As I have often said to many of my friendly colleagues, many of whom are C-suite leaders in the retail industry, I’m fortunate that I only must observe, strategize, and write about the industry for The Robin Report. And indeed, some former CEO’s who are in retirement yet want to remain relevant are saying the same thing. They are obviously more attuned to the toughness required of the current C-leaders. Like aging Woodstock attendees can say, “I was there” (and my generation knows what they are referring to), so too will current C-suite leaders refer to this most challenging era of retailing when they look back on the past five years. That being said, the two experiences could not be more opposite.
2022 Is Not for the Faint of Heart
When I think about all the issues and challenges facing the industry in 2022 and beyond, my headline might be an understatement. “get tough or get out” should be rephrased to “get tough or you are out.”
I also questioned (for about a minute) why I should toss fuel into the fire during this time of hope for a more prosperous (and healthy) year. Frankly, it will take much more than “hope” to address and successfully solve today’s challenges and take advantage of the opportunities in 2022. The macro and micro issues are going to require greater tenacity than ever before. So, it’s time to get tough.
Six Macro Issues
Let’s look at what I consider to be the six major macro issues facing humanity and defining 2022. Most of these issues are not the retail industry’s responsibility to solve. However, all of them affect the industry directly or indirectly and retail leaders need to be thinking ahead to avoid getting caught blindsided.
- Macro issue #1: Our exploration of space and figuring out all these UFOs could evolve to amazingly positive outcomes over the next centuries (of course none of us will be here to see it). But meanwhile down here on lonely Earth, the human race continues to slog forward, not knowing what we don’t know, ignoring what we do know and not quite sure that we won’t wipe ourselves out along the way.
- Another big macro is climate change. I dispense with this quickly because I don’t yet see how our species will ever come together to tackle it. I mean look at how we have come together to fight a worldwide attack by a virus. We have not.
- The third macro issue is geopolitical instability; Russian and Chinese threats; and Iran and North Korea, always capable of scaring the heck out of every other country in the world.
- The fourth issue looms directly over the industry. The global supply chain collapse has not been corrected. Although I understand that billions of dollars of venture and early-stage capital is now being fire hosed into promising and innovative tech-driven logistics firms, I’m not betting on any of them to create demand driven, seamlessly integrated, transparent, and collaborative chains, from source to purchase.
- Another persistent macro challenge is an unstable economy and specifically the threat of stagflation. The extreme polarization of politics and its effects on an already sclerotic government bureaucracy seems to be getting worse. And a hollowed out middle class and extreme income gap between the haves and have nots is a long term and potentially a major threat to our form of capitalism.
- Finally, sixth in the bucket of macro issues is the real unknown culprit: a labor shortage due to people quitting their jobs, not returning to work after the Covid lockdowns and seeking new career paths. This troubling trend includes workers demanding higher wages, a “work from home” schedule, and/or other incentivizing benefits — all of which adds to the inflationary issue. I don’t mean to be insensitive to the needs of our workforce, but from a macro perspective, this will cause more economic instability.
Anxiety and Fear
Closer to home and directly facing retailers, Axios/Momentive recently polled Americans of both political parties and found the majority of respondents are much more fearful about 2022 (54 percent more fearful than 44 percent hopeful) than they were heading into 2021, when 63 percent were more hopeful, and 36 percent more fearful. And since about 70 percent of our GDP is comprised of consumption, this state of mind is not “happy times are here again.”
Democracy ranked second among issues respondents said matter most to them, behind jobs/economy and just ahead of healthcare. Not to get all political, it baffles me that with the actual video footage of our Capitol being attacked combined with state legislation to arbitrarily overturn a valid election, our citizenry would not be ranking the potential loss of democracy as far and away the number-one issue for 2022. But I digress.
While micro issues might typically refer to small-scale challenges as opposed to very large-scale macro issues, there is nothing miniscule about the list of issues, challenges, and opportunities to follow.
To set the stage, there have been two hugely disruptive events for the retail industry over the past 20 years. First, the full-on effect of technology and the internet, both “weaponizing” consumers with more power than ever before. Thus, customers can demand the fulfillment of their dreams, where when and how they want their needs delivered. Retailers responded to those elevated demands by utilizing the power enabling tools of technology and the internet, and the strategic and structural dynamics of the industry began to shift. The shift evolved to some degree in an orderly, yet disruptive pace.
The second more recent disruption, of course, was the worldwide attack by Covid-19 in 2020. The impact of this pandemic, which the industry is still responding to, greatly accelerated the shifts that were evolving, both the positive and negative. It also identified and brought into the open a new set of consumer demands.
The following micro issues correlate to the strategic and structural shifts, driven by technology and consumers, accelerated by the pandemic. These are the shifts that retailers must continue to master in 2022 and beyond.
The Consumer in Control
I start with consumers since they drive all other strategic and structural shifts. Their behavior during the pandemic also represented a massive shift in their shopping expectations. And the consumer cohorts that are the most important in these shifts are the millennial and Gen Z segments.
Except for basic and replacements needs, consumers want a personalized shopping experience, both online and off, which must be seamless. They want personal interaction and expect the retailer or brand to know what products they personally favor.
They also demand the option of ordering a list of goods from wherever they are to be shopped by a third party and then delivered (think: Shipt, Instacart, Uber Eats, drones or others). Delivery should be free and in a 10-minute to a same-day, or one- to two-day timeframe. Or they want the option of buying online and picking up in store, on the parking lot, or delivered from the store.
When shopping physical stores, they prefer small neighborhood locations, assorted with their personal preferences and local artisanal goods. They also expect a degree of local and communal engagement and meaningful events.
When shopping in larger flagship stores, they expect a high level of service, personalization and locally relevant merchandise. There is also a growing expectation to discover other brands they love from a competing brand’s store all in one place to make their shopping efforts more efficient and enjoyable.
Finally, there is a growing demand among younger consumers that retailers and brands champion social justice, support sustainability and environmental issues, and drive for diversity, equity, and inclusion in their workplaces.
The Retail Platform
In responding to consumers’ shifting demands and shopping behavior, retailers and brands have been making strategic and structural shifts to their models to survive. Many of those who were not shifting along with consumers and were financially weakened by the pandemic were driven into bankruptcy.
Malls and nonessential retailers like Dillard’s, Saks and others were forced to shut down as the pandemic drove people to isolate themselves at home. Since consumers had already shifted their shopping behavior with the proliferations of smartphones and ecommerce, the B, C and D level malls took a major hit and may never recover.
Localization is a key strategy moving forward. In fact, consumer focused retailers such as Target, Walmart, Macy’s, Bloomingdale’s, Nordstrom, and others are developing small neighborhood store models while closing their underperforming freestanding locations and stores within malls. Through AI technology and demand-driven inventory systems, the future landscape will be more “smaller and localized” stores, closer to consumers and assorted with local preferences.
Accordingly, supply chains will be structurally reconfigured. New systems will provide the quickest, most efficient, and accurate flow of goods from source to purchase, of exactly the right product to the right places at the right prices for the right consumers. When they want it, where and how often they want it. Long-term this can result in more “re-shoring” of production, “near-shoring” or “local-shoring.”
To maintain the agility to be maximally responsive to the changing consumer demands, a seamlessly integrated omnichannel is an absolute necessity. Financially engineered “spin-offs” are a short-term fool’s folly.
Along with the small, intimate, personalized neighborhood store expansion, there will be enormous opportunity for tech-driven, unique entrepreneurial startups, (fueled by unprecedented investments from financiers looking for riskier, but potentially big winners).
As online shopping continues to grow driving a decrease in big store square footage, Kohl’s, Target, Macy’s, Nordstrom and others are discovering that inviting other retail brands with great synergies (even competitors) to operate as shops within their stores (as long as they align with the same consumers). This model delights consumers by being a true one-stop store. Ulta is now on Target’s platform as well as Apple, Disney, and Levi Strauss. Sephora and Amazon have shops within Kohl’s. Toy R Us and Apple participate on Macy’s platform. And Top Shop along with many others share shops in Nordstrom.
Digital native brands such as Amazon, Warby Parker, Rent the Runway and others learned that a strong brick-and-mortar presence was a necessity for more rapid growth and easier, less costly customer acquisition efforts. Most are now pursuing that omnichannel model, with Amazon leading the way. Also, instead of operating solely out of distribution centers. Amazon finally understood that its nemesis, Walmart has a physical store, on average, withing a 10-mile radius of 90 percent of the U.S. population. And that local store can also be utilized as both a shopping and distribution center.
Finally, and more important than ever, experiences, entertainment and special events must be created to compel young consumers to spend the time traveling to a physical store when they can more easily tap their smartphone into any brand, retailer, product, or service, anywhere in the world in a matter of seconds as they sit comfortably in their living room, or on the beach.
Masters of perfect alignment of brand and experience are Lululemon, Nike, RH, Footlocker, Dick’s Sporting Goods, Neighborhood Goods, and many others that are vibrant and relevant.
Being a master merchant is no longer the credential for running a retail operation. In addition to becoming well versed in technology, supply chain systems, data and analytics, retail leaders must transform their cultures to embrace Diversity, Equity, and Inclusion (DEI) and Environmental, Social and Corporate governance (ESG) practices that are authentic. The point here is that unlike the Jack Welch and Milton Friedman economic school-think era of the 1980s when a firm’s number-one objective was making a profit and increasing shareholder value, today retailers must be global citizens, tech engineers, and social justice and environmental advocates. In other words, retailers must increase value for the benefit of all stakeholders (not just shareholders) in service to their customers and the communities they reside in.
“Leaders are finally beginning to wake up to the fact that having a diverse set of employees and treating them equitably truly does positively impact the bottom line. When more perspectives have a seat at the table, companies fare better both from public perception and financial perspective. Leaders are beginning to understand that inclusion can have a huge impact on the talent in the marketplace and they will focus on development and offer the different resources members of a diverse workforce need to successfully bring their talents to the table. Inclusion is going to become an enduring line item in the annual budget, a part of the organizational fabric instead of something companies engage in to superficially to check the box. Companies are going to spend the money even if they previously thought they didn’t have it—like they have had to spend to address supply chain issues—because DEI is no longer just a nice to have, it has become an essential business function to prioritize. Employees and potential candidates aren’t just asking for it, they are leaving when an organization’s culture isn’t working for them. Consumers are also growing savvier by the day and are looking for clues that companies are serious and committed in the way they create, sell and market whatever the product.” So says Amber Cabral, author of Allies and Advocates, and I couldn’t agree more.
Add it up guys. As I think of the additional costs for retailers to align with all the macro and micro challenges, I honestly don’t know how they can grow the bottom line. But I do know that retail leaders are resilient, smart, and creative; many of them did very well in 2021, both top and bottom line.
“Get Tough or Get Out” is an understatement if your strategic planning is not addressing all these issues, challenges, and opportunities. Go forth and good luck. And I wish you a very happy and HEALTHY New Year!