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Bike Retailer Solves a Pandemic-driven Problem

Lots of consumers wanted to get outside when the pandemic hit last year. Among the beneficiaries was Erik’s Bike Shop, a Minnesota-based retailer, which experienced a massive increase in web traffic and customer service requests — phone calls, emails, and chats. The staff was overwhelmed.

Ultimately, providing better inventory info online reduced the support volume and solved the problem. But the lesson goes beyond technology alone.

Many bike shoppers wanted to know which models were in stock and available for curbside pick-up at specific locations. Erik’s solution was to display inventory availability early in the online shopping experience. Once it geolocates the shopper, the site offers pick-up information beginning on category and search pages.

The result is the number of customer conversations per order went down 44 percent, and chat interactions dropped 68 percent.

Web page from Erik's bike shop showing store pickup location

Erik’s website now displays inventory availability early in the shopping experience.

Beyond Software

The notion that the pandemic accelerated retail’s digital transformation is true. But the transformation is not only about software and technology. A company’s relationships with vendors and employees are equally important.

Erik’s Bike Shop has been in business since 1977, when it opened its first store in Richfield, Minnesota. But the company’s founder, Erik Saltvold, began selling bicycles before then — when he was 13 in his parents’ barn.

The company has grown to 30 physical stores across seven Midwestern states and a strong ecommerce operation. Last year, however, Erik’s suddenly had a technology problem.

“When the lockdown went into effect in the U.S., we wanted to be very cautious…so we cut back on store hours, making sure we were as efficient and effective as possible. But it quickly became obvious that people were still looking for ways to get outside and enjoy what they could in a safe manner. Cycling was going to be a way people could do that,” said Graeme Bloor, Erik’s vice president of digital and information technologies. “Within a couple of weeks, we started to see sales volume spike through all channels — in-store and online.”

Before the pandemic, consumers who shopped at Erik’s might start by looking at bikes online, then visiting a physical store and speaking with a salesperson. Inventory availability was obvious for shoppers standing in one of Erik’s shops.

Then came Covid-19.

“Consumers were starting their interactions online with our customer service team, which had to do all of the leg work that our salespeople usually do to find what kind of bikes [consumers] needed, where those bikes are located, and how we could deliver them,” Bloor said.

The company struggled to keep popular models in stock and informing shoppers which stores had available inventory. The solution was not unique: Erik’s site needed better inventory information earlier in a visitor’s interaction.

Rather than showing online shoppers a list of 30 stores, Erik’s team added geolocation that identifies the closest available inventory for a visitor. The geolocation app required some custom site development. And this took collaboration, which was based on a long-standing relationship.

“Our customer success team had worked with [Erik’s] over time, and as the pandemic hit, inventory availability became a very real operational challenge for them,” said Jared Blank, chief marketing officer at VTEX, Erik’s ecommerce platform.

Bloor, Erik’s vice president, and team identified the problem: a need to offer detailed information earlier in the shopper’s journey. VTEX found a solution.

Bloor stated, VTEX’s team told us, “We’ve got this geolocation app. We think we can work it into the inventory lookup too,” said Bloor.

In short order, VTEX and Erik’s had a working solution so effective that the two companies publicized the results. The pandemic forced Erik’s and VTEX to take action on a technology problem. But the successful relationship between the two companies made it possible.

The lesson is not about technology or the pandemic but about how strong relationships can be a competitive advantage.

Retailers, Brands, Manufacturers Are Converging in 2021

The distinction between direct-to-consumer ecommerce and traditional retailing has been vanishing for years. But in a post-pandemic 2021, the convergence could be accelerating.

Here is the context. Traditional retail is layered and complex. The product on the shelf in a local brick-and-mortar shop may have been purchased through a network of intermediaries that started with a manufacturer in China and then included one or more distributors or the occasional manufacturer’s rep. Eventually, the product arrives at a traditional retailer’s own warehouse or store.

Along the way, each business profited.

Digitally Native and DTC

Increasingly in the past few years, entrepreneurs have launched digitally native vertical brands (DNVBs) and direct-to-consumer (DTC) sales channels, challenging traditional retail.

DTC brands sell directly to shoppers. DNVBs sell DTC but also integrate manufacturing.

Prominent DNVBs include Allbirds (shoes, apparel), Casper (mattresses, bedding), Dollar Shave Club, and Warby Parker (eyeglasses).

Screenshot from Allbirds website

Allbirds is an example of a digitally native vertical brand.

One might define the retail participants as follows:

  • Brand. Manufacturer or marketer of a specific consumer product. Popular brands include Nike, Carhartt, and Tide. In most instances, brands are wholesalers.
  • Retailer. A business that sells products from several brands to shoppers via a physical store or ecommerce.
  • DTC. A sales channel whereby a brand sells directly to a shopper, via the brands’ websites or, often, the Amazon marketplace.
  • DNVB. A company that manufactures its own products and sells them directly to shoppers, focusing on consumer marketing and promotion.

Convergence

In 2016, I wrote that one of the challenges retailers would soon face is that brands would sell against them.

“Many small online stores buy products wholesale from manufacturers or distributors to sell at retail. This is the classic business model for retail stores,” I wrote.

“Unfortunately, ecommerce’s low barrier to entry has encouraged many manufacturers to start selling directly to consumers. This means that the same company that sells your products may also be your competitor. As an example, Danner Footwear … sells not just wholesale to retailers but also directly to consumers on its website.”

In the past five years, DTC has become a channel for brands to grow and survive. This was especially true during the pandemic when many folks shopped online rather than in a physical store.

Retailers have been converging too. Amazon, Walmart, Target, and seemingly all major retailers have developed private label brands to sell against their traditional suppliers.

Take Wildology pet foods, for example. The brand is a partnership of approximately 40 farm-and-ranch retail chains in North America. The resulting product rivals something from the leading traditional pet food brands. Customers of Purina and Blue Buffalo just became competitors.

Screenshot from Wildology website

A group of approximately 40 farm-and-ranch retail chains created Wildology, competing directly with the national brands they also sell.

Even DNVBs are doing it.

“Beyond a few notable outliers, DNVB doesn’t scale. Nor does DTC. And the future demands embracing that reality,” wrote Aaron Orendorff, vice president at Common Thread Collective, an ecommerce agency.

“As evidence of scale’s adversity, many of DNVB’s founding parents — names like Bonobos, Casper, and Happy Socks — have entered wholesale either by way of acquisition or alliance. Traditional outlets like Walmart, Target, Macy’s, and Amazon are happy to serve as the middlemen that ‘vertical’ once cut out,” Orendorff wrote.

What’s more, shoppers might not care. For all of the attention on how brands, retailers, and DNVBs are getting mixed up, shoppers buy products they like from sellers they like.

Post-pandemic

To be clear, this trend is not new. It has been happening for years. The question is how the pandemic affects it.

Covid-19 is one of the most significant global events since World War II. It will have a lasting impact on economies, governments, and individuals.

Likely the pandemic has accelerated retail’s digital transformation for at least a few reasons.

  • Shopping habits changed. The pandemic forced consumers to shop differently; it’s unlikely that those shoppers will completely return to a pre-pandemic purchase pattern.
  • Technology investments. Many brands and retailers invested in software and infrastructure to provide online shopping, curbside pick-up, and similar.
  • Competition. The pandemic has forced sellers ―brands, retailers, DNVBs ― to embrace omnichannel selling, resulting in more and better experiences for consumers.

All things considered, expect fewer distinctions between wholesale brands, retailers, and DNVBs in 2021 and beyond.

What’s the Future of Traditional Retail?

Did the events of 2020 and the associated changes in shopping behavior break the classic brick-and-mortar retail model?

The combination of Covid-19 lockdowns, supply chain problems, and economic woes accelerated digital retailing in several areas of the economy. While some experts believe this will result in more individual retail businesses, it may indicate that the traditional retail model will not work or at least not work as well in the near future.

“Let’s start with the model that just doesn’t work,” said Bloomreach CEO Raj De Datta, who is also the author of the book “The Digital Seeker: A Guide for Digital Teams to Build Winning Experiences.”

“What doesn’t work anymore is ‘I’m a retailer. I’ve got a certain level of selection. I source all my products. I work with all my brands. I deal with the supply chain. I open a bunch of brick-and-mortar stores — that’s my distribution. I market online and offline. I’m dependent on the number of people that walk into my store and buy the product that I bought from someone else and mark it up a bit to cover my margin and call it a day.’

“That model of retail, which has existed for a hundred years, is gone,” De Datta said during an exclusive CommerceCo by Practical Ecommerce event.

Bloomreach CEO Raj De Datta, right, was interviewed by the author during a live CommerceCo by Practical Ecommerce event on January 14, 2021.

The Path Forward

De Datta was responding to a question when he said the traditional retail model was in danger. Specifically, he was asked how traditional retailers could compete when so many brands, such as Nike and Carhartt, are opening their own physical stores and promoting their own ecommerce sites.

Ultimately he saw three possible paths toward future success if these traditional retail businesses adapt.

Specialty retail. Specialty retail has been around for a long time, too. You might think of pet stores, boutiques, and even greeting card sellers as specialty retailing. Still, to be successful long term, it is important to select a specialty that cannot be overrun the next time an online marketplace like Amazon adds a new category.

As De Datta put it, this is a “high bar” for retailers, but it can work.

“There are certain categories, particularly more complex categories where [incredibly specialized retail] is feasible….it turns out eyeglasses are a good example of that. It is pretty hard to be a great eyeglass retailer. There is a lot of depth from prescriptions to filling the prescriptions and making sure that fits works and all of these other things. So specialty can work to an extent,” De Datta said.

Other areas of specialty success might reside in Blue Ocean businesses that have unique selling propositions.

Direct-to-consumer retail. Imagine you run a traditional retailer in the Pacific Northwest. You sell online and through your network of retail stores. One of the brands you sell is Carhartt, and it opens a new Carhartt store just a mile from one of your locations. How do you win against the very brands you sell?

“We’ve got to stop talking about retailers and brands. Every retailer needs to be a brand,” De Datta said.

Effectively, traditional retailers will need to white label products and establish their own brands. For example, Mid-States Distributing, which is a sort of joint-venture operation with dozens of farm and ranch chains as its members, launched its own brand of pet food, Wildology.

The Wildology brand sells in each of the members’ stores — more than 1,000 physical locations and dozens of websites — and is controlled by the members collectively. Wildology is, effectively, a direct-to-consumer brand that sets on the shelf (virtual and physical) next to traditional pet food brands.

Mid-States Distributing is developing similar DTC products for everything from hardware items to power-equipment.

Screenshot of Wildology home page

Nearly 40 farm and ranch chains worked together to establish their own brand of pet food. Because the chains collectively have stores throughout the United States and Canada, they can build a brand with clout.

Many other retail stores are doing the same.

“Owning your brands is really important because you need the margin, and you’ve got to know that your brands are competing with you, and if they’re competing with you, you’ve got to complete with them,” De Datta said.

Marketplace retailing. The final path forward may be available only to the largest traditional retailers: become a marketplace.

“If you’re Target or a Walmart or if you have incredible scale, your company could succeed if you say, ‘I’m going to play the selection game. I’m okay without having proprietary products. I’m okay without having a high degree of specialization,’” according to De Datta.

Combining the Three

If the traditional retail model, as De Datta describes it, won’t work, a retailer should adopt one of these approaches or some combination of them. For example, a retailer could be both specialized and the owner of DTC brands.

B2B Lessons from 2020

Covid-19 forced all of us to change. Companies and employees who had resisted digital innovation suddenly had no choice. Some of the changes have created value and are worth keeping. Others not so much.

My company develops ecommerce systems for B2B merchants. What follows are pandemic-induced changes that, in my view, will likely become permanent. I’ve also listed a few painful B2B weaknesses that Covid has exposed.

Permanent Changes

Digital content is critical. This was shifting even before the pandemic. People are using online content rather than an in-person conversation. Even phone and virtual interactions are down in favor of digital self-service options. Companies in 2020 came up with new ways to build relationships, such as videos, articles, PDF guides, and other resources. Going forward, think about how a customer or prospect can interact with your company at midnight when no one is around.

More efficient processes. Doing more with less has become a higher priority. Tools that make key processes faster are essential, such as quickly answering customers’ questions, closing a sale, setting up an account, cost details, and shipping and arrival info.

Embracing online sales. For many of my B2B clients, ecommerce sales grew in 2020, even if off-line revenue was down. The pandemic demonstrated the value of digital transactions to organizations that were previously skeptical. Ecommerce is a benefit to a sales team, and last year proved it.

Ecommerce on a timeline. Many B2B ecommerce sites that had been held up due to an expansive scope got done quickly. Companies were forced to accept smaller, faster iterations and improvements.

New ways of communicating. In-person sales calls and trade shows turned out to not be as important as we thought. Our culture shifted as more people worked from home. We became used to seeing each other’s pets and being in each other’s homes. We were forced to re-examine our habits and notions of how things are.

New services or processes. An HVAC distributor, for example, can now offer dock-side pickup, similar to curb-side for retailers. Traditional B2B sellers have shifted to selling certain products directly to consumers. Manufacturers that once took complex orders only through a salesperson have created self-service digital ordering.

New skills. Many B2B companies shifted employees to digital-focused tasks. Experienced team members can offer valuable perspectives. Most are willing to learn new things to match the needs of the company.

Weaknesses

Challenging times can highlight our weaknesses. The pandemic did that for quite a few B2B merchants.

Outdated systems. In shifting to digital, some organizations found that their systems could not easily integrate. Examples are outdated administrative platforms or homegrown software for sales quotes. The digital transition requires a hard look at internal systems. Some will need to be updated.

Lost opportunity. Businesses with limited digital platforms suffered the most.

Culture turmoil. Many teams struggled because they weren’t prepared for or open to essential changes. Companies have learned the importance of a resilient, innovative, and adaptable culture. Employees who demonstrate an unwillingness to change are obstacles. Those who step up and lead are invaluable.

Unnecessary expenses. Some companies realized they were paying for outdated items that did not create value for the business or its customers.

2020 in Hindsight

Take the time to review how 2020 impacted your company. What lessons did you learn? What choices might you make going forward?

Pandemic-driven Shoppers Expect More from Ecommerce

The pandemic has upped consumers’ digital expectations. What was once the exception is now the norm. Telemedicine, online learning, virtual meetings — all have advanced in the past year. Ecommerce stores must evolve, too, in how they engage and interact with shoppers.

Here are five ways to stay competitive and spur conversions.

5 Engagement Tips

Embed how-to and inspirational videos on product and landing pages. Instead of sending shoppers on the hunt for more information, develop and deliver short, detailed videos on using your products. Video is a powerful marketing tool, especially when tailored to the target audience. Take things a step further by encouraging customers to submit content you can feature, either as standalone media or in collaboration with others.

Incorporate live video chat. Shoppers expect a speedy customer-service response. Yet most companies mismanage email and after-hours chat requests.

Combine delays with representatives who multitask — managing many queries at a time — and the result is unnecessary delays and mistakes.

Hosting dedicated channels for video-based customer service serves two purposes:

  • It allows reps to focus on one request at a time.
  • It personalizes the shopping experience.

Smaller and niche stores, as well as outlets selling high-end luxuries, could benefit from this method of guiding shoppers through product selection and checkout.

Put more focus on user-generated content. In the age of selfies and social media, UGC continues to help stores close sales. Customer reviews are a must, but so is personalizing pages via context-of-use photos and videos by real people.

For example, beauty company Glossier incorporates customers’ selfies in galleries and spotlights consumers in various blog posts. This creates a compelling, personalized marketing message: Real people (just like you) use Glossier products.

Screenshot of the Glossier blog, depicting an interview with a PR manager

Glossier’s blog focuses on its customers.

Ask questions. Online stores that sell competing products can benefit from asking key questions, similar in concept to shopping for car insurance, where providers query users to offer the best policy.

Shoppable quizzes can present personalized options, where shoppers are asked a series of questions, and their answers determine which product sets are listed.

Brooks Sports encourages shoppers to take a 10-question quiz to identify suitable running shoes. Answers about one’s running environment, desired fit and feel, and health issues help present the best possible shoe.

Brooks' running shoe quiz includes asking about one's running goals

Brooks’ quiz-takers are asked about their goals and needs.

Despite taking time to complete, shoppable quizzes can create a shorter path to purchase.

Brooks product recommendation based on quiz answers

Brooks’ quiz returns personalized results.

While quizzes aren’t all that unique, the presentation can be. Brooks uses fun illustrations and common lingo throughout the survey, making it a breeze. Be sure to use formatting and language tailored to your target audience.

Let them pick up where they left off. Online retailers commonly force shoppers to re-experience content — a big mistake. Features that support multi-device sessions and persistent shopping carts are crucial to the conversion process.

Interruptions are common. Shoppers want to pick up where they left off. Shopping carts, customer accounts, and social connections must work together to remove the frustration of starting over.

7 Customer Retention Strategies for 2021

Retaining ecommerce customers lowers costs and boosts profits. In 2021, customer retention could be critical.

“At the onset of the pandemic, overall retail sales were down. But then a major shift occurred, and it was by far the largest move toward ecommerce that we have ever seen,” said Joe McCarthy, director of performance marketing for Klaviyo, an email and SMS marketing platform.

“In 2020 we saw multiple years of ecommerce growth….And when we look at [2021], the big question is, ‘Will this shift to ecommerce last?’ From our perspective, we definitely think it will….for smaller brands [the growth in ecommerce] is a major opportunity.”

Seizing that opportunity will be a matter of enticing first-time customers to return for more purchases.

1. Use the RFM Model

The recency, frequency, and monetary value (RFM) model makes it possible to identify and market to consumer segments based on their transactional behavior. The model is among the most potent ways to drive marketing automation, which, in turn, can play an important role in customer retention.

Using a scale of either 1 to 5 or 1 to 10, assign every customer a score for how recently she has purchased, how often, and the monetary value of her orders. For monetary value, you could use the average order amount or lifetime customer value, whichever makes more sense for your business.

Illustration of the Recency scoring, from 5 to 1.

A recency scale within the RFM model tracks when a customer last consummated a purchase. This example applies a score of 5 to 1, depending on the purchase date. A similar approach could be used for frequency and monetary value.

Each customer should have an RFM score. On a five-point scale, a 555 score would represent one of your best customers. Perhaps this 555 customer deserves a handwritten note from your CEO.

A customer with a 355 score could warrant an automated email or SMS campaign to reengage. Thus, the RFM model could become a trigger for several automated campaigns to entice customers to purchase again.

2. Customer Onboarding

A customer onboarding program can begin the process of building a relationship. This onboarding program should encourage new customers to:

  • Create an account on your ecommerce site,
  • Subscribe to your store’s content and promotional emails or texts,
  • Become members in a store community,
  • Contact your customer service team as needed,
  • Connect with your store on social media,
  • Download your ecommerce app, if applicable.

The onboarding process should be automated and include a few triggers where your customer service team members take action.

For example, when a customer orders the second time, consider sending a private message.

Starting this onboarding process late makes sense in 2021. If a customer initially bought in June 2020 but has not returned, consider sending a special Covid-related message, thanking him for the order, thus starting the onboarding process.

3. Build Communities

Building communities around a business or a lifestyle is a trend for ecommerce companies. The idea is to create a Facebook group or, perhaps, a Mighty Networks community where customers can interact with your business and with each other.

Invite all of your shoppers to join the community and treat it like social media marketing, content marketing, and customer service.

4. Offer Subscriptions

The ecommerce subscription model has many benefits, such as significantly improving customer retention rates. Combine elevated retention with improved margins, easy inventory management, and less expensive shipping, and you might ask why you didn’t consider subscriptions before.

In 2021, focus initially on adding subscription offerings for all of your consumable products. If you sell dog treats, make it possible for pet owners to schedule regular deliveries. If you sell cordless grinders, offer an abrasives subscription plan.

Once you have subscriptions in place for consumables, consider curated boxes.

5. Segment and Personalize

The RFM model is a form of customer segmentation. It’s number one on this list of retention ideas for good reason. But RFM models should not be your company’s only method of segmentation.

Developing personalized or segmented campaigns is an important part of customer retention marketing.

“A relationship is made by continually building on the small insights that you gather from a customer each time that you interact with them. So what did they purchase? What preferences did they display in their behavior — purchasing and browsing?” said Klaviyo’s McCarthy, making the point that customer retention should be data-driven.

The key for segmentation and personalization, then, is leveraging what your company knows about a customer to understand that person better and ultimately deliver the most relevant messages.

6. Double Down on Content

“Content marketing plays a huge role [in customer retention],” said McCarthy. “When you think about the emails you receive from any brand, it is one thing to receive a note on a particular product, but you can only send a consumer a product email so many times. They really want to see other things that are going on with your brand.”

Nuun Hydration, which sells hydration tablets for athletes, for example, has reported that their best performing email messages or not product emails, according to McCarthy, but rather content emails.

Remember, content marketing is the act of creating, publishing, and promoting articles, videos, and podcasts to attract, engage, and retain customers.

In 2021, content marketing can also help retain customers.

7. Focus on Service

Customer service is a marketing function for some ecommerce companies. That’s right, the customer service representatives answering Facebook messages, chats, texts, and phone calls work for the marketing department, not operations.

The rationale is that customer service is vital to retention. So in 2021, put customer-service key performance indicators high on your company’s scorecard.

China Is Dominating Ecommerce

In China, a drab gray Mao suit was once the required attire for men and women. No longer. The county is poised to become the largest luxury apparel market worldwide by 2025. With a 2020 population of 1.4 billion and a flourishing middle class with an appetite for foreign luxury goods, China is dominating ecommerce.

The Luxury Boom

Despite the pandemic, the Chinese luxury market increased by 48 percent in 2020 to roughly $52 billion, according to management consulting firm Bain & Company in its annual China luxury report, prepared in partnership with Alibaba’s Tmall Luxury Division.

Spending on luxury items continues to lag in the United States and Europe due to the pandemic, but it has recovered in China. A decrease in international travel by wealthy Chinese nationals has increased online luxury goods purchases. The pandemic also affected “daigou” agents, professional shoppers who travel overseas to buy popular cosmetics and luxury goods and then resell them in China. The country’s luxury online penetration increased from about 13 percent in 2019 to 23 percent in 2020, according to the Bain report.

[embedded content]

China has operated a duty-free shop on the island of Hainan for a decade. But business took off in 2020, driven by Covid-19 travel restrictions and attractive shopping policy changes, such as a 300-percent increase in the annual duty-free quota per person. As a result, Hainan’s duty-free sales surged 98 percent in the first 10 months of 2020.

Hainan now accounts for 55 percent of duty-free sales in China. If they do not exhaust their annual duty-free credits, visitors to Hainan can make additional purchases online and receive the items via home delivery.

Ecommerce in China

China is the world’s largest ecommerce market, propelled by ecommerce subsidiaries of the Alibaba Group — Taobao, Alibaba, and Tmall — plus competitors JD.com and Pinduoduo. Research firm eMarketer estimates that all Alibaba marketplaces plus JD.com and Pinduoduo will take a hefty 83.6 percent of the retail ecommerce market in 2020.

Statista reports that China has the largest online ecommerce population, with 710 million people shopping digitally. Seventy-six percent of digital shoppers are between the ages of 18 and 44. According to Statista, 64 percent of China-based internet users engage in ecommerce, with apparel and accessories and toys and hobby items the most popular products.

Statista estimates that consumers in China will spend $1.1 trillion online this year, up from $826.6 billion in 2019, which was more than double the United States’ second-place position of $360.0 billion and the E.U.’s $351.9 billion.

Cross-border

Since I last addressed its cross-border ecommerce market, China has cemented its standing as an online powerhouse in international purchases.

Although they have many domestic choices, Chinese consumers continue to be avid cross-border shoppers of both consumable and luxury goods. According to RetailX’s “China 2020 Ecommerce Country Report,” in 2019 China experienced 16.7 percent growth in cross-border ecommerce, typically via established and trusted domestic marketplaces such as Tmall. Foreign goods are seen as being of better quality by 68 percent of Chinese shoppers. Beauty and makeup account for the bulk of these purchases.

Social Selling

RetailX observes that Pinterest is the most popular social site in China, attracting 45 percent of social media users whereas Facebook garners only eight percent.

Chinese consumers enjoy shopping via live-streaming sales — which are especially popular on the annual Nov. 11 Singles Day — as well as instant messaging. Both drive online sales in the country. A fifth of shoppers buy directly from live videos. Many young people shop directly from instant messaging feeds, such as WeChat, which has resulted in these services driving the development of mobile payment systems embedded in the messaging applications. WeChat is now the world’s largest standalone mobile application.

Pandemic Effects

According to an Ipsos survey, 50 percent of Chinese online shoppers have increased the frequency and amount of online shopping due to Covid-19. By April 2020 the Chinese economy had started to recover, just as the rest of the world began to close down. With Europe and the United States in economic stagnation, China offers a vibrant ecommerce market.

5 Retail Insights from a Covid Christmas

Holiday consumer spending offers insights into the retail industry, including ecommerce’s continued growth, consumer spending, and customer relationships.

2020 has been extraordinary — the pandemic, natural disasters, and a divisive U.S. election.

Despite this, U.S. retail spending is up. The National Retail Federation recently reported that total U.S. retail sales (excluding automobiles, gasoline sales, and restaurants) for the first 10 months of 2020 increased 6.4 percent from the same 2019 period. And that includes the stunningly poor retail sales in April 2020 when so many stores and businesses were closed.

This isn’t to say that everything is hunky-dory in the retail industry. Just ask Pier 1, Sur La Table, Motherhood Maternity, J.C. Penney, Neiman Marcus, or any of the other dozens of merchants that filed for bankruptcy during the year.

So what does it all mean? What follows are five insights from the 2020 Christmas season.

1. Ecommerce Is Booming

From early October through Christmas Eve, online retail spending rose an amazing 49.0 percent, according to Mastercard SpendingPulse.

“At the onset of the pandemic, overall retail sales were down. But there was a major shift occurring, and it was by far the largest move toward ecommerce that we have ever seen,” said Joe McCarthy, director of performance marketing for Klaviyo, an email and SMS marketing platform. “Essentially, in 2020 we saw multiple years of ecommerce growth.”

This trend toward ecommerce may continue. For example, Aisha Al-Muslim, a reporter for The Wall Street Journal, noted that several bankrupt brick-and-mortar retailers — such as Lord & Taylor, Stein Mart, and the aforementioned Pier 1 — have been acquired in the hope that they could still sell online.

2. Money Will Be Spent

Americans spent money despite the pandemic, the election, the fire season, and the weather.

Statista confirms the overall data trends of the NRF and Mastercard SpendingPulse, noting that American retail sales in October 2020 alone grew by 8.5 percent over the same 2019 period.

If they have money, shoppers tend to spend it. There is likely always an opportunity if a retailer can find it.

3. Keeping Customers Is Vital

Shopping habits changed in 2020. When physical stores closed in March and April, shoppers had to find alternative channels and brands.

“Many people [shopped with an online retailer for the first time] out of need,” said Klaviyo’s McCarthy. “They couldn’t find a product from a traditional brand that they had purchased from, so they discovered new options.”

If a business acquired new customers, particularly during the Covid Christmas season, its continued success might depend on how well it retains those shoppers. Put another way, businesses that acquired customers because of the pandemic will need to find ways to keep shoppers loyal long term when it ends.

4. Not Everyone Can Win

Despite the increase in sales, not every retail ecommerce merchant can or will make money. The future could be treacherous.

Total year-over-year apparel sales (physical and online), for example, plummeted 19.1 percent from October 11 to December 24, 2020, compared to the prior year, according to Mastercard SpendingPulse. Clearly, apparel retailers were losing. But furniture and furnishings sales leaped 16.2 percent overall and 31 percent online for that same period compared to 2019.

5. Local Suppliers

Before the pandemic, sourcing foreign-made products made economic sense for many brands and retailers. But when those long supply chains failed, having a local option made a significant difference for many companies.

“The coronavirus pandemic snarled the world’s sprawling supply chains for months, shutting factories, disrupting shipping and making it difficult for companies to get products from factories to consumers,” wrote Mike Cherney in The Wall Street Journal.

“Now, many companies are considering changing the model to avoid future product shortages and transportation delays, even if it might increase costs. Some are looking at moving production closer to home. Others are considering spreading small factories around the world instead of putting all their manufacturing in one place.”

Covid and the Long Tail

An interesting development is happening on the way to retail recovery during the Covid pandemic: Brands and retailers are cutting back on the breadth of products they make and sell.

In August 2020, for example, Todd Kahn, president and interim CEO of Coach, announced during an earnings conference call that the brand would slash the number of products it offered this holiday season.

“Over the last five months, we have taken a dramatically more critical lens to the SKU proliferation and inventory churn. For this upcoming holiday season, we’ve shrunk our SKU count by approximately 50 percent. We believe that this reduction is key to greater productivity and clearer brand messaging to the consumer,” Kahn said.

Coach, the maker of this bag, is reducing the number of styles it produces.

Writing in The Wall Street Journal, reporter Suzanne Kapner described the company’s move succinctly. “Coach went from making 1,000 handbag styles last year to 500 this year.”

Coach is not alone. Kapner notes that retailer Bed Bath & Beyond reduced the number of can openers it carried from 15 to five, and big-box chain Kohl’s reduced the varieties of towels it carried from 320 to 265.

Inventory

Reducing the variety of handbags, can openers, and towels simplifies supply chains and focuses on items with mass appeal.

Imagine an omnichannel retailer selling everything from dog food and hay to clothing and footwear. The company has a good, better, best approach toward most product categories. In the footwear department, this can be seen in the number of work boots available. Here is an example.

 Retail PriceCostGross Profit
Good Work Boot$99.99$45.00$54.99
Better Work Boot$129.99$58.50$71.49
Best Work Boot$189.99$85.50$104.49

This retailer keeps a “size run” of each work boot at all 15 stores and at its two ecommerce fulfillment centers. Thus it needs at least one pair of work boots from size five to 14 in each style at each location.

It also doubles up on popular sizes from nine to 11. So it must carry a total of 13 pairs per run, times three styles multiplied by 17 (15 stores and two fulfillment locations). Bottom line, each initial stocking order consists of at least 221 pairs of work boots per style.

 CostInitial Stocking
Order Units
Initial Stocking
Order Dollars
Good Work Boot$45.00221$9,945.00
Better Work Boot$58.50221$12,928.50
Best Work Boot$85.50221$18,895.50
TOTALS663$41,769.00

As such, the example retailer is investing $41,769. Fill in orders would follow, replenishing each location’s size run as needed. If every boot in the initial order sold, the business would earn $51,044 in gross profit.

The coronavirus, however, exposed at least one potential problem with this approach: What if the supply chain is disrupted?

Two pairs of size 10 at each store might not be enough. The retailer could sell out of these popular sizes and miss sales opportunities while holding 51 pairs of size 14 work boots chain-wide, which is likely too many.

If this hypothetical retail chain focused on just the “better” option, it could purchase something like 714 pairs for the same $41,769 investment. It would have less product breadth but a lot more depth. There could be something like 10 pairs of the relatively more popular size 10 work boots at each store. If every boot in the initial order sold, the chain would generate the same $51,044 in gross profit while avoiding the purchase of additional sizes and the associated shipping, logistics, and warehousing costs.

This retailer could sell more of less and make more money.

The Long Tail

But selling more of less is the opposite of what some retail businesses might expect.

In October 2004, author and entrepreneur Chris Anderson introduced us to “The Long Tail.” Two years later, he produced his now-notable book, “Long Tail: Why the Future of Business is Selling Less of More,” which is the opposite of selling more of less.

“An average record store needs to sell at least two copies of a CD per year to make it worth carrying; that’s the rent for a half-inch of shelf space. And so on for DVD rental shops, videogame stores, booksellers, and newsstands,” wrote Anderson in his famous Wired magazine article 16 years ago.

“Meet Robbie Vann-Adibé, the CEO of Ecast, a digital jukebox company whose barroom players offer more than 150,000 tracks — and some surprising usage statistics,” Anderson continued.

“Vann-Adibé hints at them with a question that visitors invariably get wrong: ‘What percentage of the top 10,000 titles in any online media store (Netflix, iTunes, Amazon, or any other) will rent or sell at least once a month?’”

Most folks guess 20 percent, but the answer is 99 percent. Songs have a long tail, meaning that many, many songs will sell.

Anderson and many others in the industry have argued that Amazon’s success, in part, is due to the long tail — you can find several thousand different handbags, more than 1,000 different can openers, more than 10,000 different styles and colors of bath towels, and something like 30,000 styles of work boots.

Nonetheless, not every business is Amazon. Moreover, Amazon doesn’t fund the items in its marketplace — the participating sellers do. If it were forced to purchase all of the inventory offered on its site or if it experienced circa 2020 supply disruptions, Amazon might reduce SKUs, too.

During Covid, Ecommerce Founders Can Invigorate Their Companies

Entrepreneur-lead businesses can become unwieldy as they grow. To survive, founders must often embrace a management system and delegate responsibilities.

“An entrepreneur slips and falls off the edge of a cliff. On his way down, he manages to grab onto the end of a vine. He’s hanging there, a thousand feet from the top and a thousand feet from the bottom,” wrote Gino Wickman in his book, “Traction: Get a Grip on Your Business.”

“His situation seems hopeless, so he looks up to the clouds and decides, for the first time, to pray. ‘Is anybody up there?’ he asks. After a long silence, a deep voice bellows down from the clouds, ‘Do you believe?’ ‘Yes,’ replies the entrepreneur. ‘Then let go of the vine,’ says the voice. The entrepreneur pauses for a second, looks up again, and finally responds, ‘Is anybody else up there?’”

Letting Go

Wickman’s point is that many businesses fail to grow because their entrepreneurial leaders are unwilling to let go. These over-involved leaders may have a hand in everything from developing products to responding to customers or even packing orders during peak selling periods.

Passionate and engaged, these individuals might work long hours, and their work might be paying off. The company could be growing. But with each new growth milestone, the burden becomes heavier, and the entrepreneur must work even more. It’s an unsustainable model.

In this way, letting go of the vine might represent building a leadership team to take on some or even most of the entrepreneur’s responsibilities. This delegation elevates both the entrepreneur and the business.

But having a good or even great leadership team may not be enough. The entrepreneur will also need a management system she can believe in. This founder needs to have faith, if you will, before letting go.

Management Systems

The good news is that established management systems can help entrepreneurial ecommerce businesses run extremely well.

Wickman’s system, for example, is called EOS — entrepreneurial operating system. The idea is that, like a computer, every business has an operating system. So, why not have an organized, named approach to setting a business’s goals and developing the various areas of the company? EOS has six areas of focus: people, vision, data, issues, process, and traction.

Pie chart of the EOS model showing vision, data, process, traction, issues, people.

The EOS model focuses on six aspects to help companies become organized and growth-oriented: people, vision, data, issues, process, and traction.

Similarly, Verne Harnish’s Scaling Up business management system has helped many entrepreneurial companies achieve exceptional results. One of the best-known examples is Atlassian, an Australian software company that owns Jira and Trello (respectively, software-development and collaboration tools). The business started in 2002 and adopted Harnish’s system. In 2015, Atlassian went public with an initial market capitalization of around $4 billion.

Now, some five years later, Atlassian’s market cap is around $48.7 billion.

The point is that EOS, Scaling Up, and similar approaches provide a structure that a founder can trust. They provide a level of insight and control that makes letting go feel safe and appropriate.

The Pandemic

Sometimes it is easiest to accept change in the midst of turmoil, such as the global pandemic.

The status quo has been tossed out the window for most businesses. Some ecommerce companies have enjoyed an explosion of sales, forcing them to invest rapidly in inventory, systems, and even warehouse space.

Others have experienced unprecedented supply chain challenges and changing shopper behavior. Traditional brick-and-mortar retailers have suddenly invested millions in ecommerce.

Some companies that had on-premises staff — purchasing, finance, marketing — had to pivot toward a remote workforce. And now, several months on, many of those remote workers have no intention of returning to an office, ever.

The pandemic, in this sense, is an obstacle and a change agent. It’s an opportunity for entrepreneurs to invigorate their companies with new frameworks, such as EOS or Scaling Up, and to develop a broader objective for the enterprise. The sort of Hedgehog Concept that Jim Collins describes in his book, “Good to Great,” or Wickman’s vision component in EOS.