consumers

With a growing percentage of the U.S. population vaccinated and the Centers for Disease Control saying those with shots don’t need to wear masks in many situations, there’s a bright light at the end of the tunnel for the retail market.

But there are challenges ahead as consumer behavior has shifted over the past year, and many of the habits learned in lockdown will likely remain. And while household income is edging up, there is concern over the rising impact of inflation.

WWD asked industry service and solution providers to weigh in on what they see as some of the challenges and opportunities facing merchants and brands for the second half. From a consumer perspective, they note there is optimism. There are looming questions in regard to fulfillment, inventory and if the supply chain can meet current and growing demands.

DIGITAL CONVERGENCE, AND A SOCIAL ACTIVITY

Vincent Barnes, director of retail strategy at Infor, told WWD that as the world slowly comes out of lockdown “and starts getting back to some semblance of normality, we must not forget that retail and shopping is an important social activity.”

“There will no doubt be a huge race back to shopping centers, but we must not assume that retail will revert to past times,” Barnes said. “Consumer behavior has changed for good and the industry must understand that the merging of the physical and digital channels is going to continue.”

Barnes said consumers are looking for “great shared experiences to socialize and check out cool new trends, but they also want the convenience of online shopping and flexible delivery.” For the second half, Barnes offers retailers and brands some tactics and strategic approaches “so they can better prepare for the continued challenges hampering the industry.”

First, he said retailers and brands need to “confront the fact that your customers are savvy and fully digital, so you need to at least catch up and digitally transform your complete supply chain.” Barnes said AI and robotics are “huge opportunities for performance, predictability and quality” and he noted that it is important to “continue to focus on developing innovative products and services, but ensure that products are sustainably sourced and add value to consumers’ lifestyles.”

In this context, Barnes said “brand is everything — try to ask yourself what your company’s culture is and what are you doing to help your customers and communities. More than ever, today’s consumers buy from companies who have a strong brand voice and make an impact on environmental and social issues.”

Lastly, Barnes said merchants and brands need to “be prepared for more disruption and another potential crisis — retailers have to be agile and resilient.”

CONSUMERS ARE PRIMED AND READY, BUT DIFFERENT

For Vijay Ramachandran, vice president of marketing strategy and planning for Pitney Bowes Global Ecommerce, the second half of the year will see a jump in personal expenditures. “Consumer spending will increase, but be shared (albeit temporarily) between products and services as people travel and vacation again,” Ramachandran said.

“We know that household income has just started improving — our weekly tracking has just hit a seven-month high of consumers saying their income is the ‘same or higher’ than before the pandemic (60 percent same and 11 percent higher as of the end of April),” Ramachandran explained. “With vaccinations continuing to increase, nearly three-quarters of Americans plan to travel at least once this summer — but consumers plan to spend only about 10 percent more on products this summer versus last. Merchants should focus on gearing marketing and promotions toward travel-adjacent product lines like vacation fashion, UV-protectant personal care/apparel, and portable toys/hobbies/gadgets.”

Ramachandran also said interest in faster delivery “is also likely as travel drives appointment-buying online, where shoppers are more sensitive to quick-turn delivery dates.” Overall, Ramachandran said a “rise in cabin fever led in-person shopping and will challenge online discovery and conversion rates.”

“While we anticipate the store shopping trend to come back to earth after the novelty wears off in a few months, we expect consumers to remember the advantages of a trade-off they used to make without thinking about it: discovering a ‘good enough’ product on a store shelf now versus waiting for the ‘best’ product to arrive via online delivery,” Ramachandran said. “To compete, digitally native brands can reduce friction from conversions in two easy ways — competitive free shipping offers and convenient returns. Both of these have high potential to erode margins, so it’s important to offer convenience via multiple shipping speeds and cost-effective home pickup of returns through the postal network.”

Sarah O’Grady, vice president, Brand Marketing, Vericast, echoed Ramachandran’s perspective on the current state of the consumer and also said this is a moment to rethink current marketing approaches. “One of the biggest challenges that brands and merchants are going to face is that of consumer inertia — familiarity and reliability feels good right now to consumers, and that’s understandable given the disruptive year we’ve had,” O’Grady said.

“In fact, research from our forthcoming 2021 Consumer Optimism Outlook found that 76 percent of consumers are more likely to purchase from a store or brand they trust right now,” O’Grady said. “This is an opportunity for brands and merchants to rethink their marketing strategies to connect with consumers where they are — while enticing them to break out of their comfort zones and try new things.”

O’Grady shared some key takeaways from the company’s outlook report, which found that pricing is important in the current environment. The research found that 72 percent of consumers polled “said they increased savings behaviors during the pandemic and 82 percent plan to continue over the next year.” O’Grady said shoppers’ “macro-economic sentiment is still cautious, so pricing and deals will matter more than ever.”

And online shopping is “clearly a hit, but consumers really want to get back into stores,” she said. “Nearly half (49 percent) of consumers are already comfortable shopping indoors, and that number is even higher with Millennials (54 percent).”

MOBILE CONVERSIONS, AND PERSONALIZATION

While the current state of the consumer mind-set is in flux, Ashley Rosenthal, senior account executive for fashion and accessories at Yotpo, said what’s “keeping our brand clients up at night is the uncertainty we’re all facing as the physical retail world reopens.”

“So much investment went into direct-to-consumer e-commerce in the past year, and now brands and merchants are having to place their bets on how consumers are going to want to shop,” Rosenthal said. “But regardless of whether consumers are online or in physical stores, there’s one unifying thread we’re seeing here at Yotpo: mobile.”

Using mobile phone

Mobile devices will be key to retail conversions this year.  leungchopan - stock.adobe.com

Rosenthal noted that consumers spend an average of four hours and 12 minutes on mobile devices “and checking phones at least 150 times a day.” Subsequently, as a primary connection to the world during the pandemic, “consumers are more than ever wanting to do everything on their phones,” she said. “A natural extension of direct-to-consumer efforts, SMS marketing quickly emerged as an important channel for marketing and relationship-building for brands over the past year.”

Citing Yotpo research, Rosenthal said consumers want to be marketed to and communication via SMS — “whether it’s knowing an item they want is back in stock or learning about a sale, 89 percent say they’re interested in texting with their favorite brands, and 66 percent prefer to receive promotions and discounts via text,” Rosenthal said.

Rosenthal also said since 98 percent of texts are opened and 90 percent are read within three minutes, “brands and merchants have a major opportunity to reimagine what a mobile-enabled experience might be like in a brick-and-mortar scenario,” she said. “This would be a particularly powerful omnichannel tool for brands with loyalty programs, with the possibility to send consumers member or tier-specific SMS messages, recommendations, and promotions to drive traffic online or to physical stores.”

Nilay Oza, cofounder and chief executive officer of Klevu, agreed on the importance of personalization to woo shoppers to your brand, store or site.

“While e-commerce’s share of sales will likely continue to grow in the back half of the year and for many years to come, shopper demand for in-person experiences is returning,” Oza said. “Brands that sell only online will face a highly competitive environment and will be under more pressure to stand out and increase conversion. One way to do that is to invest in the right capabilities when it comes to their on-site search experience and personalization to be able to attract and retain customers.”

Oza said this is where having the right product discovery journey “is important for retailers and brands to drive growth and improve conversion.”

“By connecting customers to relevant products, they are three to five times more likely to purchase,” Oza said. “More than 30 percent of online shoppers ‘bounce’ if they can’t quickly and easily find what they are looking for online. As a result, I would expect to see an even greater increase in demand from retailers taking the shift towards product discovery in the second half of this year.”

SUPPLY CHAIN, FULFILLMENT WOES

So, while consumers are primed for in-store and online conversions, a supply chain rattled by overheated demand and logistical hurdles remain a strong headwind for the second half. Frank Costa, vice president of sales at OEC Group, said, ”unfortunately, with equipment shortages and limited space due to void sailings, retailers are seeing major delays in their supply chain and seasons are starting to cross over into each other.”

“Retailers need to start shipping goods as early as possible in order to meet their deadlines,” he added. “Items need to be ordered at least a month or two earlier than usual.”

In regard to fulfillment, especially the last mile, “the stakes are high,” Carson Krieg, cofounder and director of strategic partnerships at Convey, told WWD. Krieg said the “last mile is evolving into more than just transportation; it is an essential component of delivering a successful customer experience.”

Krieg said according to a recent Convey survey, 84 percent of shoppers said they wouldn’t return to a brand that missed their delivery. “As we head into the second part of the year, retailers must be prepared to continue to deal with uncertainty,” Krieg explained. “A new normal isn’t obvious. Instead, consumer behavior and preferences will continue to evolve as the pandemic recedes. Agility and flexibility remain critical to transforming last-mile delivery into a standout experience and true competitive advantage.”

Close Up Of Man Collecting Parcel Delivery Outside Door

Last-mile delivery is an increasingly important leg in the supply chain.  Monkey Business - stock.adobe.com

Krieg then shared three key focus points for retailers and brands to consider. The first is the customer experience. “The COVID-19 pandemic dramatically accelerated new purchasing habits, as well as corresponding fulfillment methods like buy online, pick up in store and curbside pickup, ship from store and pickup lockers, just to name a few,” Krieg said. “As we emerge from the pandemic, it’s impossible to predict the popularity and mix of these different delivery options. To stay in sync with shoppers, retailers will require a much more diverse supply chain ecosystem and carrier network — and the ability to adapt on the fly to shifting consumer preferences.”

Krieg said brands that are able to implement “a highly agile model for fulfillment will be able to accommodate these behaviors, especially as they head into peak season this holiday.”

Another focus area is parcel capacity constraints and costs. “The onset of the pandemic drove online shopping and parcel deliveries to an all-time high,” Krieg said. “As we enter the second half of the year, retail verticals that were sidelined by COVID-19 (for example, Rent the Runway) are going to surge back. So even with COVID-19 receding and more shoppers expected in-store, we predict current shipping volumes will remain or even grow.” Krieg also said with the last mile of delivery “already the most expensive and time-consuming part of the shipping process, peak pricing dramatically cuts into their profits and margins.”

Industry analysts have already warned of higher fulfillment costs for the fourth quarter of this year, mirroring the double-digit surcharge increases seen in the 2020 holiday shopping season as online sales soared over 25 percent.

“Retailers can avoid these peak surcharges by incentivizing shoppers to use new fulfillment methods that make the most sense for their business,” Krieg said. “That could mean offering discounts on slower delivery methods that reduce cost and environmental impact, or hosting e-commerce sales events that are ‘store pickup only’ during peak to avoid surcharges and capacity limits.”

Finally, Krieg said speed will be essential in the second half. “The winners and losers in 2021 will be dictated by how effectively retailers place inventory in the right places and how efficiently they can get that inventory to a customer’s door,” Krieg said. “Amazon continues to set the bar for fast delivery, and research shows that fast, free shipping and convenience — not necessarily price and selection — are the drivers of Amazon’s success.

“While not every purchase needs to be delivered the same or next day, there’s no question that speed matters,” Krieg noted. “Retailers will need to focus on placing merchandise in closer proximity to shoppers, for example forward stocking, ship from store and dark stores. At the end of the day, retailers must tackle the problems of cost, speed, and customer experience holistically without sacrificing one for the other — so they can confidently make bold customer promises they can keep.”