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June 2019

How to Thrive in Retail’s New Normal

As consumers continue to evolve their shopping behavior, redefine trends, and move their shopping activity online, the retail industry has been challenged to adjust to a landscape that’s constantly shifting. Store closures, bankruptcies, mergers, and consolidations are the new normal in today’s retail environment. Across apparel, food, jewelry, sports, toys, and other retail industries more than 5,800 doors closed in 2018. There will continue to be upheaval, with U.S. retailers announcing more than 7,200 store closures as of June 2019. To adjust to this new reality, brands and retailers must understand where the volume will go as retailers go out of business, place the right bets on partnerships, and truly understand the attributes that drive in-store purchases. With the right data, you can survive an environment of shrinking real estate and invest in the right opportunities to thrive in the long run.

Summary:

  • Bankruptcy announcements create a ripple effect on the retail and manufacturing ecosystem, but there is a portion of sales up for grabs by players that understand where else their customers shop and work to attract the liquidated retailer’s customer base.
  • Retailers must learn how to coexist with the online world and do more business in less space. When store closures occur, access to the right data can allow them to chase the share after a bankruptcy, place the right bets on their partners, and understand what drives purchases in stores.
  • It’s imperative for manufacturers to practice long-term tactics that fortify their business against future uncertainties, diversifying channels and understanding where they fit in a retailer’s portfolio of brands.


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Capitalizing on Closures

In early 2019, Payless Shoe Source, Charlotte Russe, and Gymboree joined the ranks of Toys“R”Us and The Sports Authority when they filed for Chapter 11 and prepared to shutter U.S. stores. In late May 2019, yet another retailer, Dress Barn, announced it would begin winding down all of its 650 stores and $1 billion worth of sales.

While announcements like these are becoming more commonplace, they still create a ripple effect on the retail and manufacturing ecosystem, with retailers and manufacturers wondering where share will go and how much will simply vanish. As consumers flock to liquidation sales, the impact of bankruptcies is felt beyond their immediate industries.

In the short term, the clearing-out sales may draw shoppers from other retailers who “pantry load” and buy more items than they really need. After the liquidation sales end, we observe a “hangover” where there is a dip in buying behavior across the industry. Ultimately, after the big sales die down, many sales move online; some industry sales simply evaporate due to a loss of impulse purchases, among other factors. But there is also a portion of sales up for grabs by retailers that understand where else their customers shop and work to attract the liquidated retailer’s customer base.

Case Study

One example is the Payless Shoe Source bankruptcy. In 2018, Payless accounted for nearly 4 percent of U.S. footwear unit sales, as shown by our Consumer Tracking Service in the 12 months ending December 2018. In February 2019, Payless announced it would close its 2,100 stores in the U.S. When a retailer with a billion dollars’ worth of shoes in its inventory goes out of business, everyone wants to know where that volume will go.

In her analysis of Checkout data, footwear industry analyst Beth Goldstein revealed nearly half of Payless footwear in-store buyers also bought footwear at Walmart in 2018, 21 percent bought from Target, and 19 percent bought at Kohl’s.


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The data suggests Walmart shoppers may be most closely aligned with the Payless shopper. Since the majority of Payless sales were in store, Beth added that retailers’ proximity to shuttered Payless stores will also influence where sales will go. So how can retailers win over Payless customers?

Retailers should pay attention to what Payless was good at and seek to understand and engage displaced Payless customers. For example, Walmart’s footwear customer base has a lower income than Payless customers, presenting Walmart with the opportunity to market differently to this higher-income consumer group.

“Retailers could even go one step further to see where Payless buyers shop for other categories. This type of cross-category analysis can be done through Checkout to help retailers better understand customer shopping preferences and how to cross-market to customers,” said Beth. When retailers are strategic, they stand to win share from bankrupted competitors.

Investing in the Long Term: How to Place the Right Bets

One challenge the retail industry has faced is that many of the bankruptcies of the last few years have been retailers that were highly leveraged by private equity. One analysis showed more than 15 percent of retailers acquired by private equity firms over the past 15 years have filed for Chapter 11. Dollars earned are used to service debt, making it more difficult to invest in stores, people, systems, and websites. In an environment of shrinking real estate, what can retailers do to prevent this fate, and how can manufacturers become more resistant to future closures? Here’s what our industry experts recommend:

Retailers: Rationalize Your Store Base

Consider consolidating the bottom percent of your stores to make room for more successful ones.

“The massive amount of store closures and consequent available square footage is opening the door for value retailers like Aldi, Lidl, TJX, Burlington, and dollar store chains to accelerate expansion, and for manufacturers to expand their DTC strategy. Dollar General, for example, added 900 stores in 2018 and is on target to open 975 stores in 2019.” – Rob Hill, EVP, U.S. Retail Business Group, The NPD Group

“Foot Locker is one positive example. Over the last decade, this retailer has closed more than 1,000 stores. But it’s really been part of their program all along. They needed to rationalize their store base to get rid of their bottom 20 percent, and they’ve done that in a very healthy and productive way.” – Matt Powell, Sports Industry Advisor, The NPD Group

“In the beginning of the decade, most fast casual chains rapidly expanded units, and with this expansion visits grew. Now, as the category has matured, chain operators are evaluating which units are top performers and which units are not, and then adjusting their unit count accordingly.” – David Portalatin, Food Industry Advisor, The NPD Group

With the help of Analytic Reporting offerings such as Same Store Sales Reporting, retailers can understand which doors, in which markets, have the greatest opportunity for improvement. Using segmentation retailers can learn who those consumers are and reinvent themselves in current spaces to better market to those segments.

Take an Omnipresent Approach


It’s a little bit of a chicken-and-egg situation. When store closures occur, the online business will grow, but a big reason stores are closing to begin with is because the online business has grown, thanks to the added convenience, inventory, and advantages of e-commerce.” — Beth Goldstein, Footwear Industry Analyst, The NPD Group



As online continues to grow, it will force stores to regroup. You must understand which categories, attributes, and businesses are driving the consumer to say ‘I want to buy in the store,’ and which are driving them to buy online. Checkout can help you understand these shifts.” – Marshal Cohen, Chief Industry Advisor, Retail, The NPD Group



Manufacturers: Diversify Your Channels


Toys“R”Us served as a launch pad for toy manufacturers to bring new products to market. As a result, many manufacturers focused their business on this retailer and suffered following the bankruptcy. Manufacturers must avoid reliance on one retailer partner. Since the Toys“R”Us bankruptcy I’ve seen toy manufacturers go after growing channels like discounters, dollar stores, food stores, and drug stores. Others are developing direct relationships with toy specialty retailers, trying out store-within-a-store concepts at regional chains, and expanding their own direct-to-consumer models.” – Juli Lennett, Toy Industry Advisor, The NPD Group



Understand Where You Fit


If you’re in partnership with a retailer, do your homework to really understand where you fit in the retailer’s portfolio of brands, and where you fit in against the competition—including how to stand out from your partner’s own private brands, and which attributes can help you achieve relevance in the assortment. Our store-level point-of-sale data can facilitate this understanding.” – Marshal Cohen, Chief Industry Advisor, Retail, The NPD Group



Pick the Winners


Look at your partners and determine who you think will be around in five to ten years. Make sure the winners will really be winners, and elevate those partnerships.” – Matt Powell, Sports Industry Advisor, The NPD Group



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