consumer spending

Following disappointing retail sales for the 2018 holiday shopping season, analysts are now looking for other speed bumps that might impact total sales this year.

Fitch Ratings, which expects U.S. retail sales (excluding gas and car sales) to grow three to four percent this year, said in a report that “evolving shopping patterns” remain a notable challenge moving forward. The company said the best chance for growing the top line this year will be to have solid cash flow and a robust, channel agnostic strategy.

In the “High Yield Retail Checkout” report, Monica Aggarwal, managing director at Fitch Ratings, said a “strong omnichannel business model strategy, and the cash flow necessary to implement associated upgrades to consumer-facing web sites, supply chain infrastructure, store remodels and service offerings, are key to retailer success.”

With online sales growing about 20 percent last year, Fitch Ratings said by next year it expects online sales to account for all of the retail sales growth rate in the market. As such, online growth will “increasingly be supported by a strong physical store network that is required to provide customer service, product marketing and point of distribution,” the firm said in its report. “Scalability challenges for online-only players will likely cap growth without creating a physical presence or partnering with an incumbent retailer.”

In a separate report from Fitch, researchers said omnichannel investments, “along with consumers’ desire to shop across online and offline marketplaces, should support market share stability or expansion for many of Fitch’s investment-grade issuers.”

“We expect stabilizing comparable sales and EBITDA trends for many leading retailers in 2019, supported by well-implemented omnichannel strategies and recent retail store closings across many categories,” the firm said. “Results through the first nine months of 2018 showed evidence of this stabilization for many physical retailers.” Analysts went on to note that early fourth-quarter indications “from some of these retailers suggest continued stabilization.”

But achieving and maintaining stability over the long-term is difficult. Variable costs associated with e-commerce can erode EBITDA. Analysts and consultants urge retailers and brands to have a clear strategy — one that is put into practice from the c-suite down to the store associate level.

Brad Snedeker, director of innovation at Calabrio, which offers workforce optimization software, expects companies to continue to make investments in technology that support the digital convergence of online and physical stores. “Earlier this year, Nordstrom opened its inventory-free Nordstrom Local where customers can pick up online orders, return items, have alterations done or even view collections curated just for them by a team of stylists,” Snedeker said in a report. “And it’s working: due to the project’s success, they’re poised to expand.” Snedeker said given the current retail climate, “flourishing retailers are mastering the art of blending the digital and physical worlds.”

“Like Nordstrom, they’re giving customers access to digital self-service options while creating a physical retail location that is centered squarely on the experience,” Snedeker explained. “Thanks to these options, retailers can meet customers wherever they are — online or in-person. But it isn’t that simple. This approach requires end-to-end omnichannel strategies that guide customers on a personalized path to purchase. Without these strategies in place, the customer experience suffers. Unfortunately, many retailers are missing the mark.”

One notable hiccup lies in the c-suite itself and a lack of organizational alignment. Recent research from eMarketer found that a lack of organization alignment has not been fully remedied at companies going through digital transformations. Workflow and execution of projects have also not improved as the demands of digital convergence on brands and retailers have increased.

 

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