Traditional retail outlets are in trouble, and it’s undeniable that the Amazon effect is a big reason why. As I recently noted in a MarketWatch article, “I don’t know whether retailers just don’t want to admit it publicly, or whether they have not yet fully admitted it to themselves, but the Amazon effect is absolutely a part of these weak first-quarter results.”
Weak results have been seen across the board, but particularly hard hit are department stores. Nordstrom recently reported an alarming 64 percent drop in net earnings for the first quarter of its fiscal year. And according to a report quoted in Barron’s, Amazon is set to overtake Macy’s as the number-one apparel retailer in the United States by 2017. Meanwhile, Macy’s reported that its Q1 sales had dropped by 7.4 percent.
So, what can retailers do to combat this? Below are three strategies that, if implemented, could help retailers survive and even thrive in the modern retail world.
1) Retailers must improve their price perception without eroding profits. Abundant choices and a high level of transparency due to the likes of Amazon have led to constant downward pricing pressure. Sophisticated analytics can help retailers determine where they need to “win” the price perception game and where they can better capture the value of their offering.
2) In order to successfully attract, grow and retain customers, retailers need to better segment customers based on defined value metrics and then target individual segments with personalized offers. The past few years have shown that brand loyalty is waning amongst consumers and an ever-growing list of alternative products and prices at customers’ fingertips is continually eroding the chance of a repeat purchase. The old response, doubling down on broad-based promotions, is no longer working to drive sales and is devastating retailer margins. Retailers must take a more targeted, customer-centric approach in order to return to organic revenue growth.
3) In an omnichannel world where hyper-informed consumers can get any product they want in a matter of hours (or a day or two), retailers need to determine where current inventory and assortment planning capabilities do not adequately meet these expectations. More sophisticated demand forecasting and inventory allocation capabilities can inform better decisions based on local demand patterns to ensure retailers consistently satisfy consumers’ heightened expectations for localized assortments and rapid fulfillment.
For the foreseeable future, it appears that e-commerce will continue to take a bigger bite of the retail apple. In 2015, Amazon accounted for $0.51 of every $1 of growth in U.S. e-commerce. Furthermore, the Seattle-based conglomerate received 24 percent of total retail growth in the United States.
Yet, retailers can still stake their flag in the e-commerce world. By implementing the above strategies, reports of declining profits and revenue growth could become a thing of the past.
While the Amazon effect is certainly intimidating, it is not impossible to overcome. But the effort will require time, resources and some sound Revenue Management strategies.