Consumers have begun to brake after a year of record-breaking retail sales, fueled by stimulus payments and online purchases.
Retail sales increased by 0.3 percent in January, but were down by 2.9 percent in January. This is according to Wednesday’s Commerce Department report.
Online sales now make up 12.9 percent of retail sales. This is a 3.2 percent decrease from January’s 14.5 percent increase. As consumers returned to eating out and increased their wardrobes for work, apparel and restaurants fared better than other categories. Analysts are now wondering if e-commerce can maintain its current high sales.
Rob Garf, VP/GM Retail at Salesforce, a company that makes software to manage customer relationships, stated, “We all spent our lives in digital over the past two years.” “The big question now is: How can we continue this digital growth spree?
One solution is to revive brick-and-mortar stores and open more. Garf stated that over the past two decades, big retailers have discovered that customers who shop online as well as in stores tend to spend more. This is changing. The National Retail Federation reports that retailers opened more stores than 8100 last year, despite supply chain issues. This is more than twice the number of closings.
John Mulligan, chief operating officer at Target, stated this month to investors that Target stores handled more than 95 per cent of its $100 billion in sales last fiscal year. Target stores fulfilled orders online and delivered them directly to the store. According to Mulligan, the online business helped drive a 12 per cent increase in store traffic. 95 percent of sales were made online, or with pickup at physical stores.
David Bassuk, co-leader of AlixPartners’ retail practice, stated: “It used be that retailers with physical stores would have an online presence. But now it is quite different.”
These efforts are taking place on a completely different field. In-store and online interact in a hybrid model that allows lower inventory levels and requires fewer workers.
For example, Bed Bath & Beyond recently remodeled their flagship New York store. This reduced the number of products almost by half. Instead of having a specific blanket in six colors, or a mirror for the door in multiple sizes in stock, the shelves are lined with QR codes that shoppers can scan to place orders. They can pick up the blanket or mirror at the store or have it shipped directly to their homes. Best Buy opened a cafe and SodaStream bars in its extra space.
Bassuk stated that the longer the customer spends in the store or with the retailer, the more likely they are to purchase the product.
Many department store owners are also downsizing and have done so since before the pandemic. This just accelerated the process. Macy’s announced over 100 store closings last year. Nordstrom closed 19 of its departmental stores in 2020.
Both retailers are opening smaller, more modern stores in suburban and urban areas. Macy’s opened five Market by Macy’s stores and Bloomie’s shops, which are half the size of traditional departmental stores. Nordstrom has opened seven Nordstrom Local stores, which are smaller than 3,000 square feet.
Accenture’s global retail practice head Jill Standish said, “Stores are being brought back in focus.” Retailers are evaluating the store inventory and asking themselves, “Do I really need so many stores in this zip code?”
The rise of social media shopping has made the retail landscape more dynamic during the pandemic. Social media platforms have made it easier for retailers to be present on Instagram, TikTok and Twitter. Snap Inc. launched the Shopping Lenses. This allows users to swipe through products from various cosmetics retailers like MAC or Ulta and then try them on virtual models. According to Snap Inc., the tool has been used in more than 1.3million try-ons.
Garf, Salesforce’s chief marketing officer, stated that social media platforms “almost become the shopping mall for this generation.” Salesforce predicts that orders on emerging commerce platforms are going to increase by 30% over the next 12 months.
However, prices are also increasing rapidly and at a rapid pace. According to the Adobe Digital Economy Index, inflation will be $27 billion higher this year for consumers who purchase the same goods online.
Rod Sides, Deloitte LLP’s U.S. Retail and Distribution Leader, stated that “retailers know inflation” “We will see what happens when discretionary spending goes down,” said Rod Sides, the U.S. retail and distribution leader with Deloitte LLP.
Janice Grant (27), a mortgage loan processor from Atlanta, said that this is already happening. She explained that she has been reducing her shopping for the past month. She said, “I’m not going shopping at Chanel to buy a bag or Sephora to purchase makeup.” She said, “I’m only buying the things I need.” Products like toothpaste, trash bags, and dog food that she purchased at Family Dollar have almost doubled in cost.
Grant, who earns $2,400 per month in salary, stated that she is considering a second job at weekends because the prices are so high.
She said, “It’s been happening every day now with friends.” It’s scary.
