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How Retailers Can Thrive in a Shopping Season Like No Other

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17 NOV 2020 | by Danielle Kost (Harvard Business School)

Is it the end of Black Friday as we know it? Harvard Business School faculty members share what retailers can expect from a holiday shopping season without precedent.0

American retailers are heading into a holiday shopping season unlike any other as the spiraling COVID-pandemic and limp economy threaten consumer spending.

We asked Harvard Business School faculty members—in particular, authors of recent retail case studies—what retailers can expect this holiday season and what it will take to win over anxious customers. Here’s what they said.

Jill J. Avery: Mind the details and focus on customer service

Jill Avery

Persistent unemployment plagues many families, and people are saving more and spending less as they anticipate difficult times ahead. Health concerns and stay-at-home orders will likely make brick-and-mortar stores and shopping malls less appealing to consumers, and will likely fuel online shopping. On a more positive side, consumers are likely to continue to indulge in little luxuries that make staying at home more palatable, so retailers should expect stronger demand for home goods and furnishings.

Many retailers may be wary about excess inventory and will pare back their ordering. The COVID-19 pandemic is also adversely affecting the supply chains of manufacturers who provide goods to retailers, so out-of-stocks on popular items may continue as retailers struggle to match supply with demand.

Many e-retailers are urging consumers to “buy early” this holiday season, citing concerns about postal services and shipping. Given capacity constraints placed upon retail stores by many state governments, retailers are redesigning Black Friday promotions to control the flow of shoppers inside stores to meet social distancing requirements. Many started offering Black Friday deals in early November. Discounts appear to be larger than ever this year, likely reflecting soft consumer demand.

The holiday season accounts for the majority of some retailers’ annual sales, so it is a critical time to get retail execution right. Dynamic pricing strategies must be carefully executed to maximize margins while driving volume. Inventory turns must be carefully monitored so that physical and digital shelves can be quickly restocked or reallocated. Many retailers rely on temporary workers during the holiday season, so training and managing frontline staff becomes essential.

Finally, retail executives should be highly focused on customer service. Consumers who shop in person will likely be more anxious about crowds and lines, and those who shop online will likely worry about receiving gifts on time. Training staff to enforce rapidly changing health guidelines and diffuse tension with customers who don’t comply mask-wearing regulations will also be critical to keeping the peace (and keeping shoppers and staff healthy).

Jill J. Avery is a senior lecturer of business administration and the C. Roland Christensen Distinguished Management Educator. 

Ramon Casadesus-Masanell: Watch costs and find channel advantages

Ramon Casadesus-Masanell

Given COVID-19 transmission rates as of mid-November, the upcoming holiday shopping season for malls will be tough. The economic downturn will mean lower overall demand. And increased constrained access to physical stores will lead to fewer, shorter visits. Shopping volumes will continue to shift to e-commerce, to the benefit of Amazon and Walmart.com.

While I expect lower overall holiday spending than in the past few years, we will continue to see growth in e-commerce. What’s more, the pandemic will continue to accelerate the trend toward online shopping. As a consequence, the “new normal” after the pandemic passes will exhibit a renewed baseline that will require substantial changes to the business models of traditional retailers.

To survive in this environment, cost cutting—including the renegotiation of rental contracts—is of paramount importance, especially in the short term. But the real imperatives are:

  • Finding ways to build advantage on attributes of the shopping experience for which offline offers greater value than e-commerce, such as immediacy, curated selection, or allowing touch and feel of non-digital experiential goods.
  • Thinking of online shopping as a compliment and an opportunity, rather than as a substitute and a threat to offline shopping, and searching for ways to benefit from online that pure-play stores can’t directly match.

Ramon Casadesus-Masanell is the Herman C. Krannert Professor of Business Administration.

Rembrand M. Koning: Think like a startup and experiment

Rembrand Koning

Given that every week feels like a year in 2020, I think it will be incredibly hard to forecast what to expect when it comes to Black Friday and this holiday season. Instead of projecting certainty in an uncertain world, I think retailers should double-down on experimentation as a strategy.

Test multiple campaigns, messages, and promotions more than you usually would. Try out different channels. Acknowledge that communities in the United States and the world are experiencing very different realities as the year draws to a close. While you might have an idea you believe in, I would err on the side of humility and test if and where your ideas might work.

Indeed, in my research (pdf), I find that experimentation can dramatically improve performance for startups, a setting that is rife with uncertainty and change, something all businesses are feeling acutely at this moment. In this work, we find that startups that adopt A/B testing tools grow faster and learn more quickly. Experimentation allows these startups to promptly weed out ideas that don’t have potential and do a better job of doubling-down and improving their most promising ideas.

I would imitate these startups when it comes to the holiday season: get creative, test out lots of ideas (hopefully some of my colleagues’ fantastic recommendations!), and don’t be afraid to scrap your 2019 strategies in 2020.

Rembrand M. Koning (@orgRem) is an assistant professor of business administration.

Karen Mills: Lift small businesses, support the economy

Karen Mills

For many Main Street small businesses, the holiday season is the busiest time of the year. This time around promises to be different. Public health measures needed to curb the spread of COVID-19 have pummeled local retailers reliant on foot traffic. Revenues are down across the board.

In the face of these challenges, small businesses around the country are innovating like never before. They’re selling their wares on e-commerce platforms, marketing through social media channels, and finding new ways to reach customers. In this environment, Americans should remember to shop small and support their local businesses, many of which are offering holiday specials like gift baskets delivered to the door and gift certificates for post-pandemic gatherings.

Large businesses and state and local governments need to make small business contracting a priority. Biden administration policymakers and mayors from the Bloomberg Harvard City Leadership Initiative are already hard at work on such efforts. Buying from small businesses can be a win-win, with more innovative products and services available, often at advantageous costs.

From now through the end of the year, let’s make every day Small Business Saturday, for the benefit of small businesses and the country’s jobs and economic recovery.

Karen Mills (@KarenGMills) is a senior fellow and served as administrator of the US Small Business Administration from 2009 to 2013.

Antonio Moreno: Engage creatively and prepare for returns

Antonio Moreno

With COVID-19 cases rising, retailers should expect a significant surge of online sales this holiday season. Having the capacity to fulfill the high volume of orders is going to be challenging for many retailers and third-party logistics companies.

Some companies like Walmart are adding pop-up centers for online orders inside the distribution centers that typically ship to their stores, to increase their capacity during the holiday season. Other retailers, such as Zara, have enabled their stores to track and use store inventory to fulfill online orders and ship them to customers from stores. Hybrid models, such as curbside pickup, in which customers place their orders online and pick them up outside stores, will also be on the rise.

Retailers that had invested in advanced omnichannel capabilities and order management technology before the pandemic will see their efforts rewarded. Other retailers will have a hard time keeping up with demand. Customers: Expect delays and do not leave holiday shopping for the last day!

We will continue to see a decoupling between the way orders are fulfilled and the way customers engage with brands. On the customer side, retailers and brands will have to work hard to recreate engagement with their customers without the touchpoint of the store, and are exploring online events to connect with their customer base. Livestream events have been very popular in China during the recent Singles Day, and I expect this phenomenon to grow in the US as well during this holiday season and in the near future.

I believe the surge of online sales during the holiday season will lead to a turbulent January for some retailers as they manage a potential increase in product returns. With more customers buying online without trying or inspecting, product returns will inevitably increase, and many retailers will see product return rates they are not used to. Processes to manage the reverse flow of products are complex and are not optimized for the level of returns some retailers will see.

Antonio Moreno (@tmorenog) is the Sicupira Family Associate Professor of Business Administration. 

Leonard A. Schlesinger: Stay agile and let go of conventions

Leonard Schlesinger

The holiday shopping season is well underway. Black Friday has become an idea and not a day. Black Friday sales abound and started right after Halloween. While some regions of the US report mall traffic at 70 percent of last year, it is quite unstable and tenuous. The rise in COVID-19 diagnoses furthers concerns for physical retailing.

Omnichannel capabilities are simply a must for successful retail business development, are critical for holiday shopping this year, and quite likely, forevermore. Retailers need to adopt the most agile of postures, must be prepared to turn on a dime, and see the mix of their business shift from physical to virtual channels.

Finally, they need to realize that the old holiday shopping calendar is no longer relevant in today’s environment. Observers of today’s retail state that the business has changed the equivalent of 10 years in the last six months—that view might be conservative.

Leonard A. Schlesinger is the Baker Foundation Professor and chair of Practice-based faculty. 

Andy Wu: Innovate digitally and find strength in partnerships

Andy Wu

The pandemic continues to accelerate ongoing trends in retailingaway from brick-and-mortar and towards e-commerce and buy-online-pickup-in-store (or click-and-collect) channels, much like the pandemic has prompted white-collar firms to seriously consider remote work in a more permanent way.

All retailers, from omnichannel to single-channel, need to prioritize innovation and experimentation in how they connect with their customers. There is no time to wait as the crucial holiday season looms: customers are increasingly trying new retailers and may begin their holiday shopping earlier than ever before.

Even as the traditional in-store Black Friday loses relevance, e-commerce retailers can find it valuable to have concentrated and well-publicized general sales events: viral excitementon Twitter and the blogosphere draws more customers in, and full baskets of multiple goods(as opposed to “spearfishing” one item) are more cost-efficient to fulfill.

Retailers that continue to rely on their physical footprint need to find digital avenues to drive traffic to their stores (with continued caution and hygiene measures, given the public health situation). First, direct-response advertising like a Facebook advertisement—generally associated with driving e-commerce purchases—can be used to target customers who live near a store and resemble the current shopper base. Enticing them to “click” on the right product or sale that they can only “collect” in a physical store has the potential to drive add-on purchases when they arrive.

Second, brick-and-mortar retailers should explore partnerships to drive online-to-physical customer conversion. Kohl’s allows customers to return Amazon purchases at its stores. Macy’s, J.Crew, and Gap customers can purchase and sell second-hand clothing from e-commerce partner ThredUp. Smaller brick-and-mortar can partner with third-party services that take online orders on their behalf. Third, there is ample opportunity in the US to make more use of social media influencers who live stream their in-person shopping experience, an increasingly common practice in Asia that can be adapted.

Andy Wu (@AndyWuAndyWu) is an assistant professor of business administration. 

About the Author

Danielle Kost is senior editor of Harvard Business School Working Knowledge.

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