The following is the interview with Steve Dennis, a consultant, keynote speaker, and author focused on retail growth and innovation. Steve has been named a top global retail influencer by multiple organizations and his thoughts on the future of shopping are regularly shared in his role as a Forbes Senior Contributor.
During a 30-year career as a senior executive at two Fortune 500 retailers — Sears and Neiman Marcus Group — and more recently as a strategic advisor, Steve has worked with dozens of retail, consumer, luxury, and social impact brands to inspire, catalyze and design their journey to remarkable results. His recent book “Remarkable Retail: How to Win & Keep Customers in the Age of Digital Disruption” has been among the best-selling books about retail on Amazon.
— Steve, let's start with a question which arguably interests our readers the most: in what way is COVID-19 going to transform the current retail landscape? What companies are likely to be winners? Why?
The pandemic is accelerating most trends we have been seeing impact retail in the past few years, including what I refer to as the “collapse of the middle” — that is those retailers that have unremarkable value propositions, weak balance sheets and little or no real innovation. The long-overdue correction in retail selling space will be massive as many retailers file for bankruptcy and close large numbers of stores. Some iconic names are likely to liquidate.
There will be a significant contraction in spending in many categories for the foreseeable future driven by uncertainty, economic hardship, and lowered traffic to physical stores. Moreover, I expect a material reallocation of that reduced spending pie. Continued work from home will amplify sales of office supplies, streaming services, health- and fitness-related products, and casual clothing, among others.
I anticipate a considerable wave of consolidation as a few cash-rich well-positioned brands buy up distressed assets at fire-sale prices. Those that were strong going into the crisis are likely to get stronger.
— Are retailers likely to become more innovation-minded? Will they see innovation as a competitive advantage in the future?
I think we have seen more innovation in recent months, largely driven by necessity, and in some cases, desperation. But this was mostly retailers pulling the trigger on things they already had in development. I’m generally skeptical about a fundamentally new appreciation for innovation.
If the seismic shifts of the past 20 years did not get a retailer to embrace innovation more wholeheartedly, chances are they have a serious leadership and cultural problem. That’s what they need to fix first.
Also, if it takes a crisis to get a retailer to innovate, I hope boards will aggressively challenge the CEO on his or her ability to lead in this brave new world.
— What are the top three areas of operations retailers should focus on in terms of innovation? Is pricing among them?
It’s hard to generalize for such a large and diverse industry, but the 8 Essentials Framework I lay out in my new book Remarkable Retail: How to Win & Keep Customers in the Age of Digital Disruption provides a comprehensive framework. Generally, from a purely operational standpoint, the key leverage areas are to digitally enable key points along the customer journey with a focus on both efficiency and effectiveness, to better harmonize the shopping experience across channels, and to work to make the experience more personalized.
Pricing may be an important area for retailers, particularly where margin optimization is a real challenge.
— As the e-commerce scene is crammed with newcomers, how will it change the way retailers compete? What are the main growth levers in selling online?
To the extent we are talking about the so-called digitally-native vertical brands, few of them have a path to profitability and many are finding it difficult to attract significant funding and to pursue, rather ironically, their plans to open stores. I think we will start to see a significant consolidation here over the next year, which will reduce some of the competitive pressures we have seen in recent years.
The key to profitably selling online is to be able to cost-effectively acquire new customers with sufficient lifetime value, merchandise assortments to high gross profit/order, and avoid categories with high returns.
— As COVID-19 has boosted online shopping, how do you envision the future of e-commerce? Is it something worth investing in in the long term?
First, as I point out in my book, the lines are blurring between what we mean about online vs. brick & mortar shopping. Digital drives brick & mortar and vice versa. So I tend not to get too hung up on this. But for the most part, I think we will continue on a similar, albeit accelerated, trajectory for the overall growth of e-commerce. Hence, where we might expect growth at around 15% annually, once we get to the point where we have a highly effective and widely used vaccine, long-term growth might be closer to 20%. For the next year or so, clearly online shopping will be unusually high.
It’s important to bear in mind that the marginal economics of some of the more consumer-friendly digitally-enabled technologies like grocery home delivery and curbside pickup are generally terrible, and a lot of incremental investment will be necessary for them to scale. This will tend to tamp down some of the hyper-growth some are calling for.
The key is to break down the channel-centric, siloed thinking, and get focused on the customer. The influencer of digital will continue to grow (when we talk about digital we mean mobile). It’s worth investing in digital enablement and e-commerce if it creates a remarkable experience for the customer and if you can get the lifetime value equation to work to your advantage.
— Customers are likely to become more price-sensitive after the crisis. How will it influence retailers’ actions?
On the negative side, some retailers will engage in a race to the bottom by chasing promiscuous shoppers with whom they have no chance to develop positive customer lifetime value.
On the positive side, retailers with the right strategy and the right tools can be much smarter about which customers to focus upon and which offers (price-oriented and otherwise) to serve up to be more relevant and more profitable.
— Steve, what are the top three tips retailers can use to succeed in the new reality of the ‘next normal’?
Eschew the sea of sameness and become more remarkable. Embrace a culture of experimentation. Accept that the waves are going to keep coming, so we all are going to have to learn how to surf.
Thank you, Steve!
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