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The Changing Face of Retail and Emerging Trends: Insights from CohnReznick’s Annual Retail and Consumer Products Executives Dinner


11/19/15
 
As we move into the 2015 holiday season, retailers and consumer products companies are seeing trends that should suggest a robust shopping season. Gas prices are down. Consumer confidence is at its highest level in eight years. Social media platforms like Instagram and Facebook continue to reinvent themselves to help consumers make smarter purchase decisions.
 
But despite these positive signs, a panel of retail and consumer products experts at CohnReznick’s Annual Retail and Consumer Products Dinner, held in New York City on October 21, 2015, is predicting only modest retail growth this season. They discussed the reasons while also answering a number of questions about emerging trends in shopping, branding, marketing, and business process.
 
Moderated by Richard Schurig, CohnReznick’s Retail and Consumer Products Industry Practice Leader, the panel included:
 
  • David Edwab, Vice Chairman of the Board of Directors of Men’s Wearhouse, a specialty retailer of men’s apparel
  • John D. Howard, Co-Managing Partner of Irving Place Capital, a private equity firm focusing on middle market companies in the retail, industrial, and packaging industries
  • William Sweedler, Co-Founder and General Partner of Tengram Capital Partners, a private equity firm investing in the consumer and retail sectors
  • Shawna Thayer, Ph.D., Retail Practice Leader for Analytic Partners, a global marketing consulting firm
 
2015 Holiday Shopping Season 
According to the panel, the 2015 holiday season will be driven by heavy promotional pricing as brick and mortar stores do battle with social media and the internet for consumer “share of mind.” The latter two will continue to dictate the shopping experience for many consumers, especially millennials.
 
John Howard noted that “Consumers are facing a bifurcated market with 80% of their purchases influenced by e-commerce. Retailers need to approach business with a direct-to-consumer point of view by using social media as a generator to store websites. The key is to re-energize brand passion.”
 
Bill Sweedler believes that luxury and premium-plus retailers will “aggregate at the top” this season but the middle of the market will be highly promotional and competitive. “Amazon is the 800-pound gorilla, beating WalMart, Target, and Kohl’s. These retailers face a challenging environment but opportunities do exist for them.”
 
The Techno-shopper
Social media and other online platforms continue to shape the landscape for both consumers and retailers. In light of this, consumers are forcing retailers to think differently as Facebook, Google, Instagram, and other social media platforms continue to replace TV and print advertising as primary sources for product information. “Facebook is testing a new ‘Reactions’ button,” said David Edwab. “This will allow consumers to instantaneously share their perceptions on a product, a store, or a shopping experience.” In Sweedler’s mind, Instagram has become “the new New York Times Magazine” as a showcase for the latest fashions. He advised that Nordstrom has recently begun posting some of their most highly rated products on Instagram and that the app had begun testing a “Shop Now” button earlier in the year.
 
Edwab advised that, now more than ever, retailers need to think more strategically in attracting consumers to their stores. “Developing and employing the right strategy can become a key differentiation point for retailers,” Edwab said.  Sweedler summed it up this way. “The proliferation of interactive mobile devices means that brands need to create a social connection with consumers. That connection needs to provide the consumer with a seamless experience when using the computer, tablet, and phone.”
 
Will E-Commerce Kill Brick and Mortar Stores?
In light of news about retailers closing stores or downsizing, the panel was asked if they felt this would continue and whether Internet shopping was the cause. While panelists did agree that brick and mortar stores have been hurt badly by online shopping, these stores would still have a place in the consumer shopping experience. “Providing the consumer with omni-channel shopping is critical,” said Thayer. “Retailers need to provide a seamless experience between digital and brick and mortar.” Sweedler added, “Brick and mortar needs to take advantage of the instant gratification that it can provide to shoppers.”
 
Panelists also conceded that brick and mortar stores will play a different role in the shopping experience of the future. Products will be promoted and viewed on social media, seen and tried in stores, and purchased and delivered through e-commerce. E-commerce venues like Amazon continue to push for same-day delivery capabilities which could make a trip to the mall and its stores far less necessary for consumers. 
 
Malls are also being impacted by social media and e-commerce. In discussing what the malls of today might look like in the future, Edwab made the following prediction. “‘C’ level malls will be repurposed while ‘B’ level malls will need to change their rate structures to retain tenants. ‘A’  level malls are all going to change.” According to Edwab, these changes are being driven, in part, by consumers adapting to a phenomenon he calls “lifestyle repurposing.” As consumers become more accustomed to a lifestyle where big ticket items such as cars and wedding dresses are rented instead of owned (e.g., re-purposed), malls and other retail outlets will need to adapt and respond accordingly.
 
Brands, Marketing, and the Investment Outlook
What must brands do to attract and retain customers in the future? Sweedler believes that they need to position themselves as a “way of thinking” instead of focusing on a particular   demographic or age group. “The best way to identify your brand’s customers is to watch who walks into your store,” he said.
 
But what if your store only sells other company’s brands and none of its own? Howard advised that the key for these retailers is to “own” their customers. “They need to know their customers’ preferences and provide better financing or other benefits that brands can’t provide.” He noted, “By owning its customers, a store can gain a competitive advantage.” 
 
Thayer added that, for future success, these stores need to continually test different marketing channels to attract customers. “In evaluating paid search versus TV advertising for our clients, we have found that TV is often a driver to paid search. And TV advertising works better when there is a great in-store promotion. Retailers need to holistically leverage and test different marketing channels to develop excited, loyal customers. Then, they need to continue following the customers.” 
Private label brands also have an opportunity in today’s marketplace but they need to spend in order to bolster their presence, especially on social media.
 
Sweedler believes that there are significant investment opportunities for strong brands – notably those that need to be recapitalized. With plenty of available capital in the marketplace, he sees a robust inventory for brands seeking growth through mergers or acquisitions. However, finding quality deals today is a challenge. Howard was not as optimistic, noting that his firm had seen only a few deals over the past nine months.
 
A Go-Forward Business Model
As the consumer changes, so should the business model for retail and consumer products companies. Edwab said that companies need to develop a five-year plan that offers more meaningful capital allocation with a commitment to branding. Sweedler advised that retailers must develop a playbook that effectively leverages key metrics that are ROI-focused.
 
One area that continues to evolve and impact the industry is the EVM chip card mandate (implementation deadline of 10/1/15).The panelists agreed that many retailers are still awaiting certification and that, without the PIN verification that is being used in Europe, the EMV program will not be nearly as successful in reducing fraud. But chip cards have been successful in slowing the traffic through stores – an unwanted consequence. 
 
Sweedler summed up today’s retail and consumer products business environment this way: “During challenging times, things get interesting and innovation occurs”.  His words of advice to the industry going forward – “Look, test, reinvent.”
 
Contact
For more information, please contact Richard Schurig, Partner and Retail and Consumer Products Industry Practice Leader, at richard.schurig@cohnreznick.com or 973-364-6670.
 
To learn more about CohnReznick’s Retail and Consumer Products Industry Practice, visit our webpage.

 
This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
 
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