By all accounts, Santa delivered for retailers this holiday season. According to the National Retail Federation, retailers pulled in $616.9 billion in revenue this holiday season, a 4.1 percent jump from 2013 and the strongest gain in three years. Though there are some voices suggesting that the season could have packed more of a wallop revenue-wise, most retailers seem grateful that the spending this year - fueled by an improving economy, higher wages, consumer confidence and cheaper gas – delivered a solid showing.
“This is overall a good holiday, particularly when you combine online with in-store sales. The consumers are in a very good frame of mind — there are a lot of things helping us feel better about spending again."
Increased optimism among the spending base is good news for retailers, and a welcome change to the consumer frame of mind. That, however, wasn’t the only change that merchants had to absorb in 2014. While physical locations still dominate the retail landscape and retail spend, the e-commerce boost that contributed to holiday shopping this year only underscores the undeniable appeal of ordering online.
E-commerce numbers were up around 15 percent between Nov. 1-Dec. 21 according to comScore, and analyst estimates for the entire holiday season project e-commerce up by between 13 and 14 percent. Moreover, that traffic is being increasingly driven by mobile devices like smartphones and tablets - Amazon reported 60 percent of its holiday traffic originated from mobile devices, and 70 percent of Wal-Mart’s online sales were originated from mobile devices.
“Mobile continues to accelerate the secular shift from offline to online purchases, in our view, as consumer use-cases for last minute shopping, in-store purchases, and price comparison continue to expand,” Investment analyst at Robert W. Baird & Co Colin Sebastian noted.
And traditional retailers are trying hard to cash in and not lose out on serving this new mobile consumer.
The most popular approach taken in 2014 was “omnichannel.” Omnichannel merchants can make it to buy online and on mobile, but pick-up in a local store (as opposed to waiting for delivery) and compete with the convenience of the online order. Not to mention getting consumers into a physical store, which is where they can be tempted to buy more.
“I would rather have customers in the store,” said Terry Lundgren , chief executive of Macy’s Inc. “They will always find something in the store that they didn’t intend to buy, and, hopefully, those impulse items will carry the day.”
However, while the omnichannel solution has some obvious “everyone wins” qualities to it, it also comes with incumbent challenges. Mega-online retailers like Amazon maintain a large network of warehouses and distribution centers and Amazon Prime benefits that get merchandise to consumers in two days, in some areas, the same day and in limited markets, within an hour of purchase. Physical retailers that lack either the resources or the will to emulate that instead use a mixed model of distribution centers and retail locations to fill their orders. The problem is efficiencies possible in tightly packed, highly automated warehouse are hard to reproduce with inventory spread across stores built for live customers. Things aren’t always where they should be and it can be difficult for retail staff, who are also serving the needs of physically present (and often irritable) customers, to also do the job of inventory tracker.
Emily Merritt is a ship-from-store supervisor for a Wal-Mart Supercenter in Springfield, Missouri. According to The Wall Street Journal “she walks about 5 miles every shift, steering around other shoppers with help from instructions on a tablet computer. But she’s also required to greet any customer within 10 feet and answer any questions they have… Ms. Merritt and her team handle about 1,000 items a day from the one store. At some robot-equipped Amazon warehouses, workers handle as many as 300 items an hour.”
So what’s a traditional retailer to do?
Some have opted for other solutions. Macy’s uses its sales staff to handle online orders in the hours before the store opens so as not to disrupt the flow of regular physical commerce. Target is limiting the number of deliveries per store per day.
“This is the first year,” said Jason Goldberger, head of Target.com, which is shipping orders from 136 of the company’s 1,800 U.S. stores. “We’ll learn.”
That learning curve may be flattened by a wave of start-ups geared at bridging the gap between the physical retailer and the potential online customer in close proximity. A complaint about the omnichannel experience is that it’s not actually easier than just shopping in-store. According to The Wall Street Journal article, it took a consumer about eight minutes to pick up an item ordered online as opposed to only five minutes to just go in and get it. Innovators with apps like Curbside seek to fix that problem.
Curbside allows users to make orders online and then alerts them when their items are available for pick-up. Consumers then have their items delivered to them, well, curbside – tracking made possible via GPS and their mobile app sort of like Uber allows consumers to track the process of their drivers when en route. The app is currently available to use through Target.
Instacart allows users get groceries delivered instantly from big and small supermarkets. Postmates delivers a variety of goods - including food, household items, groceries and flowers - same day (and rather quickly according to most reviews).
However, while third-party apps solve some of the logistical problems associated with curbside pick-up or same day delivery, they fail to deliver the biggest benefit to the physical retailer - a consumer in-store.
But, as The Journal noted “retailers have to try.”
“Starting from scratch can be quite capital intensive and building a new online fulfillment center comes with an entry price of at least $100 million,” said Debbie Fortnum, senior vice president of supply chain at Belk Inc., which fulfills online orders from 50 of its 300 department stores. “The longer you can defer expenses and make sure to leverage existing assets like stores, the better.”
So what’s next for 2015?
Likely more physical retailers trying to figure out how to best leverage their assets – physical locations, inventory, sales associates, and now innovators with the ability to replicate the delivery convenience of their online competitors – to maintain their retail advantage.