Disruptive Shifts Demand Precision From Retailers

Retail executives know they're facing a more challenging environment. Major disruptive changes in recent years have helped fuel the rise of online retail, changed how retailers communicate with consumers, and challenged every aspect of the traditional retail model. Chief among the major changes are:

• Value shopping: Increased competition for discretionary dollars has led to more frugal consumers.
• Channel shift: Online shopping continues to grow, and consumers shop in multiple channels and segments.
• Technology: Technology has forever changed retail, from the consumer experience to operations.
• Mobility/Delivery: Mobility and emerging delivery models will continue to impact retail.
• Millennials: This is the key demographic for retail over the next 30 years.

Millennial Consumers: Game Changers
Millennials have overtaken baby boomers as the largest generation of adults. They're entering prime spending years and will dwarf the retail impact of the aging baby boomers in the years to come. There are a number of key differences between millennials and older generations in terms of how they shop and what they expect to spend during the 2016 holiday season.

For example, 84 percent of baby boomers shopped online, while over 90 percent of younger shoppers had done so. Furthermore, 49 percent of millennials said their online spending increased in the last 12 months, while just 37 percent of baby boomers reported an increase.

Also telling is that younger shoppers are nearly twice as likely as their baby boomer counterparts to be influenced by loyalty programs. The best loyalty programs use technology/mobile apps to connect with customers.

Younger consumers differ in so many ways from the baby boomer generation. They're more likely to shop online, use mobile apps and read product reviews. Millennials use of technology, reliance on mobile apps and expectations of retailers create unique challenges for brands.

A Look Ahead for 2016 Holidays
When asked how they felt about their financial situation, shoppers provided consistent and generally positive answers across all age groups. Twenty percent felt badly about their personal financial situation, and nearly half (49 percent) said they felt good or very good. Yet it appears that consumer retail spending may continue on its current trajectory and result in mediocre sales increases, not unlike the last few years.

Despite a generally optimistic tone when evaluating their personal finances, there's little indication from consumers that they're ready to splurge. Seventy-six percent plan to spend about the same or less than last year, 57 percent expect to spend the same, and 19 percent expect to spend less. Just 15 percent expect to spend more than last year.

When asked why they expected to spend less on holiday gifts in 2016, 30 percent of shoppers cited rising household expenses, 27 percent noted reduced income and 25 percent mentioned rising debt.

Succeeding in a Challenging Environment
Given the less-than-ideal outlook, what can retailers do to stand out from the crowd and bolster holiday sales?

While retailers face multiple disruptive forces that will equate to a continued period of unprecedented change — and it's not likely that shopping demand will increase — there are tangible opportunities for retailers to seize in order to resonate with consumers more effectively. The five key takeaways include:

1. Reignite loyalty programs. Loyalty programs present a powerful opportunity to connect with shoppers and create a connection that ultimately drives sales and profitability.
2. Cater to local preferences. Nearly 70 percent of consumers surveyed say it's important that stores carry assortments that cater to the local community.
3. Accentuate visual merchandising and displays. Fifty-six percent of consumers noted that window signage is very or extremely influential to crossing the lease line.
4. Improve store planning and execution. The biggest reason for a consumer leaving a store without making a purchase is they couldn't find the item they were looking for.
5. Transform the shopping experience to resonate with consumers. While traffic to malls has declined, nearly three-quarters of shoppers say they still visit malls at least occasionally. Baby boomers told us they're less likely to visit malls, yet they have more disposable income. Retailers are well-advised to find ways to "lure" in baby boomers.

Retail has evolved, but a successful shopping season comes down to delivery of a compelling value proposition and great service. Retailers can take action to enhance assortments, connect with customers, and execute in-store more effectively to meet and exceed customer expectations.

Keith Jelinek is managing director of the Berkeley Research Group. Rich Vitaro is the managing director of company transformation and performance improvement expert at the Berkeley Research Group. Rick Maicki is the managing director at the Berkeley Research Group.