While the most recent data on retail sales shows the trade war with China has not yet made an impact on consumer spending, traditional department store retailing is challenged by several trends — from shoppers buying more product directly from brands to a market that remains overstored.
According to Coresight Research, year to date, “U.S. retailers have announced 6,971 store closures and 2,978 store openings.” This compares to 5,864 closures and 3,251 openings for the full year 2018.
Here, Carlos Castelán, founder and managing director of the Minneapolis-based business consulting firm The Navio Group, shares his perspective on the retail market and how retailers can address the current challenges.
WWD: How would you describe the current state of the apparel and retail market?
Carlos Castelán: The apparel market is strong for retailers that are creating a unique experience for customers and innovating their products. A great example is Lululemon, which recently opened a flagship store in Chicago that has a workout studio and a restaurant to expand the experience beyond just transacting product to create a destination for customers.
On the other end, apparel retailers that simply put racks of clothing in stores or have tired brick-and-mortar locations are struggling to survive. As a result, we expect to see more store closures in 2019 and that could accelerate if a recession hits in the next 12 months.
WWD: What are the challenges as companies head into the peak selling seasons of back to school/fall and holiday in the second half?
C.C.: A challenge for companies heading into the peak selling season is identifying how to stand out from the crowd. In today’s world where consumers are bombarded with messaging, which is heightened in the second half of the year, it’s critical that apparel retailers hone their customer value proposition and communicate that clearly to customers. When customers come into a store, that value proposition has to be realized with both product availability and great customer service.
Brands that have high customer resonance do this incredibly well and customers are excited to step foot in their store, even if that might be the primary purpose of their trip to a mall. On the other hand, retailers that do not offer product that’s differentiated and is difficult to shop will be challenged in the second half of the year.
WWD: What’s driving these changes in consumer behavior and spending?
C.C.: An abundance of choice for consumers, due to an over-retailed shopping landscape, means that retailers have to step up their efforts to both win and retain customers. The retailers that will survive have product that’s differentiated and have a customer base that shops regularly.
A great way to understand if a retailer is winning against the competition is measuring Net Promoter Score or some other measure of customer satisfaction. The most successful retailers that are well-positioned for the long run are ones that have high customer satisfaction.
WWD: And how can businesses respond to meet these changes?
C.C.: Businesses can respond by taking a critical eye to their business and understanding how the customer experiences the brand: Are the stores in good locations? How can we improve our products in a way that customers will value? What do employees believe are some quick wins to improve the customer experience?
Being honest about these questions, while not holding onto past successes, will be how retailers can continue to meet the shifting apparel landscape.