Empty Shelves, Delayed Shipping and Less In-Store Shopping this Holiday Season
The landscape of retail is changing rapidly, and businesses like yours are pressed with new and daunting challenges, especially during the holiday shopping season. You already know the central issues: A rapid rise in digital commerce, impediments to supply chain, quickly shifting buyer expectations, the pall of industry titans, and a variety of continuing impacts of the COVID era. To help you navigate this ever-adjusting world, Expert ENGINE held interviews with retail thought leaders in our longstanding network — like retail veteran Steve.
“There will be empty shelves at Christmastime.” So begins Steve’s set of insights on holiday shopping as 2021 rockets to a close. According to Steve’s clients and sources within major retailers, even commercial giants like Wal-Mart are deeply worried that their companies will be completely out of business during the several weeks surrounding Christmas. Shipping delays are not only dire but getting worse. At the time of Steve’s interview, Vietnam’s factories had been closed for nearly 10 weeks, and Nike quoted they were 100 million pairs of shoes behind their target. The prospect of “catching up” has already evaporated with continued supply delays guaranteed to spill into 2022 and onward. In a word, retailers’ Q3 and Q4 earning releases are all trending “downward aggressive.” Find that language dramatic? Prepare for what Steve has already deemed an early-year retail “bloodbath.”
If there’s any exception, it will be a retailer who has somehow implemented “total European production” or kept minimal exposure to Asia — both of which, Steve opines, are nearly impossible to find. Today’s supply chain catastrophe isn’t simply going to work itself out. Brands already own not only the retail goods but the raw materials — and now they expect Christmas goods to appear months later and a post-peak-period “hangover” to follow. (Picture a holiday sweater shipping in February.) It’ll be extraordinarily difficult for retailers to avoid making only a 50% margin months from now. Steve notes that this very negative trend will affect private labels (e.g., Old Navy) and major verticals (e.g., Macy’s, Nordstrom) alike.
Physical Retail Is Not Dead, But Shopping Malls May Be
Steve predicts two major trends moving forward: First, physical retail is not dead. To continue to serve consumer behaviors and keep shoppers happy, physical stores will survive — they’ll just need to offer the onsite benefits we discussed in our first three interviews. Second, we are going to see an erosion of the shopping mall, especially for second- and third-tier locations. With in-store experience at the forefront of every consumer’s mind, and with a drastic increase in the popularity and quality of online efficiency, shoppers are going to have less and less tolerance for a negative store experience. Consider, in Steve’s words, “a substandard assortment” of inventory, coupled with a scarcity of staff who’s actually there to help the customer sift through their options. The result? A spiral that results in extinction.
Moreover, Steve observes, “Once an anchor leaves a mall, it tends to be the death of the mall.” Every specialty store’s contract, he says, includes an obligation to maintain the store’s lease agreement — as long as there are two major retailers operating in the mall. Say a store like Macy’s, saddled with the tribulations of physical retail, decides to leave a mall. Once such a heavy hitter departs, mall traffic plummets, and major retailers start to scrutinize the mall’s lack of success. So smaller stores break their lease — feeding an ensuing cycle that does not encourage recovery. The upshot: Steve expects 900 malls in the U.S. to close in the next several years — with only “probably 250 good ones” weathering major closure and shifting consumer expectations.
Retailers are working against a very sensitive market, difficulties in shipping pricing, and an erosion of profitability across the board. In a nutshell, says Steve, “it’s hard to feel good about the plight of omnichannel retailers.” Some will survive — but at decreasing volume in the coming years.
Which Retailers Will Survive in This Changing World?
Steve is particularly optimistic about the rise of direct-to-consumer brands. In the DTC and B2C worlds, the winners — and there are many — are building their own models and creating their own names. These young forerunners are forgoing traditional marketing vehicles in favor of guerrilla methods that reach a large number of consumers through Instagram and other platforms. They’re marshaling sponsors — celebrities, athletes — to push their brand at a much lower cost than older methods. The result? An organic buzz for their brand.
Steve noted that these direct-to-consumer brands enjoy the freedom away from some of the costlier nuts and bolts of in-store retailing, allowing themselves a much healthier margin. Say a manufacturer is accustomed to selling a $100 pair of shoes to a luxury retailer at a margin that leaves them only $45. Why not sell the same pair themselves and keep the $100? Plus, these direct brands own the relationship with the consumer and control the online shopping experience. One related, exciting advantage: Consumers volunteer their contact information, and brands can reach out to these consumers directly each time they release a new product.
Holiday Shopping Wrap Up
As we look to the future of retail, it’s critical to start acknowledging trends and making changes today, especially while holiday shopping is upon us. How will you create a new strategy as we head into 2022? What can you expect as numerous aspects of the retail landscape continue to change? In our next installment — the penultimate chapter of the “Shopping Insights from Retail Experts” blog series — we’ll walk through the brief and striking history of online retail; share Steve’s insights on nascent crossroads in technology, luxury and attire; and celebrate the rise of athleisure.
Steve is one of thousands of seasoned professionals in Expert ENGINE’s network of highly skilled and specialized experts. Interested in working with an expert on a project of your own? Don’t hesitate to reach out.