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The Retail Store in 2017 – How Traditional Stores Must Adapt

The Retail Store in 2017 – How Traditional Stores Must Adapt

August 7, 2017

People still need stores, but Retailers need to get real about making the right changes

Everyone’s hearing about how the retail industry has been faltering. Closing stores, laying off employees, and struggling to keep up with the 21st Century customer are all factors. So how did this once highly successful and attractive market get here? And further, how can retailers reinvigorate themselves to push through this slump? In this post, we take a look at two very popular fashion brands.

One prime example of a historically powerful player is Ralph Lauren, a world-renowned group of clothing brands. Started by its namesake founder in 1966, the company found early success by specializing in menswear and winning a Coty Award. The company then expanded its offerings and acclaim into womenswear in 1971, as well as through Hollywood costume design in the popular films “The Great Gatsby” (1974) and “Annie Hall” (1977). In the latter half of the 20th Century, Ralph Lauren continued to expand its product lines and brands, opening brick-and-mortar stores, licensing its products, and franchising other locations.

Ralph Lauren’s Sales are down, Inventory is bloated

However potent the brand, Ralph Lauren and many similar retailers have experienced considerable downturns in the past few years. According to Daphne Howland at RetailDive, “while sales have risen 7% in the last three years, inventory bloated by 26% in that time, forcing promotions at department stores and a glut of merchandise at the company’s outlet stores and off-price retailers.” According to investment firm Trefis, the company’s revenue growth actually fell from 7% in 2014 to -2.8% in 2016.

Regaining Consumer Focus with a Transformation Plan

The company’s core brands, Polo, Ralph Lauren, and Lauren, account for most of the revenue growth; but the remaining brands have drained marketing resources from them. Ralph Lauren has plans to bring back a focus on the core brands–and the consumer–to improve operating margins and return to profitable sales growth by FY 2019. They’ve developed a retail transformation plan that includes closure of unproductive stores, workforce reduction, more efficient inventory management, and shorter production cycles:

The company is now taking steps to reduce the production time by six months, from 15 months currently to 9 months, with an 8 week test pipeline. The supply chain will also be more demand driven in order to cut down on the inventory. This will help in reducing the transfer of full-price inventory into discounted and value channels.

How demand planning can be an exact science

On the other hand, there’s Zara, a Spanish clothing revolutionary owned by the conglomerate Inditex. Zara prides itself on an iterative retail model to appeal to the new consumer. Zara’s all about fast-fashion: a continuous process to release new, high-demand styles into their stores. Zara relies on store managers to relay feedback from customers to the design team in Spain, on what is and is not, selling. This design team then “whips up fresh ideas that go into production in days,” per Zara’s Jeanette Neumann.

How Zara reduces manufacturing lead times – sustainably

Inditex is able to sustain this model by producing 60% of its product domestically in Spain and also in neighboring countries– drastically reducing the lead time from manufacturing facility to store, a major advantage of fast-fashion.

Fast Fashion reduces inventory and maximizes floor space

Another key edge for Zara is the limited quantity of inventory maintained at the store and warehouse level. In this way, Zara maximizes the footprint of the store layout: reducing backroom storage increases the variety of product a customer sees during a visit to a brick-and-mortar and lessens the exposure to risk should a style not sell well.

Zara’s harmonized retail system integrates on-line and stores

Additionally, Neumann explains “Zara has tightly integrated its physical stores with its online platform, giving it an edge in a market where free delivery and seamless returns are paramount”. With a harmonized ecommerce platform, the garment giant can capitalize on both channels simultaneously—unlike most traditional retailers.

Integrated retail technology is critical, but employees are the key: Many Retailers don’t ‘get’ it.

Paula Rosenblum and Steve Rowen, of Retail Systems Research, note in their Retail Store in 2017 Benchmark Report the challenges, opportunities, and areas that will prove essential to successful retailers in the coming years. Even though their report has a strong focus on the impact of technology in retail stores, note the reality that in-store tech implementation will not be enough.

Retailers want more employees, but don’t train enough

According to Figure 3, within a constrained environment –which is typical of a real-world situation–hiring better people is the top issue retailers are likely to tackle. The problem with this data point, as Rosenblum and Rowen explain later, is that store employees do not spend enough time training (Figure 12, below). Thus, how can retailers expect employees who do not qualify as “better” to have the knowledge to handle difficult customer interactions?

Zara empowers employees to help their whole business achieve success

Although it is not known how much time and effort Zara commits to training employees, it’s clear that they do highly value and empower their people at the store level. By leaning on store managers to monitor and communicate consumer demands daily, the clothing giant includes and entrusts these employees in the decision-making process. Through this exercise, lower level employees have more input and commit more energy toward a successful store. Also noted by RSR’s research, figure 6 illustrates the importance of personalized attention from employees–46% of retailers say that there’s room for improvement.

To improve in-store technology, retailers should consider expending more resources to enhance the cohesion between brick-and-mortar and their ecommerce platforms, as in Zara’s case. Moreover, 45% of retailers concluded that they needed to “focus on a more convenient customer experience,” (figure 6), delivering a frictionless shopping experience at either a physical store or online.

Bricks and Clicks: pick up anywhere, return anywhere

As part of this approach, the ability to pick up product at a store or return online purchases to the local store proves paramount for next generation sellers. More notably, 18% of laggard retailers said employees don’t spend enough time accepting online returns in store; and both winners and laggards do not spend enough time on in-store pickup of online orders (figure 12).

Finding the right strategies to keep YOUR customers

The heart of this argument is that retailers cannot only concentrate on one initiative to save their business. Integration of technology can only be a facilitator, but the true differentiator between winners and laggards in retail will be those who can successfully implement the blend of strategies to appeal to the modern customer.

Find out how we help you prioritize and carry out your transformation plan as part of our implementation service (Learn more), or with a business analysis (Learn more).

Author: Nathan Brandes

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