Many traditional retailers began 2016 licking their wounds over disappointing holiday sales. The National Retail Federation reported that sales during November and December increased 3% to $626.1 billion, below the forecast 3.7% growth and under the 4.1% increase of the 2014 holiday shopping season. Nonstore sales, by comparison, jumped 9% to $105 billion.
Macy’s, the nation’s largest department store chain, disappointed. So did Wal-Mart and Kmart, among others. While a host of factors — from unseasonably warm weather to relentless bargain hunting by consumers — was blamed for lackluster performance, a major pain point for traditional retailers is sales lost to online competitors.
As a result, many retailers that operate physical stores are taking a hard look at their operations.
What can traditional retailers do this year to compete more effectively with their digital counterparts?
“Improving existing distribution systems, incorporating digital technology into the physical store experience, and identifying innovative ways to leverage existing real estate will be among the critical success factors for retailers in 2016,” says Rod Sides, US retail and distribution leader at Deloitte Consulting.
Optimizing distribution systems and enhancing supply chains will be key for physical retailers if they’re to compete with more-cost-efficient, online-only merchants and meet customer expectations for services, such as free shipping. Leveraging existing real estate to speed fulfillment — say by enabling customers to order online and pick up in stores — is another opportunity that’s just beginning to be explored by many brick-and-mortar retail chains.
Cloud technology and mobile payments represent big opportunities for physical stores, according to Deloitte: “Expect to see retailers continue to upgrade and modernize technology, with brick-and-mortar retailers striving to identify ways to dominate the intersection of digital and physical.” To this end, the firm expects many retailers to accelerate their move to the cloud to allow more rapid adoption of the latest cloud-enabled technologies.
And as more consumers gravitate to mobile payments, stores will have to meet them at the cash register with more rapid adoption of mobile payment systems.
For a retailer to deliver a personalized and relevant experience to each shopper that walks through its door, it will need to fine-tune and integrate its digital marketing and merchandising strategies. Not only will successful retailers need to be able to deliver targeted messages to individual shoppers, but they’ll have to synchronize this “content” with the consumer’s in-store experience.
This all takes money, of course. That’s why we’re seeing retailers — notably Wal-Mart Stores — shuttering stores to free up capital to invest in online and in-store improvements. Wal-Mart’s unprecedented move to close 269 stores this year reflects the urgency among traditional retailers to begin to take back the growth story from online retail in 2016.
Alexandra Biesada shops every day, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat for Hoover’s since 2001. Follow her on Twitter.