Shot of a young woman hanging an open sign on the window of a cafe
While retail sales during the pandemic have overall been far better than anyone had anticipated, the future of the store still sits upon a knife’s edge. Stores will always play a role – they’re not going away. But if 2022 is nothing else, it will be the year that retailers define whether that store role is robust or anemic. Retailers must figure out how to adjust their stores to meet the new realities of shopper – and employee – expectations, or they simply will not succeed.
Stores have long been challenged by the rise of omnichannel. Where consumers once chose the retailer before they chose the brand, now consumers educate themselves online and choose what they’re going to buy long before they decide where to buy it from. Consumers are no longer blank slates when they walk into stores and store associates are no longer the most knowledgeable and influential people helping consumers along their purchase journey. As the role of the store has shrunk, retailers have responded by cutting labor hours, cutting training and reliance on employee skills, cutting stores and cutting the inventory carried in stores.
And now four major forces have come together to force retailers to revisit so many of these eroding decisions. Retailers don’t have to get these right immediately – they have most of 2022 to figure them out, but the clock is already ticking. Consumer behaviors shaped by the pandemic are already hardening into immovable expectations. Here are the four.
Wage pressure has had an outsized impact on retail and with over 4 million workers estimated to have left the US workforce altogether, the odds are this pressure will not ease any time soon. Much has been made over how retail, with its razor-thin margins, will have to pass these wages on to consumers in higher prices, and certainly inflation’s impact is expected to continue into 2022.
If retailers must pay more, then one critical thing they need to do in 2022 is make sure they get more in productivity out of those workers. This has meant a resurrection of training programs – actual new hire training programs instead of a “throw them to the wolves and see if they survive” mentality, and cross-training and investing in creating flexible workers who can serve multiple roles (especially important as we enter the Omicron wave where who knows who will be able to go to work that day).
Retailers are also renewing their interest in mobile devices to improve employee productivity. While this has long been something retailers have invested in, it’s always been with mixed results and frankly, less than serious dedication to make it work for employees, customers, and the bottom line. So many mobile implementations have ended up locked in drawers to let the batteries slowly drain because the actual usefulness to in-store employees was limited and not getting upgraded any time soon. That’s changing – it’s of particular importance to omnichannel where mobile is instrumental in enabling in-store picking and fulfillment.
The retailer that approaches employee productivity in 2022 with the same old pre-pandemic attitude will not only find themselves paying a premium to hire and retain employees, they’ll lose out on the productivity gains that should come with that greater wage investment – a double hit to the top and bottom line.
Digital to Physical Transition
Consumers are starting their shopping journeys online. In fact, it’s even more than that: they’re starting their relationship with retailers online, and only when they feel confident and comfortable with who the brand is and what they sell, will you see them willing to take that step of walking into the store. But they are still coming to stores. The problem is that when they get there, retailers’ stores are still built mostly around a process that assumes the customer is a blank slate when it comes to products, and has made no investment in arming store associates with any information to help them understand what consumers were doing before they stepped into the store – of all the employees in a retail enterprise, store employees are now the ones that know the least about consumers.
In 2022, retailers need to figure out how to help consumers smoothly and seamlessly transition from digital to store and back again. Store employees need access to customer information so that they don’t start the in-store part of the journey the least informed about what that shopper was doing. However, it’s not easy to find a way to do that without triggering a “creepy” response. Consumers want retailers to know them and act on that knowledge, but they also want control over that information and how it’s used. Navigating those competing expectations is nearly impossible. But retailers will have to make progress here or lose shoppers to online. This isn’t going to be easy, but you can’t win if you don’t try.
The pandemic accelerated omnichannel shopping behavior, and the retailers with the flexibility to respond across stores, warehouses, and even in-transit inventory are the ones who have made the most of the opportunity. However, all this inventory flying around everywhere has wreaked havoc on store inventory strategy.
If you send to a store a carefully planned assortment with a carefully optimized depth of inventory in that assortment and 30% of it ends up going out the back of the store in ship from store or even BOPIS (buy online pickup in store) orders, you’re immediately faced with a very difficult decision: That inventory never really got its day in the store. So, do I send more inventory to the store to replenish what was sold or do I just send more to the eCom DC so it’s positioned to meet that online demand?
Retailers also need to decide how much of a store’s floor space to give over to these fulfillment activities. The idea of dark stores (fulfillment-only locations) or gray stores (showrooms or stores evenly divided between fulfillment and cash & carry operations), or even looking at a portfolio of stores in a geography – these two stores to handle most ship-from-store fulfillment, and these other two stores to specialize in a handful of categories, like showrooms, and these other two stores serve as general, full in-store shopping locations.
There’s no self-evidently right answer, and probably there are many different ways to optimize these kinds of decisions. But retailers have avoided making these kinds of decisions because it requires capital investment – it requires revamping stores, reallocating space, and developing new kinds of allocation and replenishment strategies. They can’t avoid these decisions any longer – it’s one thing to turn a blind eye when it’s 10% of inventory that is impacted. It’s a whole other level of profitability drain when it’s 30% and growing.
Back to the idea that the role of the store has shrunk over the years as retailers abandoned large swaths of the customer purchase journey in stores, ceding them entirely to online. Well, with the rush to digital, online customer acquisition has become so competitive and expensive that even pureplay online brands are turning to store openings as their primary way to grow their customer base. Amazingly enough, stores are now a cheaper way to acquire new customers than digital channels, and some retailers are finding that customers acquired in stores have greater loyalty and a higher lifetime value.
To succeed at in-store customer acquisition, retailers need trained, motivated employees armed with as much customer information as can be obtained and used without creeping out customers. That’s a lot of moving parts in areas where retailers have not adequately demonstrated that they can make the most of those investments. But in 2022, especially as these digital brands take their greenfield approach to stores with a distinct focus on using them for customer acquisition, established brick and mortar brands are going to have to do some heavy lifting to match these new strategies and approaches – while saddled with a lot of legacy stores and technology.
The Bottom Line
Whether you’re a grocery store or a luxury brand, your stores are going to be feeling all four of these trends. Retailers need to pay attention to all four throughout 2022, even if the investments they make don’t pay off in 2022 (as many will take longer to roll out than this year – another challenge unique to stores). Stores don’t move on a dime and with all the disruption still out there, this year is the last chance retailers have to really make the investments they need to bring stores firmly into an omnichannel future. For some of these trends, there is no clear strategy or tactic – but if retailers don’t get on the learning curve now, they’ll never make progress.