Retail Intelligence for the WPP Global Retail Community
Updates & Insights from the NRF Show

THE DIGITAL CONVERSATION THE RETAIL TEMPERATURE OUR COMMON HUMANITY
 

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If you weren’t among the roughly 22,000 visitors who filled New York’s Javits Center last week to learn about the newest retail trends and developments—and even if you were there networking in the city’s sub-freezing temperatures—here are some useful highlights from the National Retail Federation Convention & Expo. NRF is the major retail industry trade group in the US. The Store WPP attends the NRF show every year to engage with the retailers, suppliers and other industry leaders who crowd the show floor and informative seminars.

THE DIGITAL CONVERSATION

CONSUMERS CHOOSE ONLINE

The 2011 Consumers’ Choice Awards lacked the bite of Ricky Gervais at Golden Globes, but the punch line was unmistakable. Here’s the list of the winners: Amazon, L.L. Bean, Zappos.com, Overstock.com, QVC, Kohl’s, Land’s End, JCPenney, Newegg and Nordstrom. While the contest involves US companies only, the results are of universal interest. Seven of the winning retailers operate few, if any, bricks and mortar stores. These retailers reach customers with catalogs and online. There’s nothing wrong with that. It’s just that the awards presentation lacked any sense that the results were ironic or remarkable. They confirmed that the sea change that dominated retail headlines just a few years ago is today’s accepted reality. Perhaps that’s not surprising given that in the 2011 BrandZ™ ranking of the most valuable global retail brands Amazon surpassed Walmart to become number one. There’s another new reality revealed in the list of winners. The three bricks and mortar winners are department stores. Just a few years ago headlines announced their irrelevance and demise. Do the Consumers’ Choice Awards suggest that at least some department stores are offering an experience that consumers desire and can’t obtain online? (See the Macy’s story below)

NEW NUMBERS TELL THE ONLINE STORY

During the recent holiday season, 15 percent of retail sales took place online, according to Forrester Research, compared with just 5 percent in 2005. And Forrester expects that one-fifth of holiday shopping will soon take place online. Consumers told researchers that they shifted to online purchasing not simply for convenience but also to pursue the deals offered. Free shipping also was a factor. Customers now expect free shipping (Thank you, Amazon). Around 55 percent of consumers said they expected free shipping with all their orders, which seems to make it a hygiene factor, a cost of doing business. A slightly smaller percentage of consumers also expect free shipping on returns. Also, according to Forrester, social media was not a big sales generator. Retailers mostly drove sales the (relatively) old fashion way, with email and search. The way consumers purchase is likely to change. In 2010, 26 percent of retailers surveyed said that they had no mobile strategy. In 2011, that group declined to just 9 percent. The results are based on a recent survey of 4,731 online adults.

OMNIPRESENT IS THE NEW MULTICHANNEL

The retail lexicon is catching up with retail reality. Until fairly recently, retailers and suppliers spoke fervently about the need to be multichannel, even as they worked to figure out what being multichannel actually meant. Based on comments heard at the NRF Convention & Expo, omnipresent is the new multichannel. The language refinement reflects the rapid pace of retail change. Multichannel suggests that a retailer needs to operate in both the physical and virtual worlds. Multichannel is about presence. Ominpresent recognizes that the two worlds increasingly overlap. A customer may visit a physical store to try on merchandise but purchase online at the store for delivery to home or store pick-up. Ominpresent is about process.

GLOBAL RESEARCH FINDS DIGITAL DIFFERENCES

A new global study of consumer digital engagement discovered useful correlations between national wealth and Internet penetration. GS&MD and the Ebeltoft Group conducted the study in 15 countries spanning a broad spectrum of economic development. The research revealed that a greater percentage of the population is likely to be online in countries with higher Internet speed. Internet penetration also varies according to GDP per capita. Penetration is significantly higher in countries with high GDP per person. In other words, there’s a correlation between wealth and Internet use, which isn’t surprising. In contrast, however, mobile penetration is fairly even across all country markets regardless of the wealth of the population. That finding recognizes how quickly mobile was adopted by societies that lacked telecom infrastructure but overcame that deficiency by leapfrogging past it. The research also found that, for 81 percent of Internet users, worldwide purchasing most often takes place at home.

THE RETAIL TEMPERATURE

A RETAIL PALACE

In a tremendous—and expensive—expression of optimism, Macy’s executives described a $400 million renovation to its Herald Square flagship store that is about to start and will be phased over the next four years. The project will add about 100,000 square feet to create a total of 1.2 million square feet of selling space. Macy’s detailed the additional and reconfigured space in superlatives: the world’s largest women’s shoe department (39,000 square feet) and 200,000 square feet devoted to men’s merchandise. The store windows, now covered, will once again be transparent to let in light and to create a glowing and much less bulky structure from the street. A redesign of the Seventh Avenue entrance of the store will make it a second main entrance complementing the Broadway marquee. The physical restoration tells only part of the story. It also is about the restoration of confidence in retailing and the economy. And at the NRF show, dominated by digital, this serious capital investment suggests that retail will remain a mix of the virtual and real, with successful physical stores creating the social experience not available online. In the case of Macy’s this experience evokes the glory of department stores as retail emporiums. Macy’s already owns one of the few remaining examples of that era, its store in center city Philadelphia in the former Wanamaker’s, one of America’s earliest department stores. It’s possible that retail is moving full circle; that the online sites and experiential department stores will be comfortable companions. Only a few years ago, many had written off department stores as retail’s dinosaurs.

MORE OPTIMISM

Retailers reported higher comp store sales, higher gross margins and higher operating profit in the Global Powers of Retailing 2012 survey by Deloitte. The study also revealed that more retailers are shifting their focus from cost containment to growth. They’re focusing on customer engagement and wallet share. Digital presence, considered a business necessity, includes effective use of social networking, integration with other channels and development of more online interactivity. Leadership and succession planning was named by 91 HR executives as their number one priority. At the same time, income inequality continues to hurt retail. It divides consumers into two groups. Many people, particularly the highly educated workforce, are doing fairly well despite dismal unemployment numbers. Most people, however, feel the pain of slow growth. Retail as a result continues to be bifurcated, with high-income customers focused on experience and low-income customers shopping price.

BEYOND SERVICE

Danny Meyer, owner and operator of some of NYC’s most popular restaurants, changed the notion of what constitutes a great restaurant when he opened his first establishment, Union Square Café, almost 30 years ago. Meyer explained that service is about the product, and getting the product right is an undeniable prerequisite to success. But the differentiator, in both the restaurant and retail businesses, is hospitality. And hospitality really comes down to not simply knowing the customer but understanding each customer. In a restaurant it means that instead of performing carefully choreographed inflexible rituals, staff responds sensitively and appropriately, understanding that two individuals dining alone at adjacent tables may seem to be similar customers, but one may want constant attention while the other desires to be left alone. If this all seems too “soft,” at the end of the day Meyer is a businessman and has quantified hospitality into HQ, a metric that consists of these six factors: curiosity, kindness, empathy, strong work ethic, self awareness and integrity. People with high HQs are at their happiest when they’re making other people happy, Meyer said. His organization tries to hire people with high HQs and give them the freedom to express their personalities. One of the few rules: Never ask, “Are you still working on that?” In a final piece of advice applicable to retailers as well as restaurateurs, he noted, never ask, “Is everything alright?” Everything is never alright, he said. Don’t ask the customer a question that invites a lie.

GROWING INTEREST IN LUXURY

The sweet spot for luxury brands is a relatively narrow group of about 10.4 million people worldwide, including 3.4 million in North America, according to some estimates. These are the people who are interested in the best of the best. At the same time, the possibilities of creating new wealth means that there always are people for whom the possibility of luxury is new. There’s a rise in “connoisseurship” among this group. They want to learn more about the components of luxury—brand heritage and craft. Customers are increasingly sophisticated about this link between brand heritage and craft and will abandon a brand if there’s false note. They’re educated to recognize false notes because the Web can make them more knowledgeable than sales people about a brand’s value, benefits and pricing. In North America and other developed markets, luxury customers generally are beyond luxury as a bling opportunity to show off. Having enough stuff is a given and doesn’t come with bragging rights. Having the right experience and relationships is more important. Even in a fast-growing market like China, the interest in luxury is rapidly shifting from acquisitiveness to a deeper appreciation of quality and enduring value.

OUR COMMON HUMANITY

CONSCIOUS CAPITALISM

Retail as a Darwinian exercise of eliminating the competition and extracting as much as possible from the consumer is old school, at best, according to The Container Store CEO Kip Tindell and other champions of Conscious Capitalism. This approach starts with the supposition that businesses is not simply about making profit, although profit is key, but it’s also about gathering groups of diverse stakeholders—customers, employees, investors— in pursuit of a shared goal: the success of a business from which they all derive a benefit. This philosophy seems closely aligned with an emerging view that the successful brands will sell more merchandise if they do less selling and more connecting with the values of their customers. During the past holiday season, when most merchants worried about moving inventory with minimum markdown, Patagonia broke through the clutter with an ad that said basically, don’t buy this jacket unless you absolutely need it because your purchase will impact the environment. The premise is that enough people share this set of values and when they need outerwear Patagonia will be among the brands they seriously consider.

HELPING THE ECONOMY, THE WORLD AND RETAIL

Speaking on the birthday of Martin Luther King, former President Bill Clinton began by quoting Dr. King on the importance of economic opportunity and relationship between personal dignity and self-sufficiency. Recalling that his first job was in a grocery store, at age 13, President Clinton said, “I talked the grocery store owner into letting me set up my own business, a used comic book business.” He emphasized the importance of retail to the US economy, noting that retail growth outpaced the overall economy last year and that the sector supports about 25 percent of the nation’s jobs. “I never doubted that I could make a living,” he said. “And almost everyone in my generation felt the same way. The recent economic crisis has shattered that.” He enumerated the world’s three big problems: it’s highly unstable; it’s unequal and it’s unsustainable. The goal is to build a world of shared prosperity and shared responsibility. The good news, according to President Clinton, is that all of these problems are solvable, especially if nations, rich and poor, work cooperatively to solve them. Since the audience was filled with retailers, President Clinton was asked where he shopped during the holidays and what he bought. Along with the major retail outlets, his shopping destinations included a local jewelry store in the town where he lives, Argosy, a family-owned used book and historic print store in Manhattan and another independent bookstore. He explained, “I always try to help the small businesses at Christmastime.”

For further information, please contact:
Amanda Harrison
The Store WPP