Retailers’ holiday sales mind-set starting to shift
For major retailers, the holiday shopping season over the past few years has really been about one thing: the clearance sale.
Led by Amazon and Walmart, retailers have slashed prices to win as much market share as possible during the critical four weeks between Thanksgiving and Christmas. By January, profit margins have all but disappeared.
The relentless discounting makes for good optics but lousy retailing. Yes, companies may have temporarily boosted sales, but over the long term, they have only conditioned consumers to expect even deeper price cuts the next time around. Instead of inspiring delight and loyalty, retailers have focused on getting the sale — literally at any cost.
This year, though, I’ve detected a subtle but unmistakable shift in this mind-set. Retailers from Walmart and Best Buy to Kohls and Lowe’s have been more willing to experiment with pricing, technology, format and service, striking partnerships with startups and even competitors to offer consumers something more than a price cut.
“Retailers have recognized (holiday discounting) has been a race to the bottom,” said Doug Stephens, founder of the Retail Prophet consulting
firm. “They are literally in an existential battle for their survival (against online players like Amazon), and price and promotion is not the answer.”
Whether this amounts to a fleeting moment or permanent change remains an open question. And retailers are no doubt still offering big discounts. But the industry is starting to innovate at a time of the year normally devoted to just clearing out inventory, Stephens said.
“Retailers realize that their backs are up against the wall,” said Pano Anthos, founder and managing director of XRC Labs retail incubator in New York. Retailers, he said, must start experimenting now to remain relevant in the future, even if it doesn’t pay off immediately.
“There is no shiny object that's going to make your sales go through the roof,” Anthos said. “This is about making small, incremental gains that you can apply everywhere.”
Earlier this month, Best Buy, the world’s largest consumer electronics retailer, said customers can shop through voice-assisted technology from Amazon’s Alexa and Google Home. Kohl’s department stores recently rolled out a partnership with Amazon that will allow consumers to return Amazon purchases at 82 Kohl’s stores near Chicago and Los Angeles.
Walmart, the nation’s largest retailer, has been trying to drive consumers to its stores by offering shoppers online discounts on 10,000 products if they pick up their purchases at the store.
Macy’s and Lowe’s are tinkering with the most valuable asset they possess: physical store space. San Francisco startup B8ta designed special stores within a store to show off tech gadgets and smart home products at Macy’s flagship store in New York and 70 Lowe’s locations across the country.
The B8ta stores are equipped with special sensors that will allow the retailers to track consumers in the store and which products they frequent and buy. Based on that data, Macy’s and Lowe’s can adjust the store’s inventory in real time to account for those consumer preferences.
Retailers normally rely on calculating sales at stores open for a year to determine performance.
But B8ta co-founder Phillip Raub said companies are now looking for ways to better measure what’s happening inside their stores.
“There’s a lot of activity happening in this space,” Raub said. “Macy’s and Lowe’s want to get in front of it.”
Sales are still important, but retailers need to learn to use their store space more efficiently and to do that, they need up-to-date information on consumer behavior as they shop, Raub said.
Walmart and Williams-Sonoma in San Francisco also recently made moves that will boost their competitive position in time for next year’s holiday shopping season.
This month, WilliamsSonoma said it will pay $112 million to buy Outward in San Jose, whose augmented reality and 3-D technology will allow consumers to digitally
visualize what products look like in the home. And Lord & Taylor department store, owned by Hudson’s Bay Co. in Canada, will open a virtual store on Walmart. com next year.
Retailers won’t just suddenly wean themselves off price cuts overnight. The reality is that they can’t afford to lose too much market share to competitors during the holiday shopping season, which can still account for one third of annual sales.
But they need to convert
that market share into real loyalty. It can’t just be a one-and-done sale.
“To me, the holiday season really is an opportunity to acquire, retain and grow customer relationships,” said Sebastian DiGrande, executive vice president of strategy and chief customer officer at Gap Inc. in San Francisco. “At the end of the day, yes, there’s the immediate short-term need to strike the right balance between sales and profit margins.
“But the most exciting thing about the period is that the customer acquisition opportunity is like no other,” he said. “And if we can give them a tremendous experience the first time around, they become a customer for life. Then I'm willing to trade off a bit on sales and profits.”