In 2019 and 2020, it was fairly common to hear retailers refer to a focus on retail basics or fundamentals in their go forward strategies. This was the precursor to hearing about upcoming optimization initiatives within merchandising teams that would ultimately impact assortment selection, inventory investment and vendor relationships.
Flash forward to 2021 in a retail environment that is longing to be post pandemic… a state desired by retailers, brands and consumers… and the question is, “What about the fundamentals?” Are the retail basics still relevant? What should I prepare for post pandemic?
Are retail basics still relevant?
Right product, right place, right time, right price will forever be the fundamentals of retail. This concept is evergreen, however, the premise to the fundamentals of retail is getting the assortment/store/site right for the consumer. “The customer is always right” saying that is repeated in service and operations conversations is more like, “The customer defines right” when it comes to retail fundamentals. Because the customer has changed, the fundamentals must evolve.
How have they evolved post pandemic?
There are tons of research studies available on how shopping patterns have been impacted and predictions related to the trajectory of retail post pandemic. It’s so much that it can be challenging to sift through to find actionable information. Here are a few that I found most insightful.
Right Time Evolution
Insight: “The recovery is likely to be uneven, especially in the US.”
Tip: To achieve “right time,” retailers have been working on localization strategies for decades related to seasonality. These seasonal/regional localization strategies impacted the timing of assortment, inventory, merchandising and marketing strategies. While that is still a critical part of tactic timing, there is an additional dimension post pandemic. Localization strategies related to timing will need to evolve to personalization strategies. We often use these terms as synonyms; however, localization strategies focus on geographic differences while personalization strategies are tailored to the customer. Consumers will move through “recovery” at different times based upon geographical, generational, and economic differences. As a result, when we connect with customers will need to consider these differences.
Right Price Evolution
Insight: “More than 50 percent of US consumers expect to spend extra by splurging or treating themselves, with higher-income millennials intending to spend the most.”
Insight: Manufacturing costs increased the most during COVID-19 and are expected to stay high in 2021.
Insight: Travel is the number 1 thing that people are looking forward to.
Tip: Costs are going up and retailers and brands will be working to figure out the profitability, and ultimately how much price inflation will be passed on to consumers. This is never an easy decision and elasticity modeling can only account for so much. So, what do consumer insights say? The bright side is that consumers are looking to spend and treat themselves, and they have positive economic outlooks. Both of these indicate that demand may not be as impacted from targeted cost increases. However, a big watch out is that consumer spending is likely to shift outside of retail. With travel and dine-in restaurant spending significantly impacted in 2020, spending shifted to retail. Now however, consumers are looking forward to life outside their homes. This will likely result in some demand impact. My advice is to focus on keeping key value indicator pricing consistent, as well as basic essentials to ensure value is still offered.
Source: Gartner, Plan for Consumers’ Return to Public Life, April 2021
Right Place Evolution
Insight: “When we think about channel differences, that historically, in the past, was a customer difference. That’s no longer the case. So, there is a blending that’s occurring, as well.”
Tip: We are now at the point where “Omni Channel” is not a strategy; it is an expectation of major retailers. Consumers can no longer be defined by their channel choice. Consumers are looking for consistent retail experiences across all shopping channels. Instead of thinking about your consumer needs based upon channel choice, build strategies based upon their shopping mindset. Is your consumer completing a task, looking for inspiration, doing product research, looking for social engagement, or simply shopping for fun? Don’t focus on your channels independently; instead, ensure your brand connects with your customers on every shopping trip on every channel.
Source: P&G Earnings call, Jon Moeller, P&G’s chief operating officer
Right Product Evolution
Insight: “More than 75% of Americans have tried a new shopping behavior”
Insight: “Convenience and value have been the main drivers of shopping behavior change; however, quality and seeking brands that match with their values also inspire change…”
Tip: Consumer loyalty and spending are up for grabs and have been up for grabs for over a year. Now more than ever, consumers are open to trying new products. Convenience is an expectation from consumers as is value. Focus on delivering quality and creating a brand identity that has purpose in order to offer a reason for consumers to pick your store, site, or brand. It goes without saying that retailers will be looking for exclusive relationships and continued private brand expansion. However, me too or generic offerings should not be the focus. Instead, private and exclusive brands should be carving out their own white space or value add to truly convert customers and earn loyalty.
While the fundamentals of retail are still alive and well, the shift in how they are defined and should be actioned is significant. The most impactful thing a retailer or brand can do right now is learn the customer. Find out how your customer defines “right” related to the retail fundamentals, but also establish a flow of insights that can continue to monitor and identify future shopping behavior shifts. This can be anything from basket analysis to ongoing quantitative research. The method isn’t the critical part; it’s the continuous flow of data.
Need help making your data actionable as retail basics and fundamentals evolve? Let’s connect.
Before joining Callahan to lead retail strategy, Kristin was senior director of merchandising at PetSmart and director of planning and distribution at PayLess ShoeSource. Her previous experience informs her broad range of retail expertise: buying, financial planning, in-store customer experience, pricing, inventory management, shelf allocation, space optimization and more. Kristin now helps brands with retail strategy creation, assortment building, merchandising, pricing and promotions across brick and mortar and e-commerce channels.