NEW YORK — Sunny with clouds.
That could be the forecast for the American retail scene this year as companies emerge upbeat from a holiday season that was one of the strongest in years but continue to struggle with key issues that, in many cases, appear unsolvable. Attendees at the National Retail Federation’s 104th annual Convention and Expo, known as “Retail’s Big Show,” debated such core questions as:
• Understanding younger consumers, who want a say in product development; identify so strongly with brands that they consider themselves “fans” yet are loath to enter physical stores. Even when they shop online and pick up in-store, their favorite choice is to collect their shopping at curbside;
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• Which technologies on show will enable retailers to identify, understand and better communicate with shoppers;
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• Which retailers might go bankrupt in the months ahead, or have to close a significant number of stores;
• Cost-cutting, including in management and other personnel, in order to pay for the increasing costs associated with omnichannel initiatives and higher shipping costs;
• New markets for expansion, including China and South America;
• How to cope with the fundamental fact that America remains over-stored and over-merchandised.
Overall, optimism reigned at the convention, given the improving jobs picture and lower gas prices. The conference also ended on a high note with the NRF saying Wednesday that total holiday retail sales in November and December landed at $616.1 billion, a 4 percent increase over a year earlier, excluding gas, automobiles and restaurants. The NRF numbers were upbeat compared to the December retail sales figures from the U.S. Department of Commerce, which reported a seasonally adjusted 0.9 percent decline in sales in December versus November, to $442.9 billion, versus an expected gain. Commerce figures do not include gas. In addition, non-store holiday sales, which are an indicator of online and e-commerce sales, grew 6.8 percent to $101.9 billion, the NRF said.
Commenting on the broader economic picture, former Federal Reserve chairman Ben Bernanke told an audience on Monday that the U.S. economy is the best it’s been since before the crisis, although he’s concerned by economic challenges in Europe and Russia.
Bernanke believes higher interest rates will come and should be welcomed when they do. “The question really is, ‘Will the returns in the economy rise in a way that will allow the Fed to let interest rates rise?’ When interest rates start to rise, that’s going to be good news because it just means that the economy is stronger, can sustain it, can get back to a more normal position and that available returns are higher enough that interest rates can move up along with them.”
Although impressed with recent improvement in economic conditions, including declines in unemployment and the price of oil, he said the near-zero level of interest rates has been because of persistent weakness in the economy that dates back to the financial crisis of the late 2000s and has lingered since.
Last year, the threat of the Internet to brick-and-mortar retailing lessened as retailers increasingly adopted ways for the different channels to support each other. Of course, physical stores are now being endorsed by many pure plays, which are now opening these themselves. “The shift in channel behavior outpaces our expectations,” Diane Ellis, chief executive officer of The Limited, said in Monday’s session on optimizing omnichannel. Tom Cole, a partner at Kurt Salmon and the former Macy’s chief administrative officer, said challenges in 2015 include leaping to the next level of consumer engagement through online relevancy in the store; marketing, merchandising and communicating on a one-to-one basis with the consumer and getting feedback; expanding RFID usage; and expanding product offerings on websites so retailers carry items and categories they either never carried before or discontinued.
Regarding last year’s mobile explosion, R.B. Harrison, chief omnichannel officer of Macy’s, said, “We were surprised at the pace of adoption. Mobile is clearly the driving force of the industry.” He said the retailer’s biggest challenge is how to get technology faster and that RFID will transform the retail experience.”
Recent research from Deloitte LLP suggests that digital technologies influence 36 percent or $1.1 trillion of in-store retail sales, and that the number will likely rise to 50 percent of in-store sales by the end of the year. Speaking at a keynote session, “The New Digital Divide” on Tuesday, Alison Kenney Paul, vice chairman at Deloitte, said smartphones only accounted for 1.2 percent of total retail transactions in the U.S. last year, yet they influenced 19 percent, or $593 billion, of all sales. “Consumers who use digital devices are actually more loyal” to the retailer, Paul said.
J.C. Penney has been experiencing the mobile phenomenon. “Mobile will drive $800 million in growth in the next year,” said Mike Rodgers, chief customer officer of J.C. Penney. “Mobile and tablets account for over 50 percent of digital traffic, and conversion on mobile increased 42 percent last year. You must have a robust digital experience.”
When J.C. Penney changed its “value proposition, she [the customer] didn’t like it,” Rodgers said, referring to the failed strategy of former ceo Ron Johnson. “She voted with her wallet. Every Day Low Price doesn’t work for Penney’s. Coupons work.”
GameStop’s president Tony Bartel, who was also on the “Digital Divide” panel, sang the praises of Millennials, a generation that’s frustrated and that has confounded some retailers. “They’re more independent, more vocal and more informed than any generation that came before them,” he said. “They’re incredibly authentic, sometimes painfully so. This group says they’d take a 40 percent pay cut to work for a company they believe in. They’re highly informed consumers. They have a high standard and are raising the bar. We should embrace their challenge.”
Because Bartel sees the future of retail as customer engagement, the company created a lab, the GameStop Technology Institute, now in 32 stores. The lab features augmented reality and beacon technology used to push relevant messages to shoppers’ phones. “We allow our sales associates to engage with customers outside the stores through social media,” Bartel said. “Millennials love to create community. We ask for their input on products and the shopping experience.”
Jane Park, founder and ceo of Julep Beauty Inc., actually sees a blurring of the lines between customers and employees. “We started to create an experiential beauty brand that gave voice to real women and incorporated their voices into the products,” she said during a presentation about crowdsourcing on Monday. “We want them to feel like they’re part of the product development and marketing teams.”
Park holds “maven meetings” with consumers to get their input and gives shout-outs for suggestions on Facebook. Julep started with four treatment salons in Seattle. When consumers asked if they could buy the products, Park created the e-commerce site. “We launch 300 products a year,” she said. “Digital shelf space allows us to launch” so many new products. “We bring the launch to the community and only re-manufacture things they love.” After developing an ergonomic tool for polishing nails, Park sold 5,000 units on Kickstarter, which gave her the funding for supply chain costs. “We let customers in on the design process,” she said. “We had them sign non-disclosure agreements. The idea of testing and putting things out there before they’re ready has really worked well for us.”
Innovation still happens at a 162-year-old company with 48,000 points of distribution, insisted James Curleigh, executive vice president of Levi’s Brand at Levi Strauss & Co., during Sunday’s “Brick is the New Black: Reinventing the Brick & Mortar Experience.” With the relevancy of jeans being challenged by the ath-leisure movement, Levi’s is branching into belts, underwear, T-shirts, leather jackets and boots, Curleigh said. “We’re the world’s denim leader, but we only account for seven percent to eight percent of our customer’s closet. To increase our share, we’re doing product extensions. We launched the custom taper [jean] this week.”
To counter the commodity perception of the brand, Levi’s introduced the aspirational Lot No. 1, a $750 made-to-measure jean that allows consumers to choose the color, weight of the selvedge denim, button type, stitching style and wash. “Personalization is a buzzword,” Curleigh said. “But you can’t make individual jeans for everybody. It’s more about a service mentality and adapting the product slightly.”
Overseas markets that are primed for growth was another focus of the convention.
“China is our primary country of growth,” David Zoba, senior vice president of global real estate and store development at Gap Inc., said, speaking at a session called “À la Mode: Why the Shopping Center Industry is Thriving Around the World.” “We opened the 100th Gap store in China this year and opened Old Navy in China last year. China is a very energized market, but it’s been fraught with peril. There is no lack of money for development in China,” he said, adding that early mall projects had “too much of a luxury bias. There’s 350 malls, many of which will fail. Cotenancy is critical for the ones that will survive. There’s going to be a big shake-out, bigger than the U.S.”
Despite currency issues, Zoba still sees Japan as a good market for Gap because “Japan still has some of the highest margins in the world.” Old Navy, which launched last year in Japan, has grown to 15 units. “Mexico in 2015 and 2016 is going to be a growth area,” Zoba said, noting that Gap stores are franchised, while Old Navy units will be company-owned. “We’re seeing some very big demographic shifts in Mexico,” he said. “Young people are moving from the country to the cities.”
Taubman Centers has taken a long view in Asia. “We think in terms of 10 to 20 years,” said William Taubman, chief operating officer. “That’s given us the ability to pursue our dream in Asia.” Taubman Asia, a subsidiary of the U.S. REIT, operates Yeouido in Seoul. Projects under development in which Taubman Asia owns a stake include CityOn.Xi’an and CityOn.Zhengzhou in China and Hanam Union Square in Hanam, South Korea.
Rents are a concern for retailers everywhere. “We’re reaching a rent and occupancy amount in malls that as a percent of sales will cause the wheels to come off of some retailers,” Zoba said. “There are lots of good-but-not-great shopping centers where you can’t pay the rent and have a viable business.”
One of the many tech companies vying for the spotlight at NRF was Tulip, a new mobile platform that promises to convert the role of sales associate into relationship manager and product expert. Tulip aims to blend the digital and physical retail worlds to better forge relationships between shoppers and store employees. “We realized that associates can sell more with better information,” said Ali Asari, ceo. “Stores need to reinvent themselves.” The cloud-based platform connects with barcode scanners and mobile printers for receipts. Asari said Tulip also features templates for e-mail messages that associates can send to customers and prompt them to send the messages. “Clienteling has a big return on investment,” he said.
EBay is trying meld online and offline commerce. It unveiled in November technology at Rebecca Minkoff’s SoHo unit for a connected store with mirrored fitting room displays featuring video content and touch screens to request help from the staff. A version will open in Los Angeles this year. “We have a big pipeline of ideas for Rebecca,” said Craig Hayman, president of eBay Enterprise. “We have an entire lab dedicated to coming up with these wacky ideas. The ones that work, we harden down.”