NEW YORK — While talk of cyber security and a lackluster consumer dominated the sidelines at the National Retail Federation’s Big Show here on Monday, the word from the podium was of larger changes sweeping through the entire industry.
This story first appeared in the January 14, 2014 issue of WWD. Subscribe Today.
The presentations ranged from economics and a “consumer-inspired future,” to how the Internet has supercharged the sector and how big data can help brands improve their businesses. Here, a closer look at the major trends.
THE GLOBAL LANDSCAPE
As the world turns, a seismic shift of power is under way.
Countries are changing from supply-driven economies to demand driven economies, creating “a consumer-inspired future,” said Ira Kalish, director of global economics at Deloitte Research, speaking on the “Global Powers of Retailing 2014” Monday. “We’ll make what people want, when they want it. Technologies will converge in unexpected ways that will change human behavior.”
Kalish focused on the economies of China, Europe and the U.S. China, the biggest emerging market in the world and second-biggest economy, “has long been seen as the future of retail and still is,” Kalish said. “However, the economic growth has slowed down substantially to 7.8 percent in 2012 and 7.6 percent last year, compared to around 9 percent to 10 percent in previous years. The export engine has sputtered,” he said. “Rising wages and the rising value of currency” has made China expensive for manufacturing. “Manufacturing has shifted to other places. No longer is China ‘the world’s manufacturer.’”
“The biggest problem is debt,” Kalish added. “Overall, debt is quite high in China. There’s been a huge explosion of credit. There will be some sort of financial crisis in China, which will result in slower economic growth.” Kalish’s forecast for China is continued higher wages and higher currency with more of a focus on consumer spending. “China wants to move away from being a cheap provider,” Kalish said. “It’s an opportunity for global retailers.”
Europe, which is slowly coming out of a recession, is characterized by weak banks. In much of Europe, there’s been a decline in bank lending to the private sector, especially in Spain and Italy, Kalish said, adding that there’s less support for austerity measures and a looser monetary policy. Germany continues to focus on austerity and is heavily reliant on exports. “It needs to focus on domestic consumer demand,” he said.
France is under pressure with extreme economic weakness, while the U.K. is experiencing a strong revival with continued reliance on the housing market and a consumer spending rebound. “There’s low unemployment and stabilizing wages,” Kalish said. “Britain is looking better, but there’s still a high degree of uncertainty.”
In the U.S., the Federal Reserve Board will keep interest rates low and bond yields will go up further. “The real issue is longer term,” Kalish said. “There are positive signs. Real income is rising, the housing market is up and consumer spending is increasing. Household wealth has recovered. Consumers have a lot of cash and 2014 is likely to be better due to pent-up demand.”
Deloitte’s top 250 global retailers include Wal-Mart, Tesco, Costco, Carrefour and Kroger in the top five slots. The fastest-growing 50 based on compound annual revenue growth over a five-year period features Jumbo Groep of the Netherlands, Changing Department Store of China, South Africa’s Steinhoff International, Apple/Apple Stores and Amazon.com. The top e-tailers by sales rank are Amazon.com, followed by Apple/Apple Stores, Wal-Mart, Otto and Beijing Jingdong Century Trading.
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RETAIL’S INTERNET EVOLUTION
The Internet has played a dubious role for retailers.
While it has allowed for a new stream of revenue, it has also created a highly competitive environment and it has caused retailers to become more flexible on price, faster on speed-to-market and more focused on its merchandise mix.
It’s those issues precisely that are the most important for retailers today, according to Hamish Brewer, chief executive officer of JDA software, who spoke at a session on Sunday titled “Navigating Retail’s Relentless Reality: What CEOs Are Doing to Thrive in a Consumer-Driven World.”
“I don’t think I’ve seen such a disruptive time than I have seen now in retail,” Brewer said, referring to the impact that the Internet has had on retail. “There are some worrying signs that some ceo’s haven’t taken on the magnitude of the changes.”
Brewer cited a study that his company conducted with PricewaterhouseCoopers and Forbes, which surveyed ceo’s from the top 250 retailers.
“The actions and strategies that are being deployed don’t seem to be aligned well with the issues that those ceo’s are concerned with,” he said, explaining that yesterday’s retail playbook won’t work today.
That playbook includes focusing on brick-and-mortar expansion into domestic and international markets. Instead, retailers should think of online in a more holistic way.
“Channelization,” as Brewer put it, is an old way of thinking about online retailing. Doing away with that thinking, ceo’s should focus on supply chain flexibility and focus less on trying to chase e-tailers such as Amazon on price.
“That’s a margin killer,” he noted.
Spending time on consumer service, merchandise mix and speed-to-market will be more beneficial instead.
Ken Hicks, president and ceo of Foot Locker Inc., who also took part in the session, agreed, adding that customer-driven solutions are instrumental in today’s retail landscape.
Hicks noted that with the Internet, customers today know more about the product than before, which puts added pressure on the retailer to provide the fullest experience.
“One of the things we have to do with our stores is make them more exciting rather than focus on just the price,” the ceo said, noting that stores need to carry exclusives and it needs to give the customer an experience he or she cannot get from the Internet.
In the end, both Holmes and Brewer offered that there are many benefits to the Internet age. Social media, for one, can give insight into how a brand is viewed by its customers and it can also provide feedback on what can be improved.
In dealing with the fast-paced nature of e-commerce, both execs noted that it’s prudent to take a multipronged approach.
“You have to stop looking for the purple pill; there is no one thing [to improve],” Hicks said. “It will take doing a lot of things well, a lot of things right….And it will take a lot of work from everyone in your organization.”
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UTILIZING BIG DATA
The term “big data” is a popular phrase these days.
It describes a collection of data so large and potentially cumbersome that it becomes difficult to process.
But if retailers can learn to effectively analyze the information they collect from their customers, it can be used to improve business.
In a presentation called “How Relevance Can Get Your Brand Elected,” David Selinger, ceo of RichRelevance, and Rayid Ghani, chief scientist at Obama for America 2012, said the key is to learn how to “use data to make better decisions.”
Ghani said the Obama camp used data it collected to predict who would vote for the candidate and who was most likely to be persuaded to jump onboard. Once that was determined, the campaign spent its time and energy on those it hoped to convert to Obama supporters.
Among the strategies employed were direct mail, e-mail and traditional advertising — which are still successful tools — and using supporters as “advocates,” Ghani said.
Selinger, who worked for Amazon in its early years, said one of the reasons that retailer has been so successful is that it was open to using data to personalize the shopping experience for its customers as far back as 2004.
For other merchants who are not as far along the “big data” learning curve, Selinger said they should work to “integrate data in bite-sized chunks,” and “keep experimenting.” And they can’t be afraid to fail. But if they do fail, they need to take a lesson from Amazon: fail fast and keep moving forward.
Also on Monday, the NRF handed out three awards during its annual luncheon. Nike received the Innovator of the Year award. Lotte Group, a Korean retail conglomerate, won the Global Retailer of the Year prize, and the Gold Medal award went to Jim Sinegal, cofounder of Costco. The retired Sinegal, who launched Costco in 1983 and built it into the country’s third-largest retailer, said he was proud of the company’s low employee turnover rate. “Retailing is not such a bad career,” he declared.
And in case you were wondering, former President George W. Bush’s closed-door session didn’t break any new ground, according to retailers who attended. He fielded questions from NRF chairman and former Saks Fifth Avenue ceo Stephen I. Sadove, and addressed a wide variety of topics. “It was very light,” said one retailer. “He talked about how things were back in the day.”
In addition to reminiscences about his time in office, Bush also reflected a bit about Sept. 11, the Nelson Mandela funeral and his new granddaughter.
“It was nice,” another retailer weighed in. “He’s a low-key guy and he was very entertaining.”