles on such sites as Facebook, Linkedin and Twitter are just a click away.
In turn, “They are comfortable sharing information in exchange for something, and a better [shopping] experience that’s targeted to them,” Scaff said.
This means retailers must leverage granular knowledge of these shoppers who expect exclusive promotions that are informed by their buying preferences and patterns. They’ll even pay more for first dibs on a compelling, targeted offer.
When it comes to fashion purchases, for one, nearly 25% of female millennials said they are willing to pay a higher price to be the first to nab a new product, according to the report, “Social Channels of Influence for the Millennial Generation: A Consumer Study in The Fashion Industry,” from NetBase.
As the number of digital messages retailers pump out “will get ridiculous,” it will become increasingly crucial for merchants to become adept at crafting hyper-local offers, Scaff said.
According to a study by digital marketing firm Acquity Group, when making a purchase, millennials value price more than Generation X, which comes as little surprise for a group that has lived through the biggest economic downturn since the Great Depression.
But these are not your mother’s coupon clippers. This generation skilled at showrooming expects convenient savings perks — such as mobile coupon scanning capabilities — and prices to be the same in store as they are online, according to the Accenture report.
Indeed, more than 95% of millennials surveyed by Accenture said they want their retail brands to “court them actively” with digital coupons. By contrast, “having to print out coupons prior to shopping could be a deal breaker,” the report said.
Retailers attuned to the emergence of the millennial shopper are adjusting their C-suites accordingly. Unlike their shopping predecessors, Gen Y demands a say in the products retailers stock, weighing in on their likes and dislikes via myriad digital touchpoints — from product reviews on sites like Amazon to social networks, be it Facebook, Twitter, Pinterest, Instagram or Vine.
“Merchants are accustomed to being the fortune tellers of the industry,” Berglass said. But these days, “consumers don’t want to be told what they want. They want to partner in the choice of a product because this is a consumer who wants to influence its brands and wants to be heard by the brands they embrace.”
As a result, retailers must recognize that sites like Facebook “are a built-in research vehicle for today’s consumer,” which means breaking from longtime marketing methods, he said.
Historically, a retail buying team determined the merchandise and would then turn to the marketer “to create a story around the products the merchant had selected.” As the marketing person is now armed with unprecedented, real-time insight into consumers’ preferences, “today, the marketing department should be a partner with the merchandising team,” Berglass said.
At the same time, forward-thinking retailers are starting to put social-media savvy millennials in the C-suite.
“If you don’t redefine the composition of your board to include high-level — more contemporary — executives who really understand this consumer and have a deep understanding of the digital side of retail, you’re at a disadvantage,” Berglass said.
Kate Spade CEO Craig Leavitt has gotten the message. It’s crucial to give Gen Y executives “decision-making power,” he said during a November conference held by L2, the digital think tank.
Based on the insight of a millennial-aged executive, the fashion retailer/ wholesaler launched Kate Spade Saturday exclusively online last year. The sub-brand targets shoppers five to 10 years younger than Kate Spade’s 25- to 44-year-old target shopper.
Saturday.com debuted with product-focused editorial content integrated seamlessly throughout the site, as well as fans’ tweets and images.
The Medium is the Message
The influence of social media sites is still a moving target, as the popularity of any given network waxes and wanes with the times — Instagram, for example, is currently on the rise.
What’s more, the jury is still out on the networks’ concrete return on investment. One thing has become clear, though: Social networks play a pivotal role in the path to purchase.
Gen Y spends much of their virtual lives on these sites, often using them as “social shopping” platforms, where they solicit feedback from their network of “friends,” so that a thumbs up from a peer on a brand or product holds more weight than a store advertisement or promotion, experts say.
Indeed, 83% of 18- to 24-year-olds say they consult at least one social platform before purchasing at least one fashion category, the NetBase study revealed.
So for retailers, it’s important “to be part of the conversation — it’s a soft sell,” said Amy Koo, senior analyst for Kantar Retail.
In its pursuit of Gen Y, Target has managed to pull that off. In addition to rolling out its iconic, cheeky marketing campaigns across traditional media — as well as Facebook, Pinterest and YouTube — the cheap-chic discounter uses social media to engage in a dialogue with its shoppers.
The retailer used its Twitter stream to drum up excitement for the launch of its exclusive Phillip Lim collection, for example, and provides real-time commentary on what celebrities are wearing on the red carpet at award shows and movie premieres.
The resulting message: “Target is relevant and remains top of mind,” Koo said.
Macy’s also has its eyes on millennials. During the past 18 months, the retailer has launched or expanded more than 20 brands aimed at Gen Y.
“Throughout 2013, Macy’s has continued to invest in exclusive brands to engage Millennial shoppers who are looking for diverse, current and trend-forward fashion,” Molly Langenstein, Macy’s EVP/GMM, millennial and new business development, said in a release.
But Macy’s efforts extend far beyond targeted merchandise. From in-store Wi-Fi to outfitting associates with handheld devices to mobile apps, Macy’s has been a leader in creating the type of tech-enhanced shopping experiences that appeal to digital-savvy Gen-Yers. The chain is extremely active on social media sites and was one of about a dozen partners for the first Instagram ads that launched in October. It premiered select Black Friday deals via Pinterest. And it is testing new technology from shopkick that uses Apple’s iBeacon low-power Bluetooth technology. It will remind shoppers to turn on their Shopkick app when they enter stores, helping them find out about special deals, rewards and the like.
Marketing To Gen Y’s Diversity
Millennials represent the most ethnically diverse generation to date, according to Pew Research, so retailers’ merchandise and marketing should meaningfully reflect this demographic complexity.
After investing more heavily in data and technology, Target is now able to granularly plan assortments down to the individual store level based on different market segmentation strategies.
“This allows the retailer to customize products that satisfy the tastes and needs of local guests — for example, stocking beauty shades that more accurately reflect the local ethnic audience or a particular regional snack chip,” Koo explained.
Target has also been more locally targeted in its marketing efforts so that the retailer’s in-store signage better reflects the demographic makeup of its foot traffic, she said. “So, if you go to their Harlem store in Manhattan, for example, you’ll see more black and Hispanic models in their pictures.”
“They’ve been very explicit when they entered Canada to do this,” Koo said.
Barbara Thau is a New York-based business writer.
Retail Primer: Courting Millennials
• Offer free Wi-Fi in stores and feature signage that encourages shoppers to visit your e-commerce site for extended assortments, said Amy Koo, senior analyst for Kantar Retail.
• Millennials actually prefer shopping in brick-and-mortar stores to online, but they like to be entertained and engaged by the store environment. Embrace technology that appeals to this generation to tell your brand’s story, such as digital signage, streaming video to highlight merchandise, and product tags that are scannable via mobile device so that shoppers can access additional merchandise information.
• Millennials expect integrated retail channels. Make sure merchandise assortments in brick-and-mortar stores and online are consistent, and that shoppers can move seamlessly across channels. Retailers should offer buy online, pickup/return in-store options.
• According to the Urban Land Institute’s Report, “Generation Y: Shopping And Entertainment In the Digital Age,” enclosed malls do draw millennials. But they must be updated to keep them coming back. Mall owners and retailers should refresh and renovate their interiors frequently. Malls should encourage social gatherings, incorporate movie theaters and renovate obsolete ones, add specialty food purveyors and grocery stores, serve as pickup points for merchandise ordered online and encourage pop-up stores, the ULI report recommends.
• Millennials love to shop. Almost two-thirds of them go to enclosed malls at least once a month. And they appreciate service: Good customer service is very important to 48% of Gen Y.
• 81% of millennials’ retail spend occurs in brick-and-mortar stores (The NPD Group).
• Gen-Yers are big fans of eating out; 46% dine out at least weekly with friends or family, and one-quarter do so several times each week, with dinner being slightly more popular than lunch.
• Gen Y is cost-conscious, reflected in heavy patronage of discount department stores, warehouse clubs and discount supermarkets. Their credit card debt is modest — and 38% don’t use credit cards at all.
• 45% spend at least one hour daily online on retail-oriented sites, researching products, comparing prices, etc.
• Gen-Yers are multichannel shoppers, but in terms of purchases, stores still dominate. Eighty-one percent of their dollars are spent in brick-and-mortar stores (NPD Group).
• 63% stay updated on brands through social networks (Ipsos).
Source, except where noted: Urban Land Institute’s “Generation Y: Shopping and Entertainment in the Digital Age” report