Former Saks CEO Sadove Says Physical Retail Will Transform To Survive

The 2020 holiday shopping season will be an unusual one in many respects. That’s a reality observable on Black Friday, where in-store sales were nearly literally cut in half — down 52.1 percent, according to preliminary data from Sensormatic Solutions. However, online sales bounced up 21.6 percent, according to Adobe Analytics data, as consumers by and large seemed resolved to actually take the experts’ advice and skip shopping in crowds in favor of browsing the digital aisles.

Mastercard’s Steve Sadove — who served as chairman and CEO of Saks from 2006 to 2013 — told Karen Webster in a recent discussion that consumers are likely doing the right thing by skipping the packed-in doorbusters line-ups. But declaring doorbusters officially a thing of the past — or 2020 as the year the Black Friday shopping weekend finally became a historical artifact — is probably incredibly premature. Black Friday might not quite take its title back as the unofficial start of the holiday-shopping season in the (hopefully) COVID-free future, but Sadove imagines a comeback nonetheless.

“Events like a Cyber Monday or a Black Friday to get the consumer by bringing some excitement — as a merchant, you are always looking for that,” he said. “And for consumers, that shopping event is part of a bigger social/cultural experience that is going to be missing for a lot of people this holiday season. Because holidays are about families and experiential, I do think that social experience is always going to be a part of it.”

But most of the changes that have come to retail as of the holiday 2020 shopping season aren’t temporary — and aren’t going to go backward. Because, Sadove noted, these were changes already underway before the pandemic came along to push them into overdrive.

The consumer desire to be able to buy what they want anytime, anywhere and have it delivered to their doors or picked up in-store were all already on the rise. Retailers being able to share inventory across channels or build a single view of the customer across channels to better serve them was already on the rise pre-pandemic. COVID-19 didn’t create any of these things so much as it rather dramatically accelerated them and solidified consumer desires for all of them.

The challenge now in retail, he noted, is living up to those demands, which are now here to stay both in the holiday shopping season and beyond as retail emerges from the pandemic into what will be a very different ecosystem with a very new set of demands.

“At the end of the day, I feel really good about the opportunities for retail,” Sadove said. “I actually feel really good about what’s coming down the road in analytics and what’s happening relative to differentiated product and the ability to get differentiated product to consumers. But if you are running [a] store in the mall that doesn’t have differentiated product — boy, that I feel that is going to be pretty tough because retail is an exciting space, but it’s rapidly evolving.”

The Long Holiday-Shopping Season 

As most consumers have undoubtedly noticed, the holiday 2020 shopping season has been going on since Amazon Prime Day kicked it off in mid-October, Sadove noted. And that stretching out is, among other things, a necessary accommodation for 2020, where the increased demand for digital service combined with tight inventories creates a very different logistical landscape in the segment.

Retailers who ordered their holiday inventories in the spring had no idea what the world was going to look like — meaning inventories were slashed and “purchases for the fall season for the holiday season were dramatically reduced.”

Those inventory constraints — matched with shipping limitations due to expanded online orders — mean holiday 2020 has already shown evidence in the data of being both extended and frontloaded. Sadove said Mastercard Spending Pulse figures showed spending numbers up by 4 percent to 5 percent in October and November, but the company’s forecast for the full holiday season is for 2.4 percent growth in retail spending.

And while he thinks the shopping-event days will make their return in 2021 and beyond, 2020’s pulled-forward holiday-shopping season might just stick around. Sadove said he wouldn’t be surprised to see Amazon or some other enterprising players start pushing holiday shopping events in mid-October from here on out.

And, he noted, though this does certainly put pressure on retailers — particularly when it comes to the multichannel service they offer consumers — there’s also a lot of opportunity built in with this holiday season.

“I think from a retailer perspective, in some ways it’s a strong position because their inventories are in line,” Sadove said. “They’re going to be promotional, but less promotional than they would have been, and their margins will likely be better because it’s controlled. This is very different than a situation like we saw during the [Great] Recession back when I was running Saks. There was an immediate disruption with the Lehman bankruptcy and you were sitting on massive inventory that we had to clear out. Here it is different, because the inventory is controlled.”

The Coming Crops Of Winners And Losers 

Retail has spent the better part of a year remaking itself for a world where consumer behaviors are far more digitized than they ever had been before and customers simply expect a high level of service seamlessly presented.

The new world of retail we are entering, Sadove noted, is one where the physical store has to change — to be both a distribution center and a location that draws the consumer with something qualitatively different than what they can get online. And physical stores, he noted, have that potential — as shown by the host of DTC companies opening up brick-and-mortar shops and seeing their revenue triple with the introduction of physical shopping spaces.

“What you’re going to find is a store that is much more geared towards an integrated omnichannel experience,” Sadove said. “The companies that are DTC start with that analytical mindset and start with that integrated experience. The old-line department stores and brick-and-mortar stores that started with a physical [space] and sort of after the fact went to digital — it’s much harder for them, as they have to now change culturally. They have to learn new skill sets, and they’ve got to figure out how they do an integrated experience. [That’s] not easy to do, and you’re going to see a lot of carnage.”

Not every old-line brand is going to make it, and some of the ones that falter are going to be household names. But Sadove said the good news is that none of these firms need to set about inventing these capabilities soup to nuts. They can now partner with entities like Mastercard that can help them start building the bridges they need to the more-connected, multichannel and curated experience the consumer of the future is going to demand. They aren’t on their own, and consumers aren’t actually on the verge of abandoning physical retail entirely in the future.

Big retail, Sadove noted, doesn’t have to get smaller to compete in the coming retail future. It just has to get smarter and start building the customized retail experience that consumers no longer merely want — but expect to get — wherever and however they transact with merchants.