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Report: Aggressive holiday promotions to cut into retailers’ margins

BY Marianne Wilson

Retailers’ margins will be substantially lower in 2018 due to aggressive discounting and pricing.

That’s according to research from global strategic advisory and consulting firm Berkeley Research Group, which found that sales increases will likely come at the expense of increased profitability as added promotional activity and complexity will be required to generate top-line sales. In a survey of more than 100 high-level retail executives in October, 64% of the respondents said they expected promotions to play a more significant role in overall sales during the 2017 holidays.

Even consumable products are likely to see more discounting. Seventy percent of grocery store executives surveyed expect promotions to play a significant role in overall sales growth.

Sales results will differ meaningfully by retail segment, and given the calendar, holiday success will likely be driven by the final two weeks of the season, according to BRG.

“The extended holiday shopping season will likely require retailers to concentrate promotional activity on the final two weeks of the season,” said BRG managing director Rick Maicki, co-leader of the company’s retail performance improvement practice. “This, of course, will result in increased execution and complexity costs and will likely lead to further retailer challenges in 2018.”

Also, many retailers are entering the holiday season on the heels of soft sales in the late summer and early fall. Some struggling companies will be aggressive in their promotional activity, as they seek to clear inventory to generate cash and drive sales.

“The 2017 holiday season will likely generate less cash flow than what was achieved last year,” said managing director Keith Jelinek, co-leader of the retail performance improvement practice. “The impact of lower margins will put more stress on many already challenged retailers.”

Other findings from the BRG survey and analysis include:

• Executives sent BRG a clear signal that promotional activity will be higher this year, and this message crossed retail segments. Through the holiday sales period, success will hinge on retailers’ real-time agility.

• Retail sales increases will likely come at the expense of increased profitability, as added promotional activity and complexity are required to generate top-line sales. This dynamic will impact retailer success not just during the 2017 holidays, but will likely lead to further retailer challenges in 2018.

• Online sales are expected to increase by approximately 15% this holiday season, accounting for nearly half of the increase in retail sales dollars this year overall. The continued impact of e-commerce will push retailers to promote heavily to drive store traffic.

• Electronic retailers’ in-stores sales were down by 5% in 2016, and BRG expects just a 1% increase this year. Retailers in this critical holiday category may need to promote frequently and at deep price cuts to drive traffic in store.

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Fast-fashion giant exploring data breach

BY Deena M. Amato-McCoy

Forever 21 is investigating whether it has become the newest victim of a cyber-attack.

The fast-fashion retailer learned from a third party that hackers may have gotten unauthorized access to payment card data at certain Forever 21 stores. Upon hearing the update, the retailer immediately launched an investigation of its payment card systems and engaged a leading security and forensics firm to assist.

Forever 21 implemented encryption and tokenization solutions in 2015, a move that left only certain point-of-sale devices in some Forever 21 stores vulnerable when encryption support went offline. The company’s investigation is focused on card transactions that occurred in stores between March and October 2017.

Since the investigation is ongoing, the retailer said it is too early to reveal specific details. However, Forever 21 expects to provide additional updates once specific stores and timeframes are revealed, according to the company.

“We regret that this incident occurred and apologize for any inconvenience,” the company said. “We will continue to work to address this matter.”

The fast-fashion retailer also urged customers to closely monitor their payment card statements. If customers notice an unauthorized charge, they are encouraged to immediately notify the bank that issued the card, there retailer said.

Based on payment card network rules, cardholders are typically not responsible for such charges.

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Faster online shopping options top Target’s holiday strategy

BY CSA STAFF

Target is relying on its store network to get online orders to shoppers faster than ever before.

In a blog on its website, Target gave an overview on some of the initiatives it has launched in recent months to make online shopping faster and easier in time for the holiday season. Here’s a recap:

• Target store associates will be using the company’s new myCheckout app, which enables an associate to search Target’s website for desired products, or specific styles and colors, that the customer can’t find in the store. Associates can also use the app to place orders for the customer, tender payment, and choose a delivery option.

• The discounter is also streamlining how online customers order their holiday essentials via its Target Restock program, which enables users to choose from “thousands” of items across the personal care, food, household and baby goods categories. Customers can fill a box with up to 45 lbs. of merchandise, and have items delivered the next day for a fee of $4.99. The program is currently available in in 11 major markets and smaller cities, including Athens, Georgia, Eau Claire, Wisconsin, and Santa Rosa, California, according to the discounter.

• Shoppers can also leverage Google Assistant on Google Home devices and dedicated smartphone, and use voice commands to shop Target’s online assortment on Google Express. Merchandise is shipped to customers in two days.

• Target will continue to offer its “order pickup” service, a program that enables shoppers to pickup online orders at a nearby store, with more than 95% of orders are ready in an hour. Starting on Black Friday, Target’s service will also enable customers to use the service to retrieve doorbuster deals ordered online. Nearly all doorbuster deals will qualify for the service.

• Target will continue leveraging its “Ship from Store” process, which enables stores to fulfill online orders by pulling product from store shelves and shipping merchandise directly to shoppers. Some 1,400 Target stores — more than 75% of all Target locations — will be fulfilling Target’s online orders this year.

• Target is also offering free holiday shipping on all online orders between Nov. 1 and Dec. 23.

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