Want a Jolly Christmas? These 5 Things Must ChangeNovember 6, 2014
CNBC | November 6, 2014 – Did retailers learn their lesson last Christmas, or are they gearing up for another season of agony?
Last year, messy execution led to late deliveries, missed sales and hyper-intense promotions. To avoid a repeat, the roadmap for Christmas 2014 will need to look decidedly different, especially if retailers hope to achieve the 4 percent-plus sales growth some are predicting.
Months ago, retailers said they were employing a number of strategies to prevent themselves from being haunted by the Ghost of Christmas Past, including keeping inventories lean and having a better online strategy. But “40 percent off” signs are already hanging in many store windows.
Here are five ways this holiday season is—or isn’t—shaping up to be different than last year.
Soothing delivery headaches
It was bound to happen. With online sales growth far outpacing that of overall retail, it was only a matter of time until a logistical nightmare occurred. In 2013, retailers faced a triple whammy. Not only were carrier networks overflowed with record deliveries, but a series of snowstorms and 11th-hour delivery promises from retailers caused many packages to arrive after Christmas.
Facing another anticipated record for holiday deliveries, UPS and FedEx are taking strides to prevent delays. For one, they’re ramping up hiring to handle increased capacity; for another, they’re warning retailers against making late-in-the-season delivery promises that bog down their networks.
Research from Shop.org indicates retailers are heeding the warning. Its survey of 55 online retailers and found that nearly eight in 10 are planning earlier deadlines. But it remains to be seen whether they’ll stand their ground as competition intensifies.
“It’s probably the number one thing I’m most curious to see,” said Kevon Hills, vice president of research at StellaService, which tracks customer service. “I think we could see people get more aggressive to capture more revenue a few days before Christmas.”
One factor that could alleviate some of the bottleneck is the rollout of “buy online, pick up in store” by a slew of retailers, including Macy’s and Home Depot. According to JLL Retail Group, which surveyed 800 retailers, nearly 40 percent of respondents will offer this option—which could significantly free up the carrier network.
Hills added that said same-day delivery could help deliveries arrive on time. It’s being tested by such retailers as Target, Wal-Mart and Amazon, and is offered by companies such as Deliv, which crowdsources delivery workers for malls and individual retailers.
Beyond that, Hills predicted stores will utilize their own employees to make deliveries, especially as a last resort closer to Christmas.
Cleaner inventories = fewer promotions?
More product, more problems. At least that was the case last year, when a glut of inventory caused retailers to dramatically mark down their prices.
So far, inventories are much more in check. Although the majority of retailers said they expect sales will rise this holiday, 55 percent plan to keep their inventory levels consistent with last year, according to BDO.
In theory, this should lead to fewer unplanned promotions—but it certainly doesn’t mean retailers are in the clear. With deals abounding throughout the year, including an October that experienced deeper promotions year over year, the consumer has become trained to expect a deal, said Virginia Morris, vice president of consumer insights and strategy at Daymon Worldwide.
It’s particularly concerning that retailers are having to mark down prices despite lean inventories, said Steve Barr, PwC’s U.S. retail and consumer practice leader.
Compounding the issue is a warmer-than-usual fall, which has discouraged shoppers from spending on cold-weather items such as sweaters and fleeces. This could lead to deeper-than-planned promotions to clear through inventory, and cause a domino effect throughout the store, said Edward Hertzman, founder and publisher of Sourcing Journal.
“Especially when it comes to apparel, we’re in a very vicious cycle right now,” Hertzman said.
Labor disputes at West Coast ports could further complicate things, if delays prevent retailers from receiving timely shipments of popular items they’re trying to restock.
Still, there’s some room for hope. Morris said retailers have gotten better at tapping into loyalty programs and bundled deals to craft less margin-damaging promotions. Barr added that retailers are using data so that instead of offering store-wide promotions, they can limit discounts to what isn’t selling.
Retailers such as L Brands’ Victoria’s Secret and Bath & Body Works are also expected to use better-timed promotions to capitalize on peak-selling days.
Serving customers better
As retailers try to make their stores stand out in a Web-driven world, they’re working to make the in-store experience more pleasant. As a result, retailers, from Macy’s to Wal-Mart are beefing up their staff to offer better customer service. Wal-Mart has even issued a “checkout promise,” saying that during peak hours in the weeks leading up to Christmas, it will have all registers open in its stores.
A recent study from Deloitte highlighted the difference store employees can make. Nearly half the respondents among the 5,000-plus people polled indicated that a knowledgeable sales associate increases their likelihood of making an in-store purchase. But finding associates with an abundance of information at their fingertips can be challenging.
“Customers are increasingly knowledgeable about the products they intend to buy, and they have high expectations of sales associates,” the report said.
Playing offense against weather
Not only did bad weather bollix shipments in 2013, they also discouraged shoppers from heading out to stores. PwC’s Barr said that this year retailers are better prepared to offer special online deals, and target customers over social media so they don’t lose those sales.
“That’s a big ‘if’ because nobody knows what will happen with the weather,” he said.
Blame it on the calendar
Another frequently cited excuse among retailers last year was the shorter calendar, which meant there were six fewer days between Thanksgiving and Christmas. That led to a highly promotional environment, as retailers tried to capture consumers’ dollars earlier than ever.
This year, the calendar starts to elongate, and retailers will have an additional day to persuade shoppers to spend at their stores. Still, experts are torn on what kind of impact this will have.
On one hand, Morris said that an extra day before the holiday season “is always good for retail.” But Barr said its importance hinges on whether they use it as just another day to offer deals.
“My concern for some of the retailers is that they just use that as another day to go promotional,” he said.