Annual retail trends consistently emphasize the importance of the holiday season on overall retail performance. And although the face of retail continues to change at an incredible pace with the introduction of new products, new technologies, and the evolving demands of today’s retail customer, this critical piece of the retail puzzle provides a key look at what lies ahead. As the U.S. economy has continued to recover, 2016 holiday performance can have a significant impact on both the retail landscape and the economy in general as we move into the New Year—and beyond.
Thus far, the outlook appears positive. In a recent report, the National Retail Federation announced that they expect retail sales in November and December (excluding autos, gas and restaurants) to increase a solid 3.6 percent to $655.8 billion—significantly higher than the 10-year average of 2.5 percent and above the seven-year average of 3.4 percent since economic recovery began in 2009. Additionally, the NRF is forecasting online store sales to increase between 7 and 10 percent to as much as $117 billion this year, continuing the upward momentum of omni-channel retailing and the impact that it’s having on the customer experience.
“All of the fundamentals are in a good place, giving strength to consumers and leading us to believe that this will be a very positive holiday season,” NRF President and CEO Matthew Shay said in the news release.
But if history has taught us anything, it’s that retail trends can change quickly. There are many factors that can influence company performance, and it’s up to every retail professional to do their part to keep these important retail trends on pace and contribute to company performance and profitability during this critical time on the retail calendar.
The 2016 Retail Holiday Season Global Forecast
Recently sponsor Checkpoint Systems partnered with industry expert Ernie Deyle to introduce the “2016 Retail Holiday Season Global Forecast”, an analytical view of business risks that major retailers face during this holiday season.
According to research results, the report shows that overall retailers will experience both the heaviest sales volumes and the weakest performances specific to margin rate during this time period. A driving metric is that while seasonal sale prices may result in smaller margins, the volume of retail sales will ultimately boost overall profit numbers. However, strains on profitability also manifest during the holiday season, largely because of increased retail shrink/theft from external (primarily via shoplifting/organized retail crime) and internal sources (primarily via internal theft and other sales reducing activities).
How can this information best be used to improve company profitability? To further clarify the results of the report, LP Magazine spoke with Ernie Deyle for a deeper look at some of the statistics that were revealed, and how that information can be best applied to the upcoming holidays. This led to some compelling insights on how loss prevention performance can directly influence company performance during retail’s busiest season.
“Companies must be very aware of how they manage the entire operation during this time of year, and not just sales,” says Deyle. “The holiday season accounts for 34 percent of company sales for the entire year on average, and that sales activity is where most rightfully focus their attention. However, the profit margin rate drops in the fourth quarter, from 31 percent to 28 percent.
“By the same respect, up to 40 percent of a company’s total losses can occur during this time of year, to include merchandise shrinkage, POS/cash losses, and other sales reducing activities. The holiday season has been considered the ‘make-it or break-it’ window for retailers to achieve their fiscal year profitability. And while that concept still holds true, the holiday season has become something of a financial paradox, because it can cause normal business disciplines, principles and acumen adhered to for more 75 percent of the fiscal year to be suspended in order to change the game plan at the most critical point in the year.”
For example, merchandising and product placement may be modified to increase product exposure and potential sales opportunities during the holidays, but in the process certain profit protection practices can be compromised, leading to a greater opportunity for theft and other losses. And while certain sales practices might not change, it remains the responsibility of loss prevention to work with store operators to reduce risks within the bounds of a particular sales strategy. This might involve discussions on the physical placement of the displayed product, improved CCTV coverage, heightened customer service or LP surveillance in the area, or any number of other strategic options that best protect the product.
What Deyle proposes is that during this time of year, a company must be able to “hit on all cylinders.” As we move into the holiday season, operational efficiencies and loss prevention efforts must be “sharpened rather than compromised.” And as the role of loss prevention continues to expand in order to maximize company profitability, there is a responsibility to further incorporate these functions into retail business plans and communicate that message to the retail store.
Some of the global recommendations to address these issues include the following:
- Maintain operational execution standards, while being vigilant regarding financial performance expectations.
- Update planning and financials to properly account for advanced deliveries of seasonal products, since the seasonal build starts earlier now than in the past. Enhance oversight to seasonal/holiday merchandise to ensure financial goals are achieved while cost center controls are contained.
- Employ technology to stabilize inventory loss and ensure on-shelf availability while enhancing product protection countermeasures.
- Properly train seasonal help to manage the increasing complexities of the season.
“You can’t be a good operator and be really bad at managing shrink,” says Deyle. “Loss prevention is a service industry. We have to be world-class. We have to think about all the things that lead to retail shrink and what causes risk. Then we have to step up and work together to make it happen.”
Keeping critical retail trends on an upward swing during the holidays requires a collective effort from every aspect of the retail machine. Effective planning, proactive resource management, flexibility and leadership become an essential message and a joint responsibility. This will remain a busy time of year for our sales teams and our loss prevention departments. It’s also a time for our best work as retail partners.