consumer spending

At the National Retail Federation’s Big Show, to be held Jan. 15 to 17 at the Jacob K. Javits Convention Center in New York, more than 34,000 retailers, vendors and industry analysts are expected to attend — double the number of attendees just five years ago.

Event organizers said they’re flocking to the event in search of innovation. Indeed, the want for innovative solutions has been growing as the retail industry has gone through immense change. Here, Lee Gill, group vice president, global retail strategy at JDA Software, shares insights on these changes and its impact on the market as well as the some of the challenges and opportunities companies face this year.

WWD: The retail market is going through a challenging period. How is the apparel sector affected by this?

Lee Gill: It is no understatement to say that the retail industry is undergoing a seismic transformation, driven by economic, consumer and technology factors and these headwinds will continue to shape the apparel sector.

We are witnessing significant changes in the composition of shoppers and this will affect the product offer, as retailers cater to different tastes and needs. The shopper population continues to age, with those over 65, growing from historical lows of around 12 percent, climbing to 20 percent in the next few years.

The trend toward urbanization also continues and we will see a shrinking middle class and a polarity toward the top and bottom of the market. Shifts in the markets for overseas sourcing, adjusting balance between on and off shoring and a low period of inflation, continues to place pressure on price; in fact prices today, are 10 percent lower than they were in 2001.

Operating margins within the apparel industry have declined each year since 2000 and are not predicted to improve until 2020 as restructuring measures take effect. Finally, whilst digital retailing has ushered in a new channel for revenue growth, it’s not without cost, as returns begin to hemorrhage and the retail estate tackles overcapacity.

So a challenging period, but retailers will continue to do what they do best and that is to look forward and adapt.

WWD: Given this changing landscape, what are some of the challenges for 2017?

L.G.: Customers are now relying on digital channels in ways that we’ve never seen before and this will be disruptive for retailers as online penetration doubles from around 15 percent of sales today to 30 percent in 2025. It is completely changing the customer shopping journey and making retailers rethink their plans for fulfillment and customer demands.

Firstly, retailers must now manage the demands of “always-on” consumers, who are able to shop 24/7 and come to expect a seamless blend between the store and digital experience. Given their demand for speed and convenience, their expected “window” from purchase to receipt will shrink, from what has been weeks, to days. These timelines will likely continue to shrink, as things like same day delivery become more common.

Additionally, digital channels are increasingly dual purpose, serving not only as a point of purchase but a critical research tool. Empowered consumers now have the ability to read reviews and conduct price comparisons anywhere and at any time. According to a Deloitte study, digital interactions now influence 56 cents of every dollar spent in retail stores, totaling $2.1 trillion by the end of the year. This is up from 14 cents of every dollar spent in 2013.

Finally, digital retail has created a new battleground, as competition is not only centered around traditional players, but now a new enemy of pure play operators are taking market share, the biggest of which is Amazon, tipped to become the largest apparel retailer in North America.

WWD: The role of the store is continuing to evolve. How has the demand of sales associates and the physical presence of a brick-and-mortar store changing?

L.G.: The store is here to stay, but not the way we know it. Firstly, we will see more closures, as a general overcapacity is addressed and this is particularly prevalent in department stores where we’ve seen announcements from the likes of Macy’s, who plan to close up to 100 units in 2017. Combined with this, we will see store reformatting and store relocations, as retailers try to get closer to the needs of the consumer.

But the biggest change will happen within the store, as retailers heavily invest in transforming the customer experience, be this physically, digitally and through exceptional service and services.

For every good brand, the consumer experience begins with people. Despite the fact that technology is continuing to influence and change shopping behaviors, a recent JDA Software Consumer Survey found that nearly 70 percent of respondents rely on the support of in-store sales associates in some way. Since consumers are more empowered with digital research than ever before, it’s important that sales associates are equally knowledgeable and empowered. By equipping sales teams with digital devices, they are able to provide additional insight into merchandising assortment, inventory levels and additional product information. This also supports omnichannel fulfillment options for shipping to store or buy online pick-up in store (BOPIS).

In addition to great merchandise service, stores are now becoming an experiential setting with new designs, flows and layouts and even pop-up coffee or bars mixed within the selling environment. This creates an environment to showcase great products, but also interact with the larger brand in a social setting. When done correctly, it can also generate great social media buzz and further digital influence for other customers.

And finally, as online grows, the store will play an important role in providing fulfillment services, either as collection points, or as dispatch points, a key differentiator to pure play operators.

WWD: Over the past few years, the market has evolved into a consumer-centric model that is reshaping all aspects of the retail business. How can companies navigate this environment? What solutions are available and how can it help?

L.G.: We are finally entering an era that will see retailers transition from a product-centric culture, to that focused exclusively around the customer. Rich sources of customer data and advances in technology will allow for deep insights and rich customer engagement. The foundation layer is all about creating highly credible customer segments, essentially defining your customers in to similar groups that share the same characteristics in needs and likes.

These groups of similar “DNA” will have rich attributes assigned to them, characteristics than can be “mapped” to products, helping retailers look at success and failures not just by product sales, but by customer segment “scoring” and behavior. Store “DNA” will similarly be mapped to segments, allowing for more precise ranging and in time, more advanced retailers will even tailor customer services such as order fulfilment, based on a customer segment and business strategy.

This is our world, that we started building three to four years ago, creating our next-gen planning solutions for retailers, to help transition from old world to new, where everything orientates around the needs of your customer.

Today, big data analytics are helping put the customer at the heart of every decision a retailer makes. New advanced planning solutions are replacing chunky excel documents, with simple, highly visual, online shopping-like workspaces that enable users to think and plan like their customers’ shop.

Leveraging next-gen technology and data science, analytics engines can score each item in the assortment by customer segment and cluster, using historical buying behaviors to forecast their performance. By enabling planners to align product selection with customer preferences, retailers can maximize sales, margin and inventory productivity by aligning purchase plans, ranging and inventory placement with expected local demand.

Additionally, many of today’s solutions leverage the cloud, allowing for unprecedented affordability, speed and agility. This supports improved productivity and alignment through real-time collaboration across business units.

Traditionally, assortment was based on product and location. Now, retailers should look at assortment based on product, location and customer segment at a local level. Smart planning tools are a great way to increase personalized and tailored shopping experiences for customers.