Navigating The Road Ahead

What’s going to happen to the retail industry – and the economy more broadly – next year? After the unprecedented bailout of 2008, wild fluctuations in the world’s financial markets and a downward spiral of home values and investment portfolios, weary retail executives and disheartened shoppers would rather dodge the question than answer it.

The outcome of the presidential election has given the nation permission to believe in the power of change, yet many are still trying to keep fear and uncertainty in check after being rocked back on their heels by the events of recent months.

Will 2009 be different? Is it possible to restore consumer confidence to respectable levels, thaw the credit markets and get the economy humming? The answer is “Yes.” Consumers will begin to feel more confident in the months ahead and will see clear to reopen their wallets. The credit markets will loosen, and it certainly seems like we’re on the brink of a new economic infrastructure.

What’s important to remember, however, is that while things are poised to get better, we’re not going to revert to the way things were. A new “normal” will emerge in 2009 as retailers and consumers recalibrate their values and rethink their expectations. Already, it’s possible to detect subtle-yet-substantive shifts in attitudes toward spending and saving, and the corporate mindset with regard to sustainability, optimization and transformation.

When President-elect Obama moves into the Oval Office he will be confronted with slow growth, high unemployment and an economy teetering toward recession: No one should be envious of his Inbox. Yet after talking with economic experts and retail luminaries, one gets the feeling that old assumptions about the economy and the geopolitical scene are being kicked to the curb and that tremendous opportunities lie ahead.

The new year will be a time for retail executives to make investments that will position their companies for growth eight, 12 or 18 months from now, a time to challenge old ways of thinking and to foster a culture of innovation. So, what do the editors of STORES believe will happen in 2009? Keep reading.

Shoppers are looking for an antidote to gloom: Retailers that provide it will keep POS units humming.

Shoppers will have a different outlook for 2009. The free-wheeling approach to spending is a thing of the past. That’s not to say they won’t plunk down $400 for a designer handbag, but if they do it will be their handbag purchase for the entire year.

There’s a movement taking root that can best be defined as “cheap is cool.” Shoppers feel guilty about wearing pricey suits or expensive shoes so they’re making tradeoffs and opting for lower-price versions. That’s all good – as long as they keep spending. The one thing no one wants is for shoppers to zip their purses shut and tuck their cash under a mattress.

Private-label apparel sales are likely to decline over the next 12 months. At one time high-end retailers relied on manufacturers to make product just for their outlets. Not anymore. There is plenty of merchandise to be found at lower rates – assuming you’re a good negotiator. Another reason for the predicted slip in private-label sales: Vendors are cutting deals just to assure that retailers keep carrying their lines.

Time – or, more precisely, the lack thereof – remains an ongoing consumer pressure point. Retailers need to be sensitive to shoppers’ need for speed and their desire for price value without compromising their own values along the way.

Remember: Shoppers’ memory of an experience – whether it’s in a store or online – becomes the product; their recollection of the shopping experience lingers far longer and has far greater impact than the good feelings linked to a specific purchase.

• Today’s shoppers are “information omnivores.” Satisfying shoppers in 2009 will come down to finding ways to provide in-depth access to product data.

• Consumers want to provide feedback about a product one day and read comments and reviews another. Give them a voice in goods and service – and don’t forget to listen to what they have to say.

• Look for consumer electronics, small household appliances, cookware and items that convey a sense of home and hearth to resonate with shoppers.

• Retailers that give shoppers permission to buy by offering creative goods and services will connect with consumers.

• Empathize with your customers’ hassles and struggles; gestures of kindness are truly appreciated – not to mention upbeat conversation starters. And what’s that they say about the viral effect of positive feedback?

IT spending will inch upward, but the “do more with less” mantra will trump the quest for unplanned initiatives.

Managing the risks associated with various security projects, and looking more closely than ever at the risks associated with outsourcing, will continue to be at the top of most retail agendas for 2009. Expect the list of priorities that may have been four or five lines deep to be chopped in half and the projects that make the cut to be those that hold the greatest promise for a swift return on investment.

CIOs will seek to renegotiate contracts with suppliers and consolidate services when possible. Decisions will come down to a simple metric: where can retailers get the most bang for their buck? For many, the answer will be sustainability projects: Rising energy costs and tighter budgets will create a potential boom for solutions providers that can capitalize on the “greening” of retail.

Another top priority should be business analytics. Building data warehouses is futile if you don’t use the information. In the coming year, retailers will need to wring better results from the data they already own.

• Now more than ever, it’s not about technology; it’s about solving business problems.

• The data explosion is real. Understanding how to cope with the volume, dissect the data and use it to make more precise decisions is what will separate the winners from the also-rans.

• There’s a potpourri of emerging technologies clamoring for retailers’ attention. Will the winner be: (a) fabric computing, (b) cloud computing, (c) contextual computing or (d) none of the above? If you picked “d,” trot down to Starbucks and reward yourself with a latte.

Potential bottom-line improvements linked to energy cost reduction, water conservation and new sources of power make sustainability the project du jour of 2009.

Retailers acknowledge the moral imperative around green projects and recognize the emotional connection these initiatives build with the growing cadre of environmentally-conscious consumers. But when you get right down to it, it’s all about saving money.

Last year, many retailers went after the low-hanging fruit; now it’s time to climb the tree. Making the most efficient use of limited resources will be imperative as companies look for ways to dial back power usage, reclaim water and rethink supply chain routes.

Foreign companies have taken the lead here, and it’s time for U.S. businesses to get on board – quickly. It is now entirely possible for a building outfitted with the right technology to generate enough energy to power everything under its roof, and the solar panels many retailers installed in 2008 are just the beginning.

If you aren’t familiar with carbon footprinting, you’re way behind. A new standard was recently launched in the U.K. to help businesses assess the carbon footprint of their goods and services. The standard measures emissions in goods and services throughout their entire lifecycle – from sourcing through use and, ultimately, disposal. A handful of U.S. manufacturers are already looking at the opportunities for reducing emissions in the design, manufacture and supply of products. Retailers won’t be far behind.

• Metrics assessing sustainability are beginning to surface, and will soon be the standard by which projects are judged.

• With metrics in place, green results will be scrutinized more closely by Wall Street and shareholders. This year marks the first stages of sorting out how to collect green data and which data will resonate with those using it for decision-making.

• The ROI window on sustainability projects is shrinking; once a five- to seven-year timeframe, most companies now want to see a return in three years or less.

• People’s brains are not yet calibrated to deal with the scale of change around sustainability. For example, it’s entirely possible that, in the future, margins will be determined by how much energy a retailer can save.

No one will be spared from credit woes in 2009. The debt crisis
is straining retailer/vendor relationships, retailer/landlord unions and retailer/lender marriages.

Business and consumer credit woes will continue through most or all of the next 12 months. Asset-based lenders have tightened lines of credit, making it difficult for retailers to borrow. Meanwhile, banks are cutting credit lines, hiking interest rates and raising fees for credit card customers they deem high-risk. The effects are undercutting efforts on both ends to pull out of the financial funk gripping this industry.

Adding to the air of crisis are recent “going out of business” announcements by the likes of Mervyns, Linens ‘n Things, Whitehall Jewelers and Shoe Pavilion. With the current crisis still unfolding, reorganizing under Chapter 11 is no longer the option it once was. And troubled retailers are facing the grim reality that the value of their inventory may be less than expected due to the worsening economy. In early 2009, retailers may struggle with inventory levels falling short of merchandising plans, but pressures should ease by the second quarter.

The credit outlook isn’t much better for consumers. There has been a surge in the number of credit-card borrowers running late on their payments. Suffice to say the easy lending terms of years past are history. But that doesn’t mean shoppers will lock themselves in their homes and cut up their credit cards. A latent desire to seek out and acquire small indulgences will kick in by mid-2009 as consumers begin to adjust to the “new normal.”

• Look for the electronic wallet to finally become a reality in ’09 as shoppers become more comfortable using their cell phones to make purchases.

• Seeking the proverbial silver lining, retailers will find that if inventory scarcity becomes an issue, shoppers will buy an item when they see it rather than postpone the purchase anticipating a sale.

It’s no longer nice to be engaging — it’s imperative. Learn the ins and outs of social networking or be left in the dust.

Twitter was a fad less than a year ago; now, major corporations are using it for business. Ditto for Facebook. And who knew LinkedIn would grow to be anything more than a way to stockpile associates? Much like the Six Degrees of Kevin Bacon, social networking applications have taken on a life of their own – one that will continue to gain ground in the coming months.

Gen Y has grown up having more technology in their bedrooms than some retailers have in their back offices. It is rewriting the rules of shopping – how and where they do it, what they expect and how they want to be treated. As this generation enters the workforce, expect them to reshape corporate culture. They expect an open, transparent environment. They want to work for brands that have integrity and are considered responsible stewards of the environment. They expect “fun” to be baked into their jobs – part of the work hard, play hard balance. If you’re lucky, they’ll stay for three to five years: Learn from them while you can.

• The digital generation spends its days instant messaging and texting; they consider e-mail too slow. If you can’t imagine texting negotiations on the fly, it may be time for a new perspective.

• Mobile is the tail that will wag the dog, especially when you consider that the cell phone chip is 100 times more powerful than PCs were just a few years back.

• Influence networks are the way to reach the under-30 crowd; they don’t watch TV, and when they do they often view it on something other than a traditional television.

• High-definition experiences are everywhere, which means investments in digital and interactive signage should be front and center. Messaging will move even closer to the point where the shopper actually makes the decision.

• Web 3.0 beckons. It’s an opportunity to look at processing data on a single computer. Are you ready?