MOBILE, DISCOUNTS, POP-UPS TO DRIVE HOLIDAY SALES GROWTH
4 Key Trends
- M-Commerce investments on display.
Online sales will continue to grow, but mobile technology will play more prominent role than in years past as retailers seek new ways to generate sales and collect strategic data.
- How low can you go? Discounting is the new full price. Online sales are not the exclusive domain of pureplay e-retailers, as more than 50% of online sales are made by brick-and-mortar brands.
- Retail pop-up strategies intensify. U.S. consumers prefer combining online and in-store shopping, making omnichannel platforms critical to retailer growth.
- Pop-ups go industrial. To execute omnichannel effectively, most brick-and-mortar brands are restructuring industrial footprints and supply chain strategies to enable faster and more cost-effective delivery to consumers.
M-Commerce investments on display
Retail sales across all channels are expected to rise between 3.6% and 4% this holiday season,1 according to the National Retail Federation, a trusted source for holiday projections. Like last year, much of this growth will be driven by increased internet sales; marketing and research firm eMarketer predicts e-commerce will account for 11.5% of total retail sales in the November-December period. This share will represent an acceleration in online sales growth, with 2017 e-commerce holiday sales projected to rise by 16.6% against the 2016 season’s 14.3%.
Distinct from last year, however, is an increased focus on mobile sales and advertising platforms. As consumer expectations for convenience and speed continue to rise, brick-and-mortar brands are adding mobile technology as an integral component to omnichannel success. eMarketer forecasts 38% growth in retail sales made through a phone or tablet in 2017 (full-year), accounting for 34.5% of all e-commerce purchases and the majority of which will go to brick-and-mortar brands (this trend is outlined in the recent CBRE report “Beyond the Headlines: Is the E-pocalypse Here?”).
This holiday season will see enhancements and new technologies featured in retailers’ mobile apps, like in-store scanning that gives customers instant access to detailed product information and reviews, “wish lists” and customized product offers. Both retailers and landlords will leverage mobile and social media advertising heavily this year—from “photo boxes” that encourage customers to take selfies at a shopping center or in a store, to increased advertising on key social media platforms.
In addition to improving the customer experience, enhanced mobile features generate key advantages for retailers: apps that can collect key customer information on preferences and shopping habits, and then generate tailored product offerings and advertising. This allows retailers to connect directly with consumers through features like push notifications and text messages that are tailored to a shopper’s personal preferences. This strategy is called “clienteling,” and it is increasingly popular among retailers that are seeking to build brand loyalty by proactively contacting customers rather than waiting for customers to come to them. As such, expect mobile investments to rise not only during the holiday season, but throughout 2018.
Figure 1 - Holiday Retail Sales and E-Commerce Share
Source: eMarketer, October 2017
Figure 2 - M-commerce Retail Sales
Source: eMarketer, September 2017
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Discounting is the new full price
A rise in discounting is expected for this holiday season, as retailers seek to compete on price and win the wallets of increasingly price-sensitive consumers. Retailers in nearly all categories have faced considerable pricing pressures over the past few years, driven by several key economic and consumer trends.
First is a general trend toward value. Consumer interest in discounted, off-price and low-priced goods rose significantly in the wake of the 2008 recession. During this period, spending shifted toward lower-priced options across most categories and benefited sectors like fast-casual in the food & beverage category and fast fashion in apparel. Despite recovery of the overall economy and household financial health to near pre-recession levels, the U.S. consumer has retained interest in low prices and value. This is reflected in the ongoing growth of discount and off-price players like TJX brands, Dollar General and ULTA Beauty—a trend highlighted in this year’s CBRE report “Beyond the Headlines: The Big Box is Dead?”
Second, the rise of the internet and digital channels has given consumers more access to pricing and product information than ever before. On the one hand, this has enabled price-conscious consumers to search for the lowest prices; on the other, it has given consumers who value quality unprecedented access to customer reviews and information like sourcing and materials.
Indeed, sales growth among key discount retailers has outpaced growth in other pricing categories, demonstrating consumer demand for better deals. JPMorgan recently announced that off-price retailers have increased their sales by $14 billion since 2011 and that key off-price retailers TJX, Ross Stores and Burlington are expected to see additional sales growth of nearly $19 billion by 2021. On Wall Street, investors are betting on this success, with share prices up this year for many discount and off-price players and TJX in particular raising forecasts for year-end sales.
In this context, mid-range retailers are struggling to compete against the discounters on price and against the higher-priced and luxury brands on quality. As a result, we anticipate many retailers will initiate deep discount strategies this season to limit market share loss to the rising discount and off-price players. This will be especially prevalent in the mall and general merchandise, apparel & accessories (GAFO) categories, which face the most pressure.
Fortifying portfolios that support dynamic commerce models.
Pop-up strategies intensify
The trend toward rogue retailing, highlighted in last year’s CBRE Holiday Trends report, will intensify this year with retailers’ increased focus on pop-ups. Both retailers and landlords will leverage pop-ups—short-term installations either in traditional retail storefronts or non-traditional venues such as shipping containers or kiosks—with more features than ever before.
Retailer's Need For Experimentation
The rise of omnichannel shopping continues to challenge retailers’ traditional business models, which were originally designed for single-channel shopping. This is the case for both brick-and-mortar brands, which need to integrate online shopping into their platforms, as well as pure-play e-tailers, which must now add physical stores in order to grow revenue and profits. In an effort to better understand customers and craft long-term strategies, retailers are turning to experimentation in both merchandising and retail store formats. Short-term pop-ups allow retailers to experiment with different store sizes, formats and products without committing to long-term leases. They also enable retailers to collect key information on consumer responses to these experiments, feeding longer-term strategic planning.
Holiday Traffic and Sales Opportunities
For many retailers and landlords, the holiday season is the best time of the year to test new concepts, products and strategies. The sheer volume of traffic and sales that occur over this time period presents high customer exposure and, as a result, a significant “sample size” from which to capture customer feedback. This allows retailers to capture more information over the two-month period than they would likely collect over a six-month term or longer.
Increased Appetite Among Landlords
Although landlords have historically sought to limit short-term leases in favor of the security offered by longer-term contracts, attitudes toward pop-ups have changed significantly. Landlords that have faced increased vacancy from retailer closures, especially in the mall and high-street segments, see holiday pop-ups as an opportunity to generate revenue from an otherwise vacant space. At the same time, landlords with high-performing properties with fewer vacancies see pop-ups as an opportunity to appeal to consumer demand for “new and different,” driving up traffic and revenue. Major mall owner Westfield Corp. has been integrating pop-ups into its tenant base for several years, with an entire floor of its San Francisco Center dedicated to short-term tenants. Earlier this year, Simon Property Group established The Edit @ Roosevelt Field, a designated area for pop-up retail concepts at its Long Island property. And in Canada, Oxford Property Group has dedicated approximately 3,600 sq. ft. to pop-up tenants in its Yorkdale Shopping Center. Increased acceptability of shorter-term leases by landlords, paired with retailers’ interest in short-term experimentation, will drive up the number of pop-ups this holiday season.
As pop-ups become more prevalent, they are also becoming more sophisticated. This season will see an increased emphasis on new technologies in pop-up concepts as retailers experiment with new strategies to lure the increasingly tech-savvy shopper. Kate Spade’s recent partnership with eBay at a pop-up space in Manhattan features interactive screen formats that integrate online and off-line shopping. Another major retailer, Neiman Marcus, installed “fashion mirrors” near dressing rooms, providing shoppers with 360-degree-view videos of their apparel items that they can share in real-time. As retailers continue to compete on customer experience, pop-ups are a key battleground for revenue and traffic.
Pop-ups go industrial
The business of industrial real estate is, at its core, very simple. It’s about creating an orderly and efficient supply chain aimed at moving goods from the point of production to the point of consumption. As the demand for goods grows or shrinks, so does the demand for warehouse space. This makes projecting warehouse demand on a broad scale somewhat simple if reliable macroeconomic projections are available.
At the user level within a year or sales season, however, the ability to accurately forecast warehouse demand is very difficult. Users lease space that is sufficient for an average inventory count. But over the course of a year or sales season, the amount of inventory held in that space can fluctuate significantly. This problem becomes most acute during the run-up to the holiday season when inventory levels are at their highest and put massive strain on warehouse capacity. Traditionally, this capacity crunch has imposed quite a cost for warehouse users in one of three ways:
- Occupancy costs increase because users are forced to sign long-term leases for excess space to handle the seasonal inventory crunch but that may go unused for the rest of the year.
- Users incur additional internal shipping costs by moving extra inventory between warehouses, and incur additional outbound shipping costs for inventory that is not held in single, centrally located facilities.
- Users enter into very costly and rarely available short-term sublease agreements to handle the excess inventory during seasonal peaks.
The rise of e-commerce and the general trend toward more inventory aimed at faster and better service has only exacerbated this problem. But a new “pop-up warehouse” model has entered the market and may provide the solution by matching owners of excess warehouse space with users that need that space on a temporary basis. Granted, the idea of subleasing extra space is not new, but services that can more easily match both sides of the transaction have emerged and offer greater transparency and fewer transaction costs to the process.
This product is in its infancy and only available in about 50 U.S. and U.K. markets, but the early returns are promising. Thus far, the net result of leveraging an on-demand model is that a warehouse user with large seasonal inventory peaks can quickly find excess space and commit to only the time needed. A study by Flexe, one of the early on-demand warehouse providers, found that users who utilize on-demand flexible warehouse space to augment a single-peak seasonal inventory surge can improve warehouse utilization by almost 100% and cut overall seasonal warehouse and inventory costs in half. In a multi-peak scenario, where inventory surges more than once per year, warehouse utilization improves by 40% and costs are cut by 20% to 30%.
In an already low-margin business that is finding its profits squeezed further by consumer demands for speed and service, these cost savings afforded by better inventory and real estate management can be the difference between a profitable and unprofitable holiday season.
Chairman, Americas Research & Senior Economic Advisor
Head of Industrial & Logistics Research, Americas & Global
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