Perspectives

From The Co-Founders

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Strategic insights and commentary from The ROI Co-Founders, Pat Johnson and Dick Outcalt
Outcalt & Johnson: Retail Strategists LLC; Retail Turnaround Experts

Many times during 2020 we spoke of "disruption with a capital D!"

And now, more than a third of the way through 2021, that Disruption with a capital D shows no signs of abating. Instead, it just keeps morphing (not unlike the Covid strains that keep emerging....) 

But the disruption that we see emerging is in the attitude,  deportment, and psyche of Millennials, and the many people who are now acting like Millennials. This is showing up in the attitude of shoppers as well as employees. 

 

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  • "Consumer confidence rose sharply for a second straight month, hitting the highest level since the pandemic began," according to the Conference Board Consumer Confidence Index. 
     
  • "Economists believe that the rising consumer confidence will bolster overall economic growth as consumers, who account for 70% of economic activity, step up their spending as lockdown restrictions are eased." *

This is welcome news for many retailers, as consumer confidence has been a key leading indicator of retail sales.

However, a note of caution: retail sales are not the sole component of consumer spending.

  • "As more businesses and cities reopen, consumers will have even more places to spend the savings they've accumulated during the pandemic." **

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We often caution that many vendors are so much better trained at selling than retailers are trained at buying. In their eagerness to grow sales, and the associated promise of thereby growing profits, it is all too easy for retailers to become overbought. Instead of higher profits, they can find themselves in a cash flow crunch.

And that was in Before Times, before the pandemics. Throughout 2020 and continuing now, vendors and retailers alike have increased their online capabilities. Ordering online brought new challenges to buyers and sales reps, but also saved time and improved access. 

We have applauded these advances in technology, but...

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Here's a post-pandemic strategy that should not be missed: higher margins! 

Not the entire store, of course; you must be a merchant here. 

But think about it: many shoppers have increased savings, reduced debt, or gotten their job back. Maybe all three.

And after months of being at home, and spending on home improvement and groceries, many shoppers have pent-up demand to spend on items they have had to postpone, like for themselves. Whether that would be in a restaurant or in a specialty store, shoppers are more willing and able to spend. (And some even feel entitled to spend.)

There's a lot of optimism in the air these days. 

Covid-19 lockdown restrictions are being eased. More people are becoming vaccinated. Upbeat economic news is reported. Unemployment figures are improving. Restaurants are preparing for diners to return. And of course, given that we are now starting to compare sales results to the meltdowns of 2020, dramatic percentage growth is being reported and forecast for the balance of the year.

These positive and optimistic news reports all are very welcome. Retailers are eager to see customers return. 

But what should retailers expect? To brace yourself for the  myriad changes. 

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Turning "Big Picture" Thinking into a Strategic Inventory Buying 

About a year ago, as the pandemics were beginning to hit their stride, we introduced a framework for retailers to "rethink your merchandise mix." 

As depicted in the chart above, we cautioned that once the lockdown was over, as customers resumed shopping, retailers should be prepared for (1) reduced sales totals overall; (2) significantly re-balanced merchandise mixes, initially dominated by "basics/never-outs."

Further, we anticipated that the merchandise mix would continue to change as we re-emerge from the effects of the pandemics. And we urged retailers to take this overall construct and adapt it to their own situation; to develop their own customized strategic response.* 

Now, one year later, here's how this can become "news you can use" to quickly produce your Big Picture buying plan. Especially in the spring of 2021, some practical answers to "What to buy?" , "How much?" and "When?" are likely to be very welcome. 

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Isn't it great? Headlines and the media world seem to be in unison; the dastardly COVID pandemic is being arrested. And, if we can believe the pundits, pent-up shoppers are about to buy all sorts of products and services with abandon.

But, will they?

Given this exuberance, many retailers could be building up excess inventory. Retailers once again need to be true merchants. That is, the #1 responsibility of retail senior managements must always be to control inventory. (It's the only thing that makes money, but it soaks up cash.)

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As we approach April of 2021, the question for retailers is "Now what?" Having survived 2020, in many cases on guts and guile, we must now focus on how best to survive 2021 and beyond.

As having one foot on the dock and one foot in the boat, the future of retailers in that Red Zone is not a pretty picture. 

Granted, there is much talk about the expectation that "convenience" will become a major factor for shoppers going forward. And we don't disagree. 

  • Throughout 2020, millions of shoppers – including the older Baby Boomers – discovered the benefits of online shopping. Then, as brick-n-mortar retailers scrambled to survive, the increased availability of delivery, curbside pickup, BOPIS (Buy Online, Pickup In Store) and BORIS (Buy Online, Return In Store) has been well received by a broad swath of consumers. 

Here's the deal: We see that this has brought heightened awareness of two different retail strategies: Convenience Retailing versus Destination Retailing