Retail’s Store Stall – The New Normal

Last month, Shelley E. Kohan, Vice President of Retail Consulting at RetailNext, and MPD CEO Karen Webster talked about the “new normal” in retail. Have things stayed normal since then?

Yes and no. As the pair dove into RetailNext’s “Retail Performance Pulse” report for August, they discovered that, while some things appear be the same on the surface, consumer behavior is having a very unusual effect on the retail industry, altering the very fabric of time itself.

KW: In looking at the “Retail Performance Pulse” report for August, my interpretation is that it’s sort of the same-old, same-old, with perhaps a few slightly different twists.

Sales per shopper are up; net sales are down; traffic is down; transactions are down. This is becoming kind of the “new normal.” Is that how you see it, or do you see a different picture this month?

SK: As it relates to traffic numbers — almost a 10 percent decline — it’s very similar to what we saw previously. I think the difference in August, compared to June and July, is that the sales per shopper numbers are not quite as strong.

KW: I was a little surprised by that, because I had thought that back-to-school might have jazzed those numbers a little bit.

SK: There are three categories that had an impact on sales per shopper being not quite as strong as we’ve seen.

One is back-to-school, as you mentioned. I think what’s happening with that seasonal category — as we’ve seen happen with holidays like Thanksgiving — is that shoppers are kind of reinventing holidays for us.

When you look at back-to-school in and of itself, I believe it’s becoming less of an “event.” Today’s very savvy consumer is coming to understand that they don’t need to buy everything they need for back-to-school in August. I think we’re going to see a shift in how consumers spend in back-to-school, and that’s going to extend it into a longer period, stretching into September and maybe even October on the ready-to-wear and apparel side of the business.

Another thing that’s affecting back-to-school this year is that there isn’t a “must-have” item for the season, something that would otherwise compel shoppers to run out and purchase.

The second contributing factor to the smaller sales per shopper number is the lateness of Labor Day. It’s pushed a little later into September this year, and therefore its numbers are divided between September and August.

The third factor, which is actually positive news for the larger economy, is that auto sales have experienced their biggest increase in over a decade. By definition, consumers only have so much discretionary income to spend, and auto sales this year might have taken a bite out of what otherwise would have been spent on retail in other areas.

KW: Interesting. Maybe families were also traveling for vacation and spending their money on other things, as well.

SK: Absolutely. And when you look at the week-by-week analysis for August, one of the things that always kind of makes me chuckle is this big promotional marketing strategy around tax-free days. That’s got a strong psychological appeal for customers.

Quite honestly, if we as retailers said to customers, “Hey, you can get 5 percent off,” no one would step through the doors. Yet, when we call those same discounts “tax free,” there’s an impact on the metrics in the beginning part of the month, when there’s tax-free days in a lot of states. I think that psychological appeal has more to do with the feeling of “sticking it to the government” than it does with the actual amount of savings.

KW: The “returns” percent – the percent of shoppers who come into the store to return items – is another number that jumped out at me as being very different from months prior. Can you describe the implications of that change?

SK: The return percent on the report that you received only goes through April. Those numbers are significantly better from February through July, year over year. Fewer consumers are returning fewer things.

That’s partly due to the preparation that consumers have done before they enter the store. Not only are they purchasing at a higher rate, they’re more likely to purchase the right items because they’ve done the research.

KW: Force Friday is upon us; “Star Wars: The Force Awakens” merchandise is now available at retailers, even though the movie isn’t coming out until December. Retailers are projecting a $5 billion windfall because people are so eager to buy products associated with that film.

Do you think that will drive people into the store, or will it just drive people to buy that “Star Wars” merchandise wherever they can get it?

SK: “Star Wars” certainly represents a great marketing endeavor to get people out there. It’s a cultural phenomenon that has transcended so many different generations. You have parents wanting to go check out the new movie, and you have Gen-Zs that are also spellbound by “Star Wars.” That’s a real positive, from a retail perspective.

On top of driving the sales for the actual “Star Wars” merchandise, a lot of families will be coming into the store to buy that and then also realize, “Oh, wow, it’s the end of summer; I’d better start thinking about back-to-school.” I think we might see an uptick in September as a result, especially over Labor Day weekend.

KW: Were there any regional differences that were noteworthy?

SK: The noteworthy regional differences really came from the West; that area had remarkably better results overall — in conversion average, transaction value, and sales per shopper. It showed the smallest gap between the traffic and sales numbers.

I think August is one of those months where you see a discrepancy, to a great degree, amongst the regions compared to other months. A contributing factor to that might be the differences in the back-to-school periods across the nation — and that’s the second-largest seasonal holiday for a lot of retailers.

KW: What about the South, though? School started early in that region, but sales and foot traffic dropped.

SK: I don’t know if that’s necessarily related to back-to-school spending. As I said, back-to-school is a longer season than it’s ever been, and no longer an “event.”

Another element that affects back-to-school time periods across the nation is vacation schedules — when people are going on them, and when they’re coming back from them. The varying ways in which consumers spend their time in August going into September definitely impacts back-to-school shopping across regions.

KW: Were there any other observations that popped out at you as you looked over the data for August?

SK: There are so many positive economic numbers that support really better sales than what we’ve seen before coming out of August.

I’ll go back to something I said last month: The holiday season for retailers this year is really a no-holds-barred one, because next year is an election year.

Presidential election years affect the retail industry in a couple of ways. One is financial: because consumers don’t know what’s going to happen in the elections, they tighten up their purse strings and become much more conservative in purchasing behavior. The other is psychological: the round-the-clock media coverage on politics and the election simply distracts consumers from shopping…as well as retailers, to an extent, from focusing on selling.

This is the year, therefore, that retailers should make a stand — adding value, branding, and so many other elements to their offerings.

KW: I guess the bottom line is that there really isn’t a particular concentrated period that can be measured in days or weeks around what we think of as “events” — back to school, holiday, et al.

Consumers are planning; they’re using their mobile apps and their tools to decide how they’re going to spend, and when they’re going to buy. It makes the whole process take longer, and retailers just need to understand that it — along with many other aspects — is part of their “new normal.”

SK: It’s a new reality. The only thing that has remained consistent is the holiday season. Thanksgiving’s gone from a one-day event of Black Friday to a five-day event. Back-to-school used to be a two-week event; now it’s a six-week event. Holiday, however, will always be after Thanksgiving through Christmas.

I don’t think that’s going to change much… Although we have seen, in the past few years, an increasing amount of shopping activity post-Christmas. That might continue. I do think there’s a lot to be said for how these events are shifting into longer periods of time.