It’s time to get back to basics.
When it comes to improving retail performance or looking to turn around a business, it may be worthwhile to not immediately turn to the next big, shiny tech tool (sorry, generative AI). Instead, says Michael Appel, managing director at Getzler Henrich & Associates, retailers and brands need to focus on the basics.
That means having a keen understanding of the customer’s mindset and what they expect from a shopping experience. And you need great product.
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“Everyone is talking about generative AI and other technologies, but if you don’t have the goods, you’re not going to be able to be successful,” noted Appel, who is a veteran retail strategist and turnaround expert. “You can dance around it as much as you want, but that’s the foundation. And I do think that there are companies that understand the basics of retailing. Look at Lululemon, for example. They’re knocking it out of the park. They just announced a new bodywear line. They’re continually innovating, and they’ve got fabulous fabrications. They’re really doing it right. And you go into their stores, and they’re helpful, knowledgeable. They’ve got their act together.”
Good product and associates that love the product. Is it that simple?
“Yes, exactly,” Appel said. “It’s like a virtuous cycle. You’ve got customers who love the product, staff who loves the product, and they’re helpful. And they’re continually innovating in terms of the product and looking at new categories.”
Once these elements are in place, retailers and brands can then look at product line extensions and other approaches — if it is done from the core and does not confuse the customer.
But why is this important now? Appel said retailers need to get the basics down as they face a host of challenges heading into the all-important fourth quarter holiday shopping season. And this includes challenges that will likely spill over into 2024.
Appel said there are several “macro challenges” that could negatively impact business. These include inflation, workforce shortages, two major wars, and ongoing disruptions to the supply chain — not to mention high interest rates and a waning housing market.
And while there is still a certain degree of inflation, Appel said it is moderating. “But prices have gone up over the last couple of years, so that impacts sales,” he explained. “You’ve got higher interest rates that will be with us for a while. The Fed may not increase at this point, but you’re going to get used to the 7 to 8 percent mortgage. That’s what it’s going to be. That’s stocking up dollars. And then you’ve got the student loan repayments, which are just starting, and we don’t know how that is going to impact spending.”
Regarding student loan repayments, Appel said if consumers are paying $700 a month on loans, it could mean they forego buying higher-priced items such as furniture. “And then the other question is too, are people going to continue to want to spend on experiences, travel and dining out?” he said.
“And now you’ve got the Middle Eastern war, which is anxiety-provoking,” Appel said. “There is also the media, which is constantly harping about how terrible things are. Yet, at the same time, employment is good and wages are increasing. Still, you’re already seeing that there’s going to be some kind of slowdown because recent luxury reports were not exciting.”
Appel said as growth moderates, high-income households will fare well. But lower-income consumers will pull back on spending. He expects this dynamic to pressure the retail market. This will create greater competitive pressure and a dog fight for market share. Therefore, Appel reiterates the need for “getting back to the basics of retailing.”
Regarding estimates for holiday sales to rise 4 or 5 percent this season, Appel said that gain is bolstered by higher prices and inflation. “And when you have inflation as a retailer, you must plan your business in dollars so that you don’t buy too many units. Because if you go back and you look at your units from last year and your prices are up, you don’t need as many units to make your sales plan. That’s basic arithmetic that people sort of forget.”
Appel said this is the time to be analytical and objective about inventory plans. “And I think a lot of companies have done that,” he said. “They brought their inventories down from the craziness. But you know what retailers are like. They’re wildly optimistic or terribly pessimistic. And so, they swing like a pendulum. It doesn’t change.”
Retailers and brands need to look at the data. “But they still have to make an educated bet,” Appel said. “They’re looking at the past for context. You need to do that. But you also must look ahead, and you have to say, ‘Well, what’s the world going to be like in six months or a year? And how is that going to affect my customer? And then what does that mean in terms of how I must run my business?’”
These are educated bets that merchants need to take. “But when you’re in these types of anxiety-producing, slower growth times, I strongly feel that the assortments have to be even more exciting than ever because you got to give the customer a reason to open her wallet,” Appel explained. “And when times are tough, especially if you’re a lower income consumer and you only have X number of dollars to spend, you still want to spend. Let’s face it, fashion is therapy, and the world is tough, and consumers will spend.”
Of course, consumers will be more cautious in their spending. Which means retailers need to have enough fashion and assortments to generate excitement. “And you also have to make sure that you’re communicating the value proposition,” Appel said. “You also must invest in your store associates. They’re the ambassadors of your brand. As we already noted, they bring knowledge and excitement to the equation. They are part of the in-store experience and are key to succeeding by focusing on the basics of retailing.”
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