Are retailers achieving a significant boost from buy online, pick-up in stores options? How important is true cross-channel shopping for retailers? How can merchants best optimize cross-channel integration on websites?
I have to confess I am surprised the power and the potential of cross-channel has not been realized and implemented more quickly. But it will happen, and it will be big. As a noted futurist has said, we routinely overestimate short-term change and underestimate long-term change. But “never mistake a clear view for a short distance.”http://www.retailwire.com/discussions/sngl_discussion.cfm/13922
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How much of the overall retail business will online eventually become? Are there opportunities for more pure-play Amazon.com-like success stories to emerge? What will it take to make that happen?
Here’s the key quote: “The biggest mistake retailers make is that they see their online business as a separate business from their offline business. They don’t apply the same efforts or energy.“As for predictions, here were mine from the same time period:Will online sales grow to the sky? No, they’ll plateau eventually. E-commerce sales will continue to grow at a double-digit pace for the rest of the decade, reaching 4.3% of total sales by 2010 (Global Insight). But the rate of year-over-year growth will likely decline from 24% last year (Jupiter Research), to 20% this year (Cowen & Co.), to below 10% by 2011. The reason? The industry is maturing; most of the people who are going to spend money online are already logged on and shopping. There are no new fish coming into the pond (or, at least, rates of population and consumer growth are declining).But the influence of the Web on retail sales will continue to grow this year, next year, and every year beyond. That is because use of the Internet for pre-shopping, comparison shopping, browsing and choosing a store destination is growing more important, not less, even (or especially) if the purchase is not completed online. Therefore, even though online sales will eventually plateau, retailers need to integrate their in-store and online environments to drive traffic, provide consistent service and customer experience, get a unified view of markets and merchandise, and to increase sales, profits, market share and stock price. http://www.retailwire.com/discussions/sngl_discussion.cfm/13858
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The Sky Has Fallen: Now What?
Superstrategist Ed Yardeni is quoted by James Pethokoukis in US News & World Report on what could go right in 2009: (1) Lower mortgage rates fuel a refinancing boom which lifts consumer spending. (2) Home sales increase and home prices stabilize. (3) Easier credit conditions increase auto sales. (4) The drop in fuel prices also boosts consumer spending; the unemployment rate peaks below 8%. (5) Massive spending on infrastructure by the US government offsets weakness in such spending by state and local governments. (6) The money supply grows rapidly. (7) Stimulative monetary and fiscal policies overseas revive global economic activity and US exports. (8) Depleted inventories and improving sales trigger a big jump in industrial production. (9) Credit quality spreads narrow significantly and rapidly as investors seek better returns than available in Treasury securities. (10) Stock prices rise 30%-40% in anticipation of better earnings during the second half of 2009 and in 2010. (11) Inflation remains subdued, and productivity pops.My approach is “might as well be optimistic.” For more reasons the economic news (including consumer spending) is not all bleak, see the current issue of Growth Strategies (ask me to send it by email), or see my soon-to-be-posted piece onwww.newgeography.com.
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What do you think of the potential for getting consumers involved in product development via the internet? Is this only an option for certain categories? Do you think that such efforts will be more about public relations than actual product development?
I recommend an article in the current issue of McKinsey Quarterly, “The Next Step In Open Innovation.” I provide a synopsis in the July issue of my newsletter Growth Strategies (contact me for a copy). The authors write that increasing numbers of organizations are now approaching innovation as a convergence of like-minded parties, or distributed co-creation, to use its technical name. LEGO, for instance, famously invited customers to suggest new models interactively and then financially rewarded the people whose ideas proved marketable. Threadless is also cited as selling merchandise online and in-store (hey, an integrated retailer!) that is designed interactively with the company’s customer base. Of course what facilitates this new approach to innovation is the rise of the Web as a participatory platform. Other examples of co-creation are cited. One of them is participatory marketing, which encourages customers to help create marketing campaigns. Approached in the right way, this is also an opportunity to start co-creating products with them. Last year, for instance, Peugeot invited people to submit car designs online and attracted four million page views on its site. The company built a demonstration model of the winning design to exhibit at automotive marketing events and partnered with software developers to get it included in a video game. Even business-to-business companies are starting to co-create with customers. http://retailwire.com/Discussions/Sngl_Discussion.cfm/13132
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Do you agree with the premise that the media have contributed to the economy’s downturn by “terrorizing” consumers? If so, what do you think it will take to get beyond the negativity? How can marketers and retailers help turn the tide?
There is a mismatch between Americans’ assessment of their own economic, financial and social situations (good, with good prospects), and that of the country or economy in general (bad, and likely to get worse). And as we have been pointing out during all of this time, both cannot be true for a majority of people. But has the mismatch between perception and reality ever been greater than today?[According to the latest Harris Poll, 94% of Americans are satisfied with their lives (56% very satisfied), and 62% expect their personal situation to improve in the next 5 years. Yet 68% believe the nation is “on the wrong track.”]One wonders about the accuracy of polls that show some significant percentage of Americans believing that the economy is in recession: economic growth in the third quarter was 4.9% (combined second and third quarters were up 8.7% on an annualized basis); or that the next generation will experience a declining standard of living (two-thirds of Americans have incomes higher than their own parents, according to the Economic Mobility Project). How do such misperceptions persist in the face of evidence to the contrary? Our long-time readers know at least three explanations:
The good news is that the bad news is wrong; the bad news is that the good news often gets overlooked.The case for no recession in 2008:
- We are certainly not in recession now; as stated above, the increase in real GDP in the third quarter was revised upward to 4.9% by the government’s Bureau of Economic Analysis, which cited exports, personal consumption expenditures, private inventory investment, equipment and software, federal government spending, nonresidential structures and state and local government spending as positive contributing factors. At nearly 5%, third quarter growth was the best in 4 years and second highest in 7 years.
- Consumers are not “tapped out.” Employment (and employment opportunities) and household income are still at high levels. Chain-store sales are up 2.5% from a year ago; “Black Friday” and “Cyber Monday” sales were both up substantially from a year ago, setting new records. Housing values have declined marginally, but the “negative wealth effect” on consumer spending is just not that pronounced, if it exists at all.
- Sub-prime debt is not a widespread or systemic problem; it comprises only about 1.4% of global equity markets and affects only a small percentage of domestic borrowers. Furthermore, the Fed has committed to “act as needed” to shore up the economy; to stay “flexible and pragmatic” in dealing with the housing situation and credit crunch; and to not let fear of “moral hazard” deter policymakers from doing what is necessary.
- The price of oil was unsustainable at $100; it is now dropping and will continue to do so through 2008, bottoming out as low as $50 or $60. According to Fadel Gheit of Oppenheimer & Co., there is no oil shortage. Global inventories are over 4 billion barrels, the equivalent of all the oil produced in the Middle East for six months. Buyers are having no trouble finding sellers. The fear premium is totally exaggerated, not justified by logic or market fundamentals.
- The Federal Reserve predicts low inflation and continued economic growth in 2008; it will not raise, and might lower, interest rates.
- Taxes will not be raised, and may be cut (it’s an election year!).
Of course recessions have not been outlawed; we seem to get a short, shallow one every ten years to correct the unavoidable misallocations of economic and financial resources. But due to the amazing resiliency and productivity of the modern American economy; its abundance of entrepreneurs, innovators, inventors, risk-takers and creators; its public and private equity markets; its rule of law–in other words, capitalism–we will always return to the path of growth. The threats of disruption to this process of “creative destruction” are high taxes, overregulation, instability and protectionism.
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How common is the “curse of knowledge” phenomena in business organizations?
How common is the “curse of knowledge” phenomena in business organizations? Very. It still surprises me, though, because really intelligent people realize the more they know, the more they don’t know. (People made fun of Secretary Rumsfeld when he talked about “known unknowns, unknown unknowns” and the like, but he was right.)
Have I encountered the curse of knowledge in my professional career? More often than not. (But then, there’s also the opposite problem: analysis paralysis.)
What specific steps to take to avoid falling back on conventional solutions? I recommend performing a “trend audit” to see if the organization is aligning with where consumers, markets, employees, technology, etc. are going.
Is there is a need to bring in outside “zero-gravity thinkers” to stimulate outside-the-box thinking? Yes. As described in the article, we get our clients to question their basic assumptions, always a useful exercise (even if they’re confirmed!).
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Is now a good time to buy retail stocks?
The S&P 500 retailing index is down nearly 10% from its high in May, and the S&P apparel index is down 9.5% year to date. That spells a buying opportunity to me. As contrary investor James Stewart writes in Smart Money, one thing you can count on is that sooner or later, Americans will be spending again. (In truth, of course, they never really stop.)
The key to investing in retail is not looking for the next category killer (all the categories have already been killed). The real opportunity is finding companies that have a narrow focus, serving rapidly growing demographic or lifestyle niches.
Among these are the obvious, such as Hispanics, seniors, the affluent, teens, empty nesters, working moms, etc., and the not so obvious, such as yoga enthusiasts, surf-wear enthusiasts, and those with a need for tech-friendly apparel, to name just a few!
Happy stock hunting,
Dr. Roger
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NOVEMBER 2006
Most retailers’ revenues and profits come from selling many of the same brands offered by their competitors. But in order to survive in the dramatically changing marketplace of the future, retailers need to become brands themselves. This is not a new message — I have been exhorting retailers to brand themselves for years — but in a world of information overload, product overchoice and acute time-poorness, the importance of differentiating the retail brand cannot be overemphasized.
Positive brand equity is a major plus for any retailer today. But brand equity comes from customers’ experiences, not controlled communications such as names, logos, advertising or promotions (that’s why I’m skeptical of the current buzz surrounding “customer engagement”). Customers’ experiences, in turn, come from all interactions across all channels.
Brand your retail identity, and make every customer interaction an opportunity to reinforce and enhance that identity.
Until next time,
Dr. Roger
Filed Under Ask Dr. Roger
Will online sales grow to the sky?
No, they’ll plateau eventually. E-commerce sales will continue to grow at a double-digit pace for the rest of the decade, reaching 4.3% of total sales by 2010 (Global Insight). But the rate of year-over-year growth will likely decline from 24% last year (Jupiter Research), to 20% this year (Cowen & Co.), to below 10% by 2011.
The reason? The industry is maturing; most of the people who are going to spend money online are already logged on and shopping. There are no new fish coming into the pond (or, at least, rates of population and consumer growth are declining).
But the influence of the Web on retail sales will continue to grow this year, next year, and every year beyond. That is because use of the Internet for pre-shopping, comparison shopping, browsing and choosing a store destination is growing more important, not less, even (or especially) if the purchase is not completed online.
Therefore, even though online sales will eventually plateau, retailers need to integrate their in-store and online environments to drive traffic, provide consistent service and customer experience, get a unified view of markets and merchandise, and to increase sales, profits, market share and stock price.
Filed Under Ask Dr. Roger
What’s in store for 2007?
■ Another great year for the economy, consumers, and consumer spending.
■ Another great year for high-end, luxury merchants appealing to affluent and
affluent-minded market segments.
■ Another great growth year for e-tailing
(to perhaps 3% of total sales?), but not necessarily for pure-play retailing web sites.
■ Another great year for department stores.
■ Another tough year for specialty retail.
■ Another year of retailers “in play”
(see Business Strategies on page 8).
■ Another great year for integrated retailers, those who are making the efforts — and the investments — to combine their in-store and online operations to enhance traffic, customer satisfaction, sales, profits and share price. Questions marks for everyone else.
Contact me for a customized forecast!
Dr. Roger
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