RETAIL HALF TIME REPORT
JULY 2023
2023 JULY ISSUE
Written by: Terri Fisher
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From the Desk of the Publisher
This is the second submission from our retail specialist, Terri, and I think that for all those points as raised have all been right on the spot on where our challenges are.
Having said that, I like the positive sign that Terri has delivered us. We have to keep our fingers cross and expect for a better Holiday season. We have a saying that every cloud, there is a silver lining. And with the improvements we have noticed, we are looking for a better ending of a retail full time.
It is halfway through 2023 already and how is the retail business doing and what are the trends we have learned from the first half?
Economic Challenges:
We all know about inflation and the cascading effects on all kinds of businesses. For example, discount grocery stores are thriving as food inflation increases. Where someone may usually do all their grocery shopping at Whole Foods or Publix, during inflationary times, they may not change completely but instead spend 80% of their grocery budget where they always shop and spend 20% at a less expensive (real or perceived) grocery store such as Aldi’s. Effectively, trading down. Can Aldi’s maintain this new business opportunity or is it a short-term phenomenon? This is clearly an opportunity for Aldi’s to gain market share while times are tough financially.
Mission-Driven Shopping:
Is mission-driven shopping making a comeback? Again, due to economic restraints, customers are still making fewer visits to retail stores yet spending more “dwell time” in them. This started with COVID and then went back to “normal”. Then came gas price increases. Time in each store increased while visits decreased. Then back to “normal” when gas prices came back to reasonable numbers. Then came inflation and customers again cut back on visits and increased time in each store. This has been consistently happening with shoppers being very flexible depending on the environment. Not all shoppers are just looking for convenience during these times. They have been very flexible the first half of 2023. This consumer values physical retail and flexes based on what is happening in the world.
In order to take advantage of this, retailers must communicate the benefits of shopping in their store very clearly. For example, “buy now or it may not be there at a later date” is a great message for months like October.
Brick and Mortar Still Alive and Kicking:
Customers still want to touch and feel product and engage with staff. They have an appreciation for the different channels and their advantages and disadvantages. Many online retailers are also starting to charge for returns which will potentially push more consumers into retail stores.
Where we live and work has changed over the past few years. Despite some fluctuations, nationwide office visits are still about 60% of pre-pandemic levels. For example, a New York City deli may now use Mondays for deliveries as many people work less days in the office and choose to work Mondays from home.
Tuesdays, Wednesdays, and Thursdays it is business as usual. Fridays may again be delivery days.
In Suburbia, where so many people have relocated and are working from home, they may drive 5 minutes to a coffee shop just to get out of the house to clear their heads. Coffee chains are seeing a rise in early afternoon visits, mostly in households with no kids. They moved to the suburbs for better housing values, less commute time and a better quality of life.
Companies like Planet Fitness have seen increased action and are figuring out how to incentivize 11 am visits vs. the old 7-9:00am rush as well as the 5-7:00pm rush. This allows for a better overall experience for everyone with less wait times for machines, etc.
Home Improvement:
The COVID pandemic definitely resulted in a pull-forward on demand for home goods and home improvement products. People moved to new homes, they also set out to make their current homes work better for their new needs working from home. Obviously, this can’t last forever, and this will impact the next few years when demand has been down. Even Lowe’s and Home Depot have seen declines and we all know what happened to Bed Bath & Beyond (bankruptcy). What we’ve learned from the demise of BB&B is that testing is critical to trying to position yourself for the future. There is a need to move fast based on these tests. BB&B made an aggressive change which didn’t work but then had no time to change again.
Retailers should always be pushing forward new ideas. Keep it simple and stay ahead of the curve with testing new concepts.
The Changing World of Malls:
Here I will address mainly the A and B higher tier malls vs the C and D malls who I still believe should be shuttered or turned into housing for first responders!
There has been more diversity on who is in each mall, with many filling spaces with fitness centers, medical offices, and more. Long-term, no underlying factors have changed. The opportunities lie in pop-ups, and all kinds of experiential shops. The recovery of malls mostly continues. Anything that adds extra shopping time in the malls, such as more restaurants and movie theatres extends the shopping experience. Visits are still down. Are we being too optimistic?
Off-Price Trending Up as Economy Trends Down:
Visits to off-price apparel stores are up vs regular apparel stores. Some off-pricers like TJ Maxx and Marshalls ramped up their e-commerce businesses during the pandemic. Some, like Burlington resisted the urge to do ecommerce having dropped it a few years earlier. Burlington has been “killing it” since recovery from the pandemic. Why? They stayed true to who they are. All strategies should revolve around who you are in order to succeed in these difficult times. They are getting fewer visits but longer visits. Mission driven shopping.
Location Flexibility:
Retailers need to have a flexibility of their locations and formats within those locations. Some high performers are doing just that. Lululemon has stores within very close proximity to other Lululemon stores but have developed multi-formats meeting different purposes and needs. For example, one store may offer yoga and a juice bar, one may offer products only, and another could offer both. All based on the customer in that particular area. Lululemon is doing extremely well, during the first quarter of 2023 their net revenue rose by 24% to $2 billion vs the first quarter of 2022. “Our results reflect the strength of our guest relationships, our innovative products and how our brand resonates across the globe,” CEO Calvin McDonald said in a statement.
What to Expect from Back-to-School and Holiday:
Outlet malls had some big drops in visits during the gas crisis as people did not want to drive far from home. But then they had their best week all year during Memorial Day! Distance was not as much of an issue as the price of gas came down to somewhat normal levels.
For Holiday shopping, sales will be early again (October and early November) which is now the new normal. If there is more hope on an economic recovery then we could see a very powerful Holiday shopping season. This is very economy-dependent. Also, inventories are more in line this year vs. supply chain issues last year. Could be a big opportunity for Christmas. On the other hand, Black Friday is not what it used to be and never will be again. It is still a day of massive sales increases just not as high as before. Overall, we will start to see smaller spikes vs gigantic peaks in sales. It is a difficult environment for sure!
Are you ready for the second half of the year and the make or break, all-important, fourth quarter holiday shopping season?
Warm regards,
Terri Fisher
Retail Ambassador
Special thanks to Ethan Chernofsky from Placer.ai for his inspiration on writing this article and supplying me with data with which to draw my conclusions.
You are welcome to watch the video and you can have the full presentation from the organizer.