By Jeff Edelman, McGladrey LLP
With large anchor retail stores such as Sears and JCPenney exiting larger malls, what does this mean for small to mid-size retailers for the upcoming holiday season?And what can these small to mid-size retailers do to survive when exiting anchor stores cause mall foot-traffic — which these stores desperately rely on — to decrease substantially?
First, it is likely to be another difficult holiday season. Retail sales have been disappointing all year, so expect more of the same. Economists are saying the economy is expanding, albeit still at a slow pace, but no one seems to have told the consumer, who continues to spend cautiously.
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Promotional activity should begin earlier than last year heading into the Thanksgiving weekend, in an attempt to drive traffic and capture market share. The battle will begin with web specials to create anticipation and interest. Consumers will remain value-focused. Factory outlet malls and off-price stores will likely draw the biggest crowds.
Regional malls have been experiencing a steady decline in traffic, in part, due to increased online purchases. At the same time, more consumers are researching online and purchasing in stores, which has diminished browsing, and many of its related impulse purchases.
Price promotion is not the answer for the small to mid-size retailer — or any retailer for that matter. While it might be a short-term sales driver, it will set the retailer down the “slippery slope” to discounted sales and lower profit margins. Small to mid-size retailers are more nimble than their larger store competitors. There are fewer layers of bureaucracy, and top management can more closely identify with various issues and be more flexible and nimble, all while being closer to their customers. The key is to understand what customers want, when they want it, and then to provide a variety of timely delivery and/or pick-up options. The days of catering to all consumers with all products are over. Offering unique products, high-level customer service and follow-up are the new keys to success.
Small to mid-size retailers that are able to successfully build their e-Commerce business have the luxury of interacting with online consumers, and can offer a variety of options for delivery and return. That’s important because returns and exchanges often result in secondary purchases or “trade-ups.” Easy returns/exchanges also can enhance customer loyalty, and loyal customers are likely to be four-times more profitable than a onetime consumer.
So what are some sustaining solutions to consider leading into the holidays?
- Technology investment will likely separate the winners and losers this year. Social media and e-Commerce are important parts of the retail strategy, particularly for small to mid-size retailers.
- Marketing will also play an important role this holiday season. Retail leaders need to understand their company’s marketing programs and take steps to build them up. Since there is less bureaucracy and fewer layers of management, small to mid-size retailers can generally move faster to execute their programs.
Bottom line: There is no shortage of places to buy and there is no shortage of products. Success will be driven by differentiation, service and the appropriate value proposition for the target consumer. Winners will drive the “want to purchase,” which can generally be more profitable than losers that focus on the “need to purchase.”
Jeff Edelman is the Director of Retail and Consumer Products Advisory Services at McGladrey LLC. With 40 years of experience covering the retail, apparel and consumer products sector, Edelman currently provides industry perspective and advisory services to the McGladrey audit and consulting practices and their clients. He works closely with internal teams on matters such as new business development, risk assessment, and transactional advisory. Prior to McGladrey, Edelman was a retail investment analyst for UBS and ranked among the top 25 retail sector analysts by Institutional Investor magazine. Edelman holds a B.S. from Penn State university and an MBA from Seton Hall.