Insights

Top 10 Retail Predictions for 2017

BY CSA STAFF

1. The import tax wild card. The Trump administration has floated a new tax policy that would apply a 20% tax on imports from Mexico, as well as other countries with which the United States has a trade deficit. If implemented, this tax could have a disproportionally large negative impact on merchants that export much of the goods they sell — i.e., almost all of our readers.

Details around this new policy so far are sketchy at best. After meeting with six prominent retail CEOs who oppose the tax last Wednesday, President Trump reported that work on the tax plan was going “really well” but offered few further details. If the plan moves forward as-is, retailers may be forced to raise prices on imported goods — and potentially lose out on sales and hope that the economists are right in their theoretical currency models.

2. Irrespective of the above, we will see cost of goods sold (COGS) spike in 2017. Protectionist stances spreading across the globe could send COGS higher even more rapidly toward the end of 2017. Retailers may have to pass those costs onto consumers. Will consumers be sympathetic when they see these price hikes? Probably not. More likely, we’ll see a drop-off in demand rather than a positive shift to higher prices.

3. Retailers get political. Retailers are increasingly taking public positions on social issues, and we expect this trend to continue. Faced with a volatile political climate here in the U.S. as well as abroad, retailers have decided that the social identity behind their brand matters. Patagonia recently announced that it will no longer attend the annual Outdoor Retailer show in Utah, one of the biggest trade shows in the country, because of the state government’s stance on public lands issues.

Meanwhile, amid a grassroots “grab your wallet” campaign to boycott Trump products, a flurry of retailers including Nordstrom, Sears, and Neiman Marcus announced plans this winter to distance themselves, or drop altogether, Trump Home and Ivanka Trump products because they weren’t selling. In fact, after President Trump tweeted his displeasure with Nordstrom, the retailer’s shares dipped briefly but ended the day 4% higher — so you never know what can happen! It seems shoppers now have more to worry about than making bad fashion choices when they shop.

4. Aggressive competition — but limited success — against Amazon. We expect to see large retailers take bold steps this year to compete with Amazon. Walmart may be one of the few who can compete with Amazon head-on. Taking on Amazon Prime, Walmart recently announced free two-day shipping on orders costing more than $35. But free shipping doesn’t cover the additional benefits that Amazon now offers, like video-streaming and e-book lending just to name a few.

Plus, the network-effect is a powerful thing as consumers increasingly consider Amazon their one-stop-shop because they think the online retailer has more inventory and lower prices than its competitors do. So we expect the battle of the titans to continue.

5. Data, data, and more data. Psychographics data, or information on customers’ habits, hobbies, and spending habits, will become even more important for retailers this year. Retailers have traditionally focused on demographics such as age and gender (if at all). But psychographics, including customer attitudes, lifestyles, political leanings, personalities, etc., will better help retailers segment customers, create efficient and targeted media buys, personalize messaging, design new products, and explore new opportunities for growth.

6. The huge wave of store closures will finally hit the shore. A number of major retailers announced store closures this January, and we expect to see many more store closures this year. More and more retailers are integrating store closure programs into their overall strategies to stay competitive, and the subject is becoming less taboo than it was in the past. Even strong brands like Starbucks and Target are regularly closing stores.

7. Poor performing malls become a bigger problem. With all this retail space becoming available, dead malls will create a real problem, especially as anchor tenants like Macy’s and Sears pack up and leave. But such malls could, at the same time, create opportunities for renewal. For instance, emptier malls could give growing off-price and value brands a chance to gain a foothold in a prime location. It might be time for REITS and municipalities to get serious about unused square footage and consider tear downs or rethink the space entirely, like the mixed-use facility that one developer plans to build out of what used to be the Granite Run Mall in Pennsylvania.

8. Mobile commerce, or “m-commerce,” will take center stage. Most online shoppers start transactions on one device and end on another (or in-store). In 2017, brands will focus more on how to use a mix of delivery channels to give customers the right messages at the right times to generate the best results. This is an increasing priority for many brands, especially as mobile is on track to reach a 70% share of global e-commerce (in contrast, it was 40% in 2015).

There is a lot more to m-commerce than a “buy” button. Retailers will have to completely re-imagine their engagement platforms to appeal to these customers on the move, including marketing, social media, curating goods and services, sales through delivery, and follow up.

9. Specialty stores find their niche. 2017 could be a big year for niche specialty retailers, for both new and existing brands. Larger retailers might look for opportunities to acquire a specialty retailer to broaden their offerings, or take advantage of the specialty store’s online sales and marketing knowledge, like Walmart is doing with Moosejaw.

Or they might focus on creating more shop-within-a-shop opportunities to leverage niche markets and strategies. This shift could result in smaller, yet smarter stores with increased personalization and knowledgeable sales associates.

10. Subscription services make a splash. As brick-and-mortar shopping becomes less attractive, more retailers may try to entice consumers with opportunities to receive regular shipments of clothing and accessories to try on, along with a generous return policy. Subscription services have been around, but 2017 may be the year they truly gain traction. These programs actually have the potential to increase margins for retailers because the value proposition is more opaque (i.e., the customer cannot easily compare to prices at other stores and within the store). We expect to see more established specialty apparel retailers launch subscription-based services this year.


Joel Bines is co-head of the retail practice at AlixPartners, a global, New York City-based, multi-industry consulting firm. He also is a managing director at the firm.

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SECURITY/RISK

Lifestyle specialty retailer readies for EMV

BY Deena M. Amato-McCoy

Pacific Sunwear is one step closer to more secure in-store payments.

PacSun is working with BTM Global to implement and integrate EMV (Europay, Mastercard, Visa) software that will support the global stand-ard for credit card and debit card payments. The implementation will roll out across more than 494 stores in all 50 states and Puerto Rico, a move that will strengthen payment security and protect its customers’ data.

The EMV software will be integrated within the chain’s Oracle Retail Xstore Point-of-Service solution. Chosen for its EMV experience, BTM Global is responsible for delivering the design, development, testing, pi-lot support and production life-cycle support services for the chain’s EMV, tokenization, point-to-point encryption and payment settlement integration.

“We were impressed by BTM Global’s strategic approach to clients’ needs,”said Jon Brewer, senior VP of operations of PacSun. “We’re pleased to be working with an expert partner on a project that’s critical to our business operations and success.”

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FINANCE

Kohl’s Q4 profits fall, but beat forecasts

BY Deena M. Amato-McCoy

Despite strong online volume, low store traffic translated into weak fourth quarter sales for Kohl’s.

For the quarter ended January 28, 2017, the department store chain’s profits fell 15% to $252 million, or $1.44 per share, from $296 million for the same period last year. Meanwhile, revenue dropped 2.8% to $6.21 billion, from $6.39 billion in 2015. Yet, the company still exceeded analysts’ expectations of revenue hitting $6.2 billion, or $1.32 per share.

Same-store sales also dropped, slipping 2.2% during the quarter, a by-product of more shoppers opting for the ease of online shopping. Conversely, this loss was “offset somewhat by strength in online demand,” said Kevin Mansell, Kohl's chairman, CEO and president.

For the year, the chain’s revenue hit $18.69 billion, a drop from $19.20 billion in 2015. Net income was $556 million, sliding from $673 million last year.

During 2016, the company opened nine small format Kohl's stores, closed 19 Kohl's stores, opened two Off/Aisle locations, and 12 FILA outlets. By the end of the fiscal year, the chain operated 1,154 Kohl's stores in 49 states, as well as an e-commerce site.

“Sales results were weak for the quarter in total, driven by declines in brick and mortar traffic,” Mansell said. “We saw improvement in merchandise margin, and our team continued to manage inventory and expenses extremely well.”

For 2017, the chain plans to accelerate its focus on “becoming the destination for active and wellness with the launch of Under Armour in early March,” he added. “We will also extend our efforts on improving our speed to market across all of our proprietary brands into all apparel areas and home.”

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