Retail

For Retailers, BLM Should Be More Than A Hashtag

Chicago retail, including other iconic shopping destinations, looked like a war zone this week – not a major market poised to re-open after months of closures. This week was supposed to be the next re-opening phase in Illinois – not another setback that some retailers will not survive. The stark image of damaged and boarded storefronts all across the country is hopefully the nadir from which we all rebuild.

Retailers as a whole have not historically been ones to champion social causes of this magnitude. Silence on social or civil unrest was often the preferred decision by management teams. This is no longer an option in our view. The retail industry touches almost everyone, and we’re witnessing a change that is likely permanent.

Brian Cornell, CEO of Target, issued a public statement to their huge workforce, “…as a team we’ve vowed to face pain with purpose.” And backed up his words with actions in the form of first aid supplies and essentials to the heaviest damaged areas and reassurance to employees their wages are safe even as stores are closed temporarily. Cornell went on to say, “… the safety and well-being of our team, guests, and the surrounding community will continue to be our paramount priority.”

Many retailers and consumer brands are responding similarly, but this feels different. This feels like a permanent change in how we choose to shop for and buy necessities and frivolous products alike and how retailers proactively give back to their community.

Consumers are demanding their favorite brands to speak out, and those who do not risk damage to their brand and future. Consumers will hold us accountable, and winners and losers in retail will increasingly be defined by their social and community positioning.

Posting a dark screen on Instagram will not be enough. “Consumers don’t care about corporate solidarity. They want donations,” according to a story on Vox from yesterday. “As brands rush to speak out, many statements ring hollow,” states a headline on Business of Fashion from earlier this week.

Small mom and pop retailers are most vulnerable, and many will not survive the double whammy of 2020. “Big retailers say they don’t mind the looting. It’s different for small businesses,” explains Cathaleen Chen on BoF.

From our vantage point, we closely monitor the “acceleration of trends,” and never has it been more critical for businesses to focus on building lasting relationships and less on the next transaction.

The long uphill battle ahead may be best exemplified by small retailers. They are at their best when customer relationships are strong – and nurturing such connections is more elementary for business now than ever.

Your voice matters, retail. As do all voices, big and small, that we have witnessed and support in peaceful demonstrations. Let’s look back on the second half of this year as a positive turning point – a time when the healing began. It starts with all of us.

How Will DTC Fare During The Pandemic?

What the last recession can tell us about this one…

The Covid-19 virus has stressed – with a few notable exceptions – all retailers. Over the last decade, Direct-to-Consumer (DTC) brands were heralded as successful disruption stories that lay bare the inadequacies of stale legacy retailers. But in the last year, the frailties of DTC brands came to light. Ironically, both Casper’s IPO and Brandless’s bankruptcy showcased the same challenges; high customer acquisition costs, financial and operational difficulties managing returns and the difficulty of bringing digital intimacy to the physical store front.

These “blocking and tackling” challenges are exacerbated by a lack of differentiation within the DTC cohort. As multiple brands chase the same category, the founder story of graduating from business school and starting an authentic company in an apartment is only exciting so many times. The indistinguishable look and feel of these brands does not help.

Every Font Tells a Story, Associated Press

Writing in Adage, Erik Spooner pointed out that DTC companies share a similar fingerprint. Whether hawking khakis, libido-enhancing medicines or mattresses, their hallmarks include “product photography where the object of desire is shot isometrically askew; solid background colors that are predominantly neutral; copy that has an ironically familiar tone—and is nearly always set in that eerily similar, playfully bold, geometrically designed sans-serif typeface.”

Already facing these challenges, what will Covid-19 do to DTC brands?

At first blush, DTC retailers could see opportunity. E-commerce channels remain open for business. Browsing is a go-to for boredom. And digital customer acquisition costs may drop as businesses sprint to reduce their advertising budgets.

A look back at past recessions provides additional insight – and some hope. In 2008 and 2009, spend on categories that often include a strong DTC presence in 2020 – such as beauty and pet care – grew. Unfortunately, categories with the DTC stalwarts of apparel and home furnishing shrank.

With DTC brands predominantly single category players, the performance in the last recession provides a clue for this recession.

But all is not lost for the apparel and home furnishings brands. Peeling back another layer of sector performance shows hope for apparel – and indeed most – DTC brands. The recession of 2008 and 2009 gave an early indication of the struggles mid-tier retailers would face in the future. Discount was an unsurprising winner, but premium apparel and luxury retailers also outperformed the mid-tier.

The extremes won in apparel; the struggles of mass predicted the future.

Amazingly, premium even outperformed both discount and mass in food and grocery.

Premium food retailers and brands maintained a strong growth trajectory.

According to a 2019 Forrester study, the DTC consumer skews to higher income, 18-35 year-old males in urban centers. While the gender skew and 18-24 year old cohort could be questioned, the higher-earner characterization certainly applies. And if premium categories did well in 2008, then there is more hope for DTC in 2020.

Yet for all of the comparison to previous recessions, Covid-19 has created behavior changes that were previously unheard of – and will leave all retailers wondering “what next?” Early indicators – such as waits of up to five weeks for delivery at Peleton or “join the waitlist” for Concept II rowing machines – say that home fitness and corresponding fitness accessories are beneficiaries. More broadly, self-care – including the home furnishings market – may be stronger than the previous recession.

But these consumer trends – normally a strong indicator of which retailers win and which lose – are insignificant compared to cash-on-hand and access to capital. If those levels were already low, then Covid-19 will drown even the brands that had their consumer clearly in their sight. News that Purple, Everlane, Cuyana and more are laying off or furloughing workers indicate this is already happening.

Changes In Food Retail Foot Traffic During COVID-19

With the CDC now reporting over 300,000 COVID-19 cases and shelter-at-home orders issued in 40+ states (as of 4/3), every citizen and sector of the economy is being affected by the epidemic. By analyzing changes in foot traffic across food retail, we can monitor the shifting dynamics of shopping and stockpiling behavior to try to understand what may come next.

Placer.ai collects precise geolocation data across millions of mobile devices and uses it to estimate retail foot traffic (see more at https://www.placer.ai/covid-19/). From their data, we can see an immediate ramp up in year-over-year foot traffic in the period from late-February to mid-March across food retailers. Foot traffic peaked the week of 3/9, particularly on that Thursday and Friday.

The highest comps were in Club Stores and Traditional Grocery stores, with Mass retailers and Specialty Grocers falling behind. This demonstrates that Club and Traditional Grocery are top-of-mind for consumers who are stockpiling necessities. While we can safely assume the bulk of these consumers went in to buy food and household supplies, The NPD Group also reports increased sales in general merchandise categories related to sheltering-at-home: office supplies, toys, consumer tech, and small appliances (link). The prime example is the breadmakers category, which was up +804% in March vs. last year.

After the peak in the week of 3/9, Traditional Grocers mostly stayed above last year’s foot traffic levels for one more week before plunging down to negative comps. (The exception is Wegmans whose foot traffic levels dropped earlier due to its footprint in NY and the surrounding heavily-affected areas). Club retailers (not pictured) followed a similar pattern.

The Mass Channel had much smaller peaks than Traditional Grocery or Club, and both retailers were negative by the week of 3/16. Target declined more quickly than Walmart after the Hoarding stage, perhaps demonstrating Walmart’s status as the food and essentials destination in Mass.

Specialty Grocery had relatively low peaks and the steepest declines during late March. Specialty Grocery stores are usually a destination for add-ons, not bulk buys or household necessities, limiting foot traffic during a Hoarding Phase.

Although results for the last week of March are only available from Monday 3/30-Thursday 4/2, we analyzed Mon-Thurs numbers for the week of 3/30 vs. the prior week to try to understand foot traffic dynamics after the steep declines.

Foot traffic comps from the week of 3/30 show that across most retailers, there have been even further declines in foot traffic from the previous week. However, over this full week Nielsen reports that in-store CPG sales are still $3.2B above where they were last year (link). This could mean larger basket size during less frequent trips and/or fewer family members going on each trip to the store to minimize exposure.

An interesting discovery in these preliminary findings is that while Mon-Thurs foot traffic the week of 3/23 showed minimal or slightly declining trends as the week went on, traffic during the week of 3/30 showed relative growth M-T, with comps becoming less negative as the week went on. If this preliminary trend holds, it could mean one of two things:

• The foot traffic valley of the week of 3/23 was a result of a post-stockpiling timeout: Having taken a week off and gone through some of their stockpile, consumers then gradually resumed their regular shopping trips, and will establish a new short-term equilibrium in foot traffic and sales. Regular (if reduced) shopping behavior is aided by the extensive steps stores are taking to make shopping safe and convenient, along with the shift in spend from food out-of-home to in-home.
• The steadily growing comps the week of 3/30 are the result of renewed stockpiling behavior: Messaging from the White House has increased in severity, stressing the importance of sheltering-at-home over the next 2 weeks. On Sunday (4/5), Dr. Deborah Brix, the coronavirus response coordinator, even recommended that people forgo non-essential trips to the grocery store and pharmacy until the number of daily cases peaks. The week’s trends may just represent late adaptors and last-minute trips before truly hunkering down. If that’s the case, the following weeks will again show declining comps in foot traffic.

Whether the renewed growth in foot traffic holds or bottoms out, the next few months will be very uncertain. How will conditions vary for grocers across channels? What measures and innovations can retailers keep implementing to minimize disruptions to their business? How will medical and epidemiological factors play a role? The 2^nd week of March saw an 85% growth in online CPG sales- can ecommerce and logistical networks keep up with demand?

We will continue to monitor the situation from every angle we can and will publish updates accordingly. The next few weeks will be crucial for people and businesses across the world. Our retail experts at McMillanDollittle (https://www.mcmillandoolittle.com/our-retail-experts/) and our worldwide partners in the Ebletoft Group (https://www.ebeltoftgroup.com/) are happy to provide perspective and guidance during these difficult times.

Retailers Step Up During An Unprecedented Week

What a week!  Covid-19 reaction hit the tipping point in the United States.   As of Sunday, March 22, one in four Americans is required to stay at home unless seeking or providing an essential service.  Most consumers in the rest of the country are voluntarily adopting the same behaviors.  The impact on the Retail Industry here has been uneven and unprecedented.   Retailers, suppliers and other partners have had to adopt a new playbook to keep business going.  Starting today we’ll be providing a weekly summary of tactics that retailers are implementing to respond to this evolving situation.   This week’s top 10 focus on retailers’ positive actions to serve both customers and employees:

1. Contactless delivery – as widely reported, thousands of stores, malls and restaurants in the U.S. have closed, shifting business on-line. Where possible, stores have continued local delivery or pickup.  For many retailers pickup has shifted from in-store to curbside.  Local delivery conducted through Instacart, Dominos and others have “leave it at my door” options for customers so they can eliminate direct exposure to delivery personnel.  At Petco, for pet parents with a sick animal, the company has implemented new curbside hand-off processes for Veterinarian visits supported by text notifications.
2. Store hour adjustments – retailers remaining open from Home Depot to Walmart are reducing store hours to enable time for employees to restock shelves as well as conduct enhanced cleaning and sanitizing. Many grocery and mass retailers such as Whole Foods, Publix and Target are offering specific shopping hours that are available only for older or immunocompromised shoppers.
3. Covid-19 specific processes in store – stores that remain open have instituted new procedures to enhance the safety of employees and customers. At Costco for example, employees wear gloves, shopping carts are sanitized after use and are distributed by an employee individually to shoppers as they enter the warehouse, signs remind shoppers to maintain social distancing and employees remind shoppers throughout the store. Best Buy is limiting the total number of shoppers in store to 10-15 to enforce social distancing.
4. Extended return windows for items purchased in store – Sephora was one of the first and now most other retailers with extensive store networks have changed return policies allowing shoppers that purchased goods in store to return products once stores reopen. For Sephora that means extending the returns to 30 days after store reopening date.
5. Free shipping and returns for items purchased on-line – On-line fees for shipping and returns have been eliminated by most retailers. Styling fees for subscription programs such as Trendsend by Evereve have been significantly reduced where the fee is now $1.  Return windows for on-line purchases have also been extended.  Sephora has extended the on-line return period from 30 to 60 days.
6. Purchase limits on key items – We’ve all laughed at the memes on toilet paper hoarding. As a result of these behaviors, retailers have implemented purchase limits on high demand items such as bottled water, paper products, fresh meat and disinfectants.
7. Prioritizing essential items – Amazon has suspended shipments of non-essential items into its warehouses to focus resources on high demand household staples and medical supplies. In Italy and France, Amazon has temporarily stopped taking orders for non-essential items.
8. Expedited hiring and cross-company sharing of workers – While jobless claims jumped 30% this week, retail employers in food and consumables are facing a labor shortage. Amazon announced plans to hire 100,000 workers and has implemented expedited hiring practices to get new employees on board quickly.  Walmart has announced the need for 150,000 new workers and 7-11 is adding 20,000 jobs.  For immediate help we’re seeing the emergence of cross retailer cooperation:  Aldi in Germany is using displaced McDonald’s employees as temporary workers.  The arrangement will allow the fast-food workers to return to their McDonald’s jobs when things return to normal.
9. Paid leave or bonuses for employees and partners – To keep workers on the job and motivated, retailers are increasing wage rates, providing bonuses or paying bonuses early. Target announced it is temporarily raising pay by $2 an hour until at least May 2, and giving bonuses to 20,000 hourly employees.  They are also providing paid leave for up to 30 days for employees in high-risk categories such as over age 65, pregnant or with underlying medical conditions.  Leading Retailers that have closed store based operations such as Nordstrom, Macy’s and REI will continue to pay store personnel during the shutdown period.
10. Shift from promotional to informational communications – CEOs and business owners have been reaching out to customers and employees this week with messages detailing their responses to the pandemic.   These range from reminders about enhanced sanitation procedures to store closures or changes in the retailers shopping experience.  Our favorite, below, is from a local restaurant that includes a reminder to customers to be patient and kind during this difficult time.

Please send any tactics that should have a spot on our list to info@mdretail.com.

Applause to all of the hard working associates and their leaders who are taking time from their own families and friends to keep us supplied with food and essentials.   Stay healthy out there!