The most wonderful time of the year has passed, and retailers across the country are tallying sales to determine whether or not the holiday season was a boon or bust. It’s not such a clear picture.
Take Target and Costco, two big box retailers trying to shift to digital commerce.
Target reported 1.4% sales growth for the period from November to December. Costco, by contrast, reported 10.5% growth for the five weeks ended Jan. 5. Each company faced headwinds that all retailers contended with, whether it was the tight labor market or trade tensions with China.
So why were their results so different?
Part of the answer lies in the old adage in business: Know the customer. This has become especially important in the digital age, when a company like Amazon has leveraged its extensive use of customer data to help it become the nation’s largest retailer.
Target, which is making extensive investments to compete with online retailers, recognizes this. But it wasn’t until recently that it recognized just how important it is.
Before the relaunch of its loyalty program in October 2019, Target had customer data for only the approximately 25% of customers who carried the Target-branded credit card. Its goal with the relaunch of the loyalty program is to capture the other 75%. Now, with Target’s access to capital and willingness to pilot new and innovative technologies to execute on its strategy, the holiday sales woes of 2019 will likely be short lived.
Costco, though, is a different, and unusual, case. It’s a classic big box store that grew to prominence before the digital age by pioneering the membership model. But by following this model, it has collected data for nearly 100% of its customers since the beginning. Costco knows every single item ever purchased or returned by its customers. That is one reason it has held up against the intense competition from online retailers.
But accessing that data is a critical first step, however; having a strategy and seeing it through are just as critical. Costco has been able to tailor its product selection, store layout and overall shopping experience for its customers.
It’s the strategy
Strategy execution was also on the minds of retailers at the recent NRF Big Show in New York, and the ICR Conference in Orlando, two of the largest consumer conferences of the year. Across both conferences, there was a consistent theme of confidence in the consumer as the new year begins.
Retailers were concerned about the tight labor market and how trade negotiations with China would evolve in 2020. But retailers also indicated that, more than contending with macroeconomic forces, their ability to execute on important strategic initiatives would have a larger impact on their financial performance in the near term.
Regardless of subsector, those strategies were centered on catering to changing consumer preferences and, in nearly all cases, involved a significant digital component. This is also consistent with the findings in RSM’s Retail Digital Transformation Survey as more than 75% of survey respondents said that they were significantly or extremely concerned with their organization’s ability to achieve their digital goals.
Retail sales peaked in the middle of 2019 and the three-month average annualized growth pace shows a consistent softening that continued through the holiday season. A red hot economy can cover a lot of sins. The economy is still strong heading into 2020 and a recession is not likely, but the pace of growth is slowing.
The retailers that continue to have success will be those that align their operational and digital goals to create and execute on a strategy for success in today’s new economy.