Retail Rebound: How Brands Can Leverage Digital Transformation to Survive 2022 - Markacy

Retail Rebound: How Brands Can Leverage Digital Transformation to Survive 2022

After a profitable 2019 holiday season with the National Retail Federation reporting a 14.6 percent lift in online sales, retailers were feeling optimistic about in store sales and e-commerce heading into the 2021.

But illusions of a buyer boom quickly dissolved as COVID-19 upended the economy. As consumers adapted to the challenges of life in quarantine, many retailers without a significant digital hedge were left without viable traffic and revenue.

In May of 2021, The New York Times reported that J. Crew had filed for Chapter 11 bankruptcy protection. It was the first of 29 iconic brands to fall victim to the pandemic economy. No doubt, the rapid disruption of sales and supply chains contributed most significantly to retail losses. 

There are significant opportunities being created by new technologies, but corporations that don’t recognize and pursue transformation in a multi-dimensional way may find themselves missing out.”
Andrew Annacone, Tech Nexus 

In hindsight, many who have been forced into bankruptcy over this last year acknowledge similar shortfalls in digital investments. As we consider what they could’ve done differently, we see several distinct opportunities for those planning toward digital transformation. 

Our analysts recommend investments in the following, which we’ll describe below:

  1. Brand flexibility
  2. Digital-first culture 
  3. Agile supply chains

Adopt Flexible Brand “Standards”

There is a fundamental difference between old-school “outbound” marketing strategies and the data-centric “inbound” methodologies adopted by modern direct-to-consumer startups.

The former was tailored in a different age of media, when broadcast and direct-mail marketing required rigid brand standards for consistency. While these conservative methods succeeded for the better part of a century, they’ve continued to demonstrate shortcomings in the face of rapid marketplace disruption.

In stark contrast, inbound marketing developed in tandem with internet technology, naturally provides tighter feedback loops and opportunities for advanced integration. These modernized methods which provide the framework for countless digital marketing practices ultimately emphasize two key characteristics: flexibility and adaptability.

If What You’re Doing is Not Working, Change It!
– Tony Robbins

When optical industry disruptor Warby Parker was first founded in 2010, the brand’s offerings were exclusively online. Then, in 2013, after customers had expressed concern with impractical “try-on” experiences, the eyeglass company pivoted toward physical storefronts with omnichannel operations to reclaim the trust of a shrinking customer base.

“We think the presentation by retail experts of ’either [online] or [offline] is a false choice. It really is the intersection of the two. … And we are trying to approach retail expansion in a very deliberate manner, where we are testing and learning.”
co-CEO of Warby Parker Neil Blumenthal

Blumenthal’s assertion is insightful. We agree that online/offline channels shouldn’t present a binary choice but rather an opportunity to provide a more comprehensive offering with touchpoints that align to consumers’ multi-faceted journeys. Consider the following points when adopting more flexible standards for your brand: 

Provide opportunities for feedback and collaboration

While fast fashion has some notable shortcomings, brands like Zara have demonstrated an ability to translate trends into transactions by leveraging customer feedback.

Invest in experimentation and learning.

Rather than isolating investments into monothetic marketing campaigns, we recommend that brands allocate experimental budgets to gather customer learnings and test marketing theories. The eggs in your basket are fragile, so distribute them wisely.

Focus on growth opportunities. 

Once you achieve broad-scale brand awareness, you’ll have earned the ability to experiment with product and messaging strategies. Segment campaigns to test opportunity, shift dollars toward performance, and cut bait on campaigns that struggle. Ultimately, you need to trust the customer; demonstrate a willingness to provide value and they’ll forgive fluctuations and happily participate in your brand’s growth.

Think Digital First

Years ago, marketers exchanged a truism about being the most vulnerable assets in a downturn economy.  We have to assume this pessimism trained generations into an intractable, reactive state. 

Now, almost three decades into the internet age, 4.66 billion online consumers are forcing brands to reckon with a different planning model and [some] marketers are taking notice.

We believe the following principles inform the investments of leading digital-first brands:

Double down on eCommerce investments.

With the global population of internet users growing steadily at 7.4% annually, brands should have no issues prospecting and converting new customers online. Even in the face of a global recession, eCommerce sales still grew 40.3% in 2020.

Reach new customers with Facebook and Google.

The leading ad platforms feature data-rich algorithms that are capable of narrowly targeting customer interests and behaviors. They also provide invaluable tools like “Lookalike Audiences” that can help brands prospect new audience segments with email data by comparing the profiles of existing customers with similar profiles elsewhere on the internet.

Redefine the Brick & Mortar experience. 

As noted in the previous Warby example, online/offline investments aren’t mutually exclusive. Data suggests just the opposite: according to a recent Google survey, 82% of the consumers consult their smartphones before purchasing in-store. 

The most promising opportunities for brick-and-mortar retailers may be developing within the ranks of the next generation. Surveys suggest Gen Z consumers overwhelmingly prefer the combination of online convenience and tactile in-person experiences. Retailers at the forefront of this omnichannel experience are blending off/on-line retail experiences with augmented reality, BOPIS and customerization, allowing consumers to personalize every aspect of their retail experience.

Agile Supply Chain

A year later, the COVID-19 pandemic is still impacting retail supply chains across the board. For some, it left excess inventory in stores to accumulate rent and taxes. For others, it left excess demand with no option for fulfillment. At the end of the day, many retail supply chains with traditional warehouse-to-retail distribution models were faced with enormous financial difficulty.

By late spring of 2020, a sharp contrast had grown between those who had invested in supply chains and those who had not. At the same time, Amazon emerged as a standard-bearer with real-time sourcing plus delivery and returns, while others struggled to keep pace.

Based on the high bar set by Amazon and its understudies (Walmart and Target), we recommend that you employ the following principles to improve the agility of your supply chain’s flexibility:

Don’t let marketing and operations be separate.

Since operations and marketing departments are mutually in charge of knowing what the market wants and how it should be delivered, they must work together closely. 

Their similar end goal (and the ensuing blame game on results) has been a notorious source of contention but they must indeed be encouraged to work together as one single unit. 

“Businesses are defining cloud opportunities narrowly with siloed business initiatives, and this practice practically guarantees failure.”

Nati Shalom, Forbes Technology Council

All companies need marketing metrics.

Too many brands view product design in a vacuum, without taking a thorough look at quantitative marketing metrics or performing market scans on what is (or isn’t) selling. 

The sole purpose is always to attract the right consumer and hence identify the right product design. This cannot be done without metrics. 

Strategy is everything.

Strategy is the key to any successful business. Brands that use customer insights to drive product, marketing and buying decisions, and invest in R&D are able to connect to their customers in real-time to fulfill their distinct needs.

On the other hand, companies that are uninterested in constantly reassessing their strategies may fail to reach their full potential. 

Be open and adapt to innovations.

While a once-in-a-lifetime pandemic changed the way brands do business, it also showed us that consumer behavior changes very quickly and that companies must be able to rapidly adapt to stay ahead of competition.

Oftentimes, companies ignore these simple facts, perhaps assuming that their particular industry is immune or slow to change to trends such as work-from-home. Companies that stay ahead of the curve and changing consumer preferences, on the other hand, end up reaping enormous benefits.

Target is one of those brands. The general merchandise retailer invested $7 billion over the last three years in order to adapt to an omnichannel strategy. While Target originally became popular for the experience of shopping in its stores, the company expanded investments in online stores, gaining approximately 10 million new customers in the first half of 2020. 

Zara also became one of the most successful brands through targeting an omnichannel strategy and focusing on consumer demand. Collecting information from multiple sources, Zara’s interdepartmental collaboration led to quick marketing and design decision-making. As a result, Zara was able to successfully adapt to digital transformation.

Following in Zara’s footsteps, Chewy, Lululemon, Dick’s Sporting Goods, BJ’s Wholesale, and Target are some other businesses that have seen sales momentum despite a global pandemic.

What these retailers did right was to capitalize on their distinct advantages/offerings and adapt to customer needs rather than putting them on the back burner.

Next Steps

According to a McKinsey survey, 80% of surveyed companies reported having begun the transformation process, but only 14% reported performance improvements with a mere 3% having completed their transformation.

So what’s going astray here? Digital transformations are harder to get right than other transformations, but that doesn’t mean it can’t be done. 

When performance is underwhelming, brands must first reevaluate their product/market fit and rethink decisions around products and cost of goods. By leaning into core digital marketing channels, brands can apply valuable customer insights to make more strategic inventory and product development decisions.

Focus on a small number of digital themes closely tied to performance outcomes (i.e. driving innovation, improving productivity, reshaping an end-to-end customer journey, etc.) rather than pursuing many different agendas which can be disorienting.

Greater risk taking (and encouraging employees to take risks, too), innovation, and collaboration across parts of the business during the transformation are other keys to this puzzle, in that same report, with respondents at successful organizations three times more likely to say that employees “collaborate effectively across business units, functions, and reporting lines.” Defining clear financial effects using actual short and long-term, estimates were also very helpful.

We believe the report suggests what we, as digital strategists, have always known to be true: get strategy right and the rest will follow.