Recent subpar reports on holiday sales from major retailers like Target and Kohl's may make some investors stop and think twice before investing in a retailer. Target reported sales that were below expectations for the November-December period, and Kohl's said same-store sales declined.
But in spite of challenges including competition, mall and store closures, and pressures on pricing, there are ways that retailers can be successful in 2020. And the battle isn't entirely uphill, as retail sales are growing and industry reports on total holiday sales were bright. U.S. retail sales have grown nearly 4% annually since 2010, according to the National Retail Federation. Furthermore, Mastercard SpendingPulse reported that retail sales climbed 3.4% in the 2019 holiday season.
Three elements stand out as being critical for retail success this year. If a company can master them while keeping its financial situation healthy, it should rise above the competition.
1. Buy online, pickup in store
The concept of "buy online, pickup in store" seems simple. It doesn't sound particularly fancy or high-tech. But it is absolutely driving sales, and retailers that assure a smooth buy online, pickup in store process are already reaping the rewards.
Doddle, a provider of technology and services enabling "click and collect" for retailers, said that 58% of customers who used one of its retail partners' locations to pick up or return packages made an additional purchase on site. More than 80% of shoppers worldwide reported using buy online, pickup in store services in 2018, according to eMarketer.
Shoppers like this system because it's convenient and affordable. (Most retailers offer free shipping to stores.) Beyond attracting shoppers and securing additional purchases when they pick up orders, there are other benefits for retailers. By offering customers in-store pickup, retailers can reduce their shipping costs. Retailers can also streamline their inventory management by merging their online and in-store inventory systems. Nordstrom (JWN 1.14%) is a great example. It has created a shared inventory system serving online and in-store customers and enabling speedy buy online, pickup in store service. Over the busiest moments during the holiday season, the department store fulfilled orders in less than four hours, according to retail consulting group Kurt Salmon.
2. Omnichannel excellence and positive experiences
Nike (NKE -1.11%) and Hennes & Mauritz (HNNMY -0.54%), better known as H&M, are two brands that have mastered omnichannel retail -- the integration of in-store and online buying -- and made it a positive experience for customers. Both companies have transformed their businesses over the past couple of years to offer a seamless experience across their digital and in-store channels.
For example, members of Nike's digital loyalty program can use the Nike app for everything from reserving a product in-store to finding the perfect shoe size (there's a feature that scans the foot in a matter of seconds). H&M's "Scan and Buy" allows in-store customers to scan a product's QR code and find the right size and color online. "Find in Store" lets customers use their phones to find an item they've seen online in a physical store.
Companies with a strong omnichannel strategy retain 89% of their customers, compared to 33% for those whose omnichannel offer is weak, according to Invesp. When digital and in-store operations are smooth, creating a positive experience for the shopper, retailers win. Salesforce's research has found that 80% of customers say a positive experience is as important as the goods and services a company sells.
3. Inventory management
As mentioned above, a shared digital and in-store inventory system works for Nordstrom and is a good example of retailing efficiency. In addition, knowing its customers helped Nordstrom keep holiday inventory under control. The department store determines the products and price points its customers seek, then structures its inventory accordingly.
Guess?, on the other hand, struggled last year, after starting 2019 with too many old styles on hand, which hurt its ability to stock and sell newer items. Inventory management is important because it not only affects what shoppers see in the stores, but it also makes a difference when it's time to report earnings. Too much inventory results in higher markdown costs, as well as extra advertising and selling expenses to eliminate the surplus. All of that weighs on gross margin and operating profit.
Buy online, pickup in store; the omnichannel experience; and inventory management are important for retailers for two reasons: They impact a company's ability to attract today's shopper, and poor execution of these points can hurt earnings. As investors shop around for retail stocks, these three elements should be on the list of what to look for -- performance in any one of them can be a decisive factor for a retailer's outlook.