Skip to contentSkip to footer
People
Early reports of holiday sales indicate that consumer spending is likely to overtake last year, but it is being propped up by record-high inflation and steep discounting from retailers looking to ease bloated inventories. As consumers dip into savings and hunt for bargains, brand loyalty has been hard to find or keep. This has made predicting consumers’ needs and wants even harder than usual.
Facing crushing inventory glut, retailers have been marking products down aggressively. This has squeezed margins and further limited real-time visibility into where inventory is placed and where it needs to be. At the same time, operating costs are going up. Continuing labor shortages have led to increased SG&A costs, while growing consumer expectations around omnichannel fulfillment and other services have resulted in higher operational costs.
All this is leading to shrinking profits, which raises fears that most retailers will be left holding coal at the end of the holiday season. After another year marred by disruptions, it is critical for retailers to look beyond the headlines and truly assess what is going on with their business if they are to get a solid footing into 2023.
Digital and online has been a significant driver of growth and enterprise value for retail over the past several years. But a lot of this growth came suddenly and at once – with the 2020 store closures being a massive catalyst – which resulted in haphazard organization, challenging economics, and suboptimal experiences from the get-go.
Many retailers are now experiencing digital performance that is below plan, and perhaps below last year’s results. As year-over-year digital growth decelerates, the lack of clear accountability and confusion in cross-functional ownership is making finding solutions even harder. This leads to an unclear path regarding planning and execution for the rest of this year and into next year.
Across the industry, there are significant opportunities to better align the organization on the role of digital and the role of stores to support customer needs and improve omni performance and profitability. Moreover, digital is not just the online transaction itself. Rather, it is the combination of mobile-enabled interactions and access that is greatly shaping how customers experience your brand, whether they are at home or in one of your stores shopping with phone in hand. Consumers are both interacting with the brand and shopping on mobile devices more than before – 51% of this year’s Thanksgiving and Cyber Monday digital sales came from phones, compared to 46% last year.
Most retailers don’t know where to start to better align the role of digital as part of overall omni profitability and execute across functions to improve digital performance. The answer is in taking an integrated approach that will quantify digital and omni performance improvement opportunities through the following steps:
Use the right metrics: Successful retailers have a new set of metrics to diagnose problems quickly. These include integrated elements across merchandising, marketing, customer experience, and fulfillment and their impact on awareness, traffic, conversion, and average order value as well as order cancellations and product returns. This is about a balance across revenues and costs. Too many retailers are allocating costs incorrectly and therefore making the wrong decisions. For example, determine to what degree you can assess the overall role of marketing spend in driving both online and in-store performance. This is also the time to review the overall health of your customer file and how customer lifetime value performance of cohorts have changed over time, including the role and impact of your loyalty program in driving customer engagement and migration. Where have the greatest changes occurred and why? What has changed due to macro factors and what is a result of internal actions or a lack of action?
Be your customer: While this may seem simple, take the time to walk in your customers’ and associates’ shoes. What is making it hard to be your customer and what makes it hard to serve your customers? How well are you able to support your customers resolve issues when they arise? Often there are many teams making decisions about separate parts of the customer journey, and the only ones who know something is not working – and why -- are your customers and your associates. Ensure that you are mining the feedback you are receiving and conduct targeted surveys to understand why customers shop or don’t shop your brand. Refresh your understanding of what matters to your various customer groups and their path to purchase to shape how to acquire and grow your most valuable customers, as well as what might help improve performance from your one-and-done shoppers.
Prioritize profitable growth: You need answers to the following questions immediately to understand where you have leaks in growth and profitability. To what degree will any ongoing digital growth come from digital-only customers versus from omnichannel customers? How do you need to change the size and shape of your marketing spend and improve search engine optimization to drive better awareness and higher quality traffic? What is the mix of volumes and value across desktop, mobile, web, and app? What mix of products and pricing will help you drive frequency and conversion while protecting margin? To what degree is your loyalty program driving a lift in performance versus just providing a first-offer discount? What incentives and economics are most aligned with lifetime value to acquire and retain the right customers? For example, as many in the industry evaluate changes to their shipping and return policies, any potential impacts should be modeled to understand tradeoffs across profitability and customer growth.
Execute on the fundamentals: The next phase of digital and omni growth will require even greater cross-functional coordination across foundational capabilities. Many issues may have already existed, but as customer expectations continue to increase, suboptimal experiences will no longer be tolerated. Areas like customer lifetime value modeling and omni-personalization will continue to be critical, but it will also be important to improve elements such as site speed, product data attributes, overall product data page health, checkout performance, and fraud management.
The world retailers operate in today has been disrupted forever. But they can focus on the one thing within their control: their own operations. And while there are numerous interconnected elements that impact any digital business, it also gives retailers plenty of options to assess and adjust to unlock growth and profit in the near term. There is still time to get the holiday season right and get a head start into the New Year.
