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Study: Price elasticity shifts offer opportunities, risks for retailers

BY Marianne Wilson

There is good news and bad news in a new report on price elasticity.

According to a report by First Insight, price elasticity is shifting significantly in several retail subcategories, creating revenue opportunities as well as risks for retailers may not be equipped to respond to these changes. The shift emerges as consumer behavior has rapidly evolved.

“Fast-moving industry trends such as aging baby boomers, growth in millennial spending power and migration to online shopping are having an impact on pricing and demand,” said Greg Petro, CEO of First Insight. “This shift is creating a disconnect for retailers and brands between what they’re charging, and what consumers would actually spend. Our new study unveils these shifts and offers insight into how best to price a category to meet demand, protect margins and avoid problems with excess inventory.”

The study, “Decoding Price Elasticity to Unlock Revenue and Minimize Risk,” examined pricing and price elasticity trends on more than 90,000 items processed through InsightSuite, the company’s predictive analytics platform. Key findings of the report include:

● Shifting shopping behavior drives new opportunities in swimwear, risks in everyday wear
Womenswear is seeing decreases in elasticity and represents opportunities for retailers to maintain or increase prices, particularly in swimwear where shoppers are becoming less concerned with price.

Conversely, frequent purchases such as women’s outerwear, accessories and tops are seeing a jump in elasticity. These trends are consistent with the maturing womenswear market, as older shoppers are buying fewer items and cash-strapped millennials, who are drawn to fast-fashion brands, are driving greater elasticity on everyday purchases.

● Menswear largely well managed, but increased prices in underwear possible
In Menswear, sales are increasing according to recent U.S. Census data, and retailers have been effectively balancing price with increasing elasticity overall. However, significant shifts in subcategories remain, as elasticity in underwear is falling, creating an opportunity for retailers to increase pricing. Bottoms, in contrast, continue to become more elastic as pricing increases and retailers need to take note to avoid overstocks due to decreases in sales.

● Childrenswear shows opportunities to increase prices in sleepwear but be cautious of high-priced bottoms
Research shows that while overall sales of childrenswear are falling, some brands and retailers are seeing significant growth. This is in line with First Insight’s report which found that elasticity is falling along with pricing. Sleep/loungewear in particular has shown declining elasticity as well as falling prices, which makes it primed for price increases. However, not every subcategory represents opportunity. In the bottoms category, for example, where elasticity and pricing are both increasing, retailers need to be wary of buyers’ diminishing appetite for higher prices.

● Consumers becoming more sensitive to home goods price changes, particularly in furniture
The home goods category, traditionally the least elastic, is seeing a significant increase in elasticity as buyers become more sensitive to price changes, consistent with the increasing numbers of cost-conscious Millennials who are buying and furnishing their first homes. However, prices in the category have been rising, representing a risk to retailers if continued price increases result in fewer sales over time.

“Offering the right product at the right price is a key determinant of the success or failure of retailers and brands in today’s shopping environment,” Petro concluded. “Retailers able to meet shoppers at the intersection of price and elasticity have the greatest opportunity to increase sales and revenues with the least amount of risk.”

 

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DoorDash service opens ‘virtual’ restaurants to speed up deliveries

BY Deena M. Amato-McCoy

DoorDash is helping restaurant partners to offer food delivery in new cities without opening a restaurant.

The company is opening delivery-only “DoorDash Kitchens” in its new commissary in Silicon Valley. The program enables restaurant partners to offer delivery services in areas where they may not operate a restaurant, according to the company’s blog.

Restaurants rent space in the 2,000-sq.-ft. commissary, which features four separate kitchens. The fee is based on a percentage of gross sales. DoorDash also exclusively delivers the orders, according to Reuters.

The first company to leverage the kitchens is Little Star, a company that offers Chicago-style deep dish and thin crust pizza through locations in San Francisco and the East Bay. About 20% of Little Star’s revenue comes from delivery and take-out orders, but on some nights that percentage can be as high as 70%.

The company is using the service to test its concept in a new city, without the overhead and upfront costs of opening an entire restaurant, DoorDash said in its blog.

In addition to being an alternative for brands looking save on labor and rent, DoorDash Kitchens also offers additional capacity to companies that are overloaded by demand for delivery or catering operations.

DoorDash is already planning to expand the concept to more cities next year, the company said.

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Study: Poor technology planning will cost retailers $300k this holiday season

BY Deena M. Amato-McCoy

Retailers that fail to invest in technology to meet peak holiday demands will land them right on the naughty list with holiday shoppers.

In fact, these poor decisions could cost retailers more than $300,000, according to a study from retail management systems provider Brightpearl. The survey tapped more than 350 senior retail decision makers across companies ranging in size from small to very large.

According to data, retail automation technology helps retailers save the equivalent of 57.5 days a year by eliminating time spent on repetitive administrative tasks. The likelihood of negative customer service because of human error has also been reduced by up to 65%.

That said, mid-market retailers’ and wholesalers’ “technology ignorance” will give them a clear disadvantage in meeting peak holiday demands — especially compared to online and large retail giants. These decisions will lead to poor customer experiences, the inability to fulfill orders or meet increased demands due to lack of process automation, and inefficient business operations.

“These findings highlight how many retailers neglect to invest in technology that could save precious time and money during their busiest season,” said Derek O’Carroll, CEO at Brightpearl. “This doesn’t bode well for mid-sized retailers who find it challenging to compete with the likes of Amazon Prime — especially if they continue to ignore the operational advantages of technology. Short-term, inefficient solutions like hiring more staff or increasing inventory levels often end up hurting their bottom line.”

When it comes to hiring, 53% of retail decision-makers believe they can remain competitive by simply hiring extra staff. On average, they hire the equivalent of 98 full time additional seasonal staff to manage busy shopping periods. The top 50% hire approximately 190 holiday staff. The business costs of hiring 98 full-time employees based on average minimum wage of $7.98 at 40 hours/week per hire.

Retailers employing extra staff members to help during the 10-week holiday season running Thanksgiving through New Years can expect to spend, on average, an additional $312,816 (or $3,192/hire) in wages alone. (This does not include taxes, the burden of training new staff, costs incurred from mistakes by inexperienced employees, and extended work hours for existing staff, the study explained,)

Beyond hiring, 40% of retailers will increase their inventory significantly to cope with peak periods (despite the potential for wasted resources). Meanwhile, 35% of retail decision makers are ‘very likely’ to adopt a new technology solution that would help to effectively streamline their back-office and inventory processes. Further, 58% of retailer and wholesale decision makers currently invest in technology to manage sales spikes.

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