December 9, 2016
Laying your Foundation for Retail Digital Warfare
I have 800 – 1200 stores throughout the world. Comparable stores sales have been decreasing year on year (1). Brick and mortar continue to lose sales (2). Customers with their mobile phones are turning more to shop from the convenience of their couch, as witnessed during this Black Friday through Cyber Monday(3) (Black Friday and Cyber Monday online sales saw a growth of 21.6% and 12.1% year over year (4)).
I realize that this is systemic change in landscape and not just a one-off phenomenon(5). At a macro level overall retail trend for the last 10 months shows a moderate 2.5% growth while non-store retailers have grown at 12.5%(6). Smaller and mid-market retailers have increased their online sales by 13.5% and 15% respectively in 2015(16). Retail marketplaces are enabling smaller retailers and individual brand manufacturers to reach to consumers directly as well(7).
How do I, a multi-billion dollar retailer compete in this market?
Here are some of the strategies I am executing:
- Revising the portfolio to stick with more profitable products (8).
- Offering ‘buy online & pick up in store to compete with non-store retailers (9); to provide a hybrid experience focussed on same day service which would be more expensive for a non-store retailer to provide
- Following an off-price business model, 20%-60% below department and specialty store regular retail prices on comparable merchandise, every day (10)
- Going through financial restructuring to get back to profitability (11).
- Investing heavily in e-commerce(12).
- Acquiring startups which will help me compete better( 17).
2016 global spending for enterprise software was forecasted at $367.5 billion, with growth of 7.0% over 2015 (13) and retail IT Spend in 2016 is estimated to be about $182 billion (14) which accounts for about 6% of the 2016 Retail sales or 11% of 2016 online & web-influenced sales(15). Interestingly as you go through pages of the earnings release statements and other press releases, you can’t find much insight (at least many publicly issued statement) regarding digital strategy and digital investments by the mega retailers. When you are fighting a digital battle, frequent updates regarding digital execution and an inclusion of digital strategy in the earnings call would emphasize how important digital transformation is to the overall business strategy. Digital transformation strategies, especially when you playing catch up involves commitment from the top down and by the entire team. These transformations usually run into multi-year cycles as the new process & technology gets adopted by all brands and business units. By multi-year cycle, I am not alluding to buffer for inefficiencies, more so that it is a vision which requires committed execution addressing the fundamentals while embracing technological advances.
Few of the visionary leaders have recognized the successful digital transformation starts with a strong data management practice which extends beyond forecasting, price optimization, data visualization to fundamentals of data governance, data quality and championing business transformation through the foundation of a strong data management platform.
- Gap Inc.’s comparable sales for the third quarter of the fiscal year 2016 were down 3 percent – Q3 Earnings. Macy’s reported a Q3 sales of $5.6B, (-4.6% Y/Y) with an annual sales decline of 2.5-3%. Sears: Revenue decreased Y/Y from 6.7 B to 5.2 B during Q2 2016. The decrease was primarily driven by 5.2% decline in comparable store sales during the quarter.
- “Bricks-and-mortar’s share of total sales has been in decline for the better part of two decades, though, and “will continue to lose sales until the distinction between [physical shopping and digital commerce] becomes indistinguishable,” says Bryan Gildenberg, chief knowledge officer at Kantar Retail, per the article published in NRF top 100 Retailers
- A survey from NRF
- Adobe Digital Insights said Black Friday online sales totaled at $3.34B with a 21.6% year-over-year growth rate with over a billion dollars from mobile devices. Cyber Monday Online Sales: $3.45B with a growth of 12.1%.
- Amazon reported sales 15%, versus 18% last year per Adobe and Instinet during the same days
- US Census Bureau reported in October 2016 that 10 month retail sales in 2016 went up 2.5% over last year (at was estimated at $3.9 trillion), nonstore retailers were up 12.9 % during the same time.
- 47% of the product units sold on Amazon in 2015 by the more than 2 million sellers on the Amazon Marketplace, a vast majority of whom are not ranked in the Top 500 of Internet Retailer, per the 2016 Top 500 Guide.
- JCPenney’s Comparable sales were (0.8) % for the third quarter due to increased appliance penetration, new Sephora locations, free same day pick up for online orders, a strong cadence of promotional events and our new lowest price guarantee
- Macy’s digital business reported second strong quarter, and they continue to invest in digital business growth: Macy’s view stores as complimentary to the retailer’s online presence: associates armed with iPads, Store distribution centers supplemented the “Buy Online Pickup in Store” program. JCPenney offers a similar program, so does Kohl’s, Walmart and Target. Target’s digital channel sales grew 26%, per Q3 earnings report.
- Ross stores’ off-price model has resonated very well with customers, and we’ve seen year after year of higher comp sales, margins, and earnings growth as a result. TJX reported a comparable sales store growth of 5% year over year.
- “We are absolutely focused on restoring Sears Holdings to profitability,” Sears spokesman Howard Riefs told Business Insider in November.
- Walmart announced on Oct 2015 that they were pouring $2 billion into e-commerce in the next two years, Wal-Mart to Pour $2 Billion into E-Commerce Over Next Two Years
- Gartner Forecast: Enterprise Software Markets, Worldwide, 2013-2020, 2Q16 Update, June 2016
- Gartner Forecast: Enterprise IT Spending for the Retail Market, Worldwide, 2014-2020, 2Q16 Update, Published: 25 July 2016
- Forrester Research’s Mastering the Art of OmniChannel Retailing by Brendan Witcher, November 2016
- An analysis pointed out in the IR Top 500 Guide states that if you take out Amazon ( the #1 InternetRetailer with 16.3% online growth), Sears, Lands’ End, Barnes and Nobles and Staples, (who have reported a combined decline of 5.3% in 2015) the rest of 495 increased their online sales by 13.5% in 2015. Additionally, it is the IRs 201-400 (which bring in less than 150 million in revenue) which have seen 15% online sales growth.
- Walmart acquires e-commerce start up Jet http://fortune.com/2016/09/20/walmart-acquisition-jetcom/