Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
HIGHLIGHTS
- The winners in this holiday season will be those who leverage AI in retail to ease the pain of consumers’ financial concerns and build trust in their brands by offering the best value for money.
- Retailers can show customers they care with intelligent pricing, promotions, and markdowns while protecting their margins.
- By leveraging AI-powered, integrated price, space, and assortment optimization, retailers can create a seamless, customer-centric shopping experience that drives sales and profitability.
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MERCHANDISING STRATEGIES TO WIN TRUST
Retailers who show customers they care by offering the best value for money will emerge winners.
Customers beginning to shop early seems to be the norm. This shift in consumer behavior has important implications for retailers. It will be a tough market with aggressive deals even as retailers struggle to navigate the pressure from cost of goods inflation. While sales are expected to increase, the units per basket will be lower. Retailers who ease the pain of consumers’ financial concerns and build trust in their brands by offering the best value for money will emerge winners. Winning this holiday season will be about capturing the market early, being nimble on pricing, having simplified assortments, and offering best value on Christmas items.
OPTIMIZE ASSORTMENTS FOR HIGHER AVAILABILITY
A balanced and curated assortment, right inventory, and a principled purchasing behavior will ensure profitability.
The holiday season is always about making sure that the expected categories such as turkey, confectionary, dairy, toys, beauty, beers, and wine are available to customers when they shop. Typically, the holiday season assortment strategy is developed a year in advance for fashion and six months for food and grocery, based on insights on influencing factors like food and fashion trends, seasonality of stock keeping units (SKUs), demand transferability, product affinity, and competitive assortment.
With consumers across all income levels being more price conscious, brand leaders will want to be more affordable so that shoppers see them as an up-trading option in a season that’s special for their families. They will have to be more innovative in how they offer their products, whether it is private label, product innovation, pack size, or freebies. With supply chain challenges likely to continue, retailers should embrace range simplification to ensure higher availability across stores and online, for both seasonal items and everyday essentials such as toilet papers, with optimized types and pack sizes. Assortment optimization underpinned by a balanced, curated assortment and getting inventory right by taking a principled purchasing behavior will be key for profitability.
Customers will remember brands for how they showed up for them in challenging times and enabled a memorable holiday with friends and family.
OPTIMIZE PRICES TO WIN CUSTOMERS
Craft pricing strategies to offset inflationary pressures and drive positive customer perception.
The onus is on retailers to prove they can help customers find value and support them in stretching their spending power through strong promotions and good base prices. As always, over the Christmas period, strong ‘beacon’ promotions that show great value in key categories (seasonal, confectionary, gifts, alcohol) will be key to drive traffic and capture spend. Retailers who can manage the inflationary pressures of their cost base while selectively investing in base prices and delivering great promotions (with support from suppliers) will stand a strong chance of delivering what customers seek. Retailers will need to understand their competitors, and the wider market as customers will hunt for value. The ability to react to competitor prices while ensuring the value proposition is not compromised will be critical. Seasonal market-leading key value items (KVIs), removing poor promotions, a simple trade plan, and well-communicated value messages will need to be carefully crafted and executed to ensure a successful end to the year.
Discount proactively for better overall margins
Retailers who can balance demand and stock can avoid the risk of stock glut and deep discounting later.
Retailers need to be more proactive with discounting in the final quarter when stock levels are high; they should look at discounting earlier but at lower depths to support value-seeking behaviors and avoid the risk of stock glut. Careful monitoring of inventory, sell-through, and apportionment of stock at store level can help retailers to compete more effectively. Discounting more modestly by proactively understanding the relationship between demand and stock will result in a better margin overall as it can avoid deep discounting when the season is over. Retailers can leverage personalized club card schemes and discounts and move away from broad-based promotions to hyper-personalized products, offers, and messages. Fashion and general merchandise is likely to witness the regular multi-buy offers such as ‘three for two’ and buy one, get one free (BOGOF), but will be personalized for various customer segments. Pricing strategies and promotional decisions must be taken with a clear understanding of their impact on demand, sales, margin, and cannibalization.
TAKE A HOLISTIC APPROCH TO SPACE OPTIMIZATION
An integrated approach towards store space planning is crucial for experimenting with store remodels quickly and optimizing space.
Store space planning and optimization for the holiday season must be holistic, considering seasonal and simplified assortment, inventory levels, localized replenishment schedules, and new regulations restricting promotions of HFSS (high in fat, sugar, and salt) products that will be in force from 2023. Historical patterns cannot be leveraged as grocery retailers can no longer promote HFSS products in front of stores, end of aisles, and checkouts, and can only promote them in secondary space; using premium store space will legislatively be impossible. Distribution is likely to be impacted because floor space can no longer be used as an unofficial warehouse. Those that can experiment with store remodels and optimize space quickly will win.
Gift your customers a holiday season to remember
Retailers will fire up all engines to show customers that they offer the best value for money compared to the competition.
Strategy, affordability, and risk will define how they will deliver value. There are many levers that retailers can pull depending on their market strategy, affordability, and what they are willing to risk. Do they go hard on promotions, base prices, or offer personalization? They can also play on exclusivity, innovation, and service.
The totality of the investments across personalization, pricing, promotions, and assortments add up to some big numbers and retailers need to get it right so they achieve their overall margin and sales objectives as they come out of the holiday season. As they say, ‘Fortune favors the prepared’. Retailers who invest in an AI-powered merchandising platform can mitigate risks by simulating scenarios and experimenting with different merchandising strategies to assess which levers to pull. Overall, this holiday season will be marked by less loyalty from value and deal-seeking shoppers. And, as personal as it gets, customers will remember brands for how they showed up for them in such challenging times and enabled a memorable holiday with friends and family. Retailers who leverage AI in retail merchandising will have a clear advantage.
