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DemandTec President Cheryl Sullivan Discusses Retail Challenges in the Holiday Season (and Beyond) on DisrupTV

“Demand“75% of American shoppers switched retail brands during COVID”

As many of you know, my longtime friend Ray Wang, Principal Analyst and Founder of Constellation Research, and Vala Afshar, Salesforce’s Chief Digital Evangelist, host DisrupTV every Friday to get – and share – relevant, timely insights into digital disruption across every sector of the landscape. In fact, this was Ray and Vala’s 207th episode of DisrupTV – an exciting milestone!

Recently my wonderful boss Cheryl Sullivan was a featured guest, and she, Ray and Vala had a fast-paced wide-ranging conversation about the chaotic landscape of the retail market, which we have seen even further upended during the COVID era. If you didn’t catch it live, never fear – I’ll take you through some of the highlights here, and you can also view the replay here at your convenience.

Let’s look at some of the topics this terrific trio kicked around.

What should retailers be planning for and doing for the upcoming holiday season?

Cheryl noted that Bloomberg stats from Deloitte point to increasing consumer spend for the holidays, which is particularly critical since one in five retailers depend on holiday sales for survival. The challenge for retailers is planning in an environment where shopper behaviors are now essentially unrecognizable due to significant changes wrought by COVID – including radically changed shopper perceptions, price sensitivities and behavior. Cheryl, Ray and Vala discussed three major trends retailers need to focus on:

Three Major Trends:

#1: Online Growth

With COVID, the online sales channel absolutely needs to be a major area of focus for retailers. In fact, a study we recently commissioned with EnsembleIQ/Progressive Grocer has found that during the pandemic, 35% of shoppers have made online their primary shopping channel and most plan to continue shopping online post-COVID – up from around 7% pre-pandemic. Clearly this is a large growth area for retailers.  

Grocery retailers have seen a 10-30% increase in online sales, a trend clearly mirrored with our DemandTec grocery customers.

And while Bloomberg projects overall sales growth of 1-1.5% this holiday season, online sales will increase as much as 25-35%. Clearly retailers need to be prepared in all channels and all forms of fulfillment, including Buy Online, Pickup In Store (BOPIS), curbside and delivery.

#2: Increased Price Sensitivity

The vertical that is feeling the most impact of consumers’ increased level of price sensitivity due to COVID is the grocery retailers. In fact, DemandTec’s research has found that 61% of shoppers cite greater COVID-era price sensitivity for grocery retailers than other retail sectors, where it hovers around 41% to 46%.  Shoppers also indicated that their price sensitivity post-COVID will continue to increase to a projected 66%.  

#3: Changing Shopper Price Perceptions

According to the EnsembleIQ study, during COVID 76% of shoppers encountered prices they considered to be unfair or arbitrary pricing. This created a lot of dissatisfaction among shoppers.

Even if retailers didn’t deliberately present unfair prices, at the end of the day it is shoppers’ price perception that matters. Retailers need to deal with this head-on, starting with the all-important Key Value Items (KVIs), which are a set of items in an assortment that drive traffic and especially price perception. COVID has redefined KVIs for retailers. For example, DemandTec has a customer and one of their most important KVIs for price perception is yeast, which pre-COVID was not a KVI.

Retailers’ KVIs used to be stagnant for long periods, six months or more, so retailers would only do occasional KVI deep-dive re-assessments. COVID has changed this completely, and KVIs evolve daily and weekly. Retailers need to get their arms around AI-driven technologies that enable continuous, dynamic re-assessment of KVIs as part of the daily process flow.

Retailers cannot rely on historical or past data alone to navigate their pricing, promotional and/or markdown strategies for the holiday and in the post-COVID era; the conventional wisdom just won’t work anymore.

As Cheryl noted, “DemandTec was the first software vendor to bring AI-powered pricing solutions to the retail market and our proven science has matured and our customers are doing quite well, but they have learned that they can’t rely on historical data anymore, they need AI-powered pricing strategies.”

Vala chimed in as well: “75% of American shoppers switched retail brands during COVID and the prominent reason was due to availability, which for certain products – such as home goods and kitchen appliances – can now take several months to ship to shoppers. This has caused major supply chain disruptions during the pandemic.”

The COVID World: Private Label Demand & Managing Inventory

Cheryl pointed out that the study found that price still ranks number one among shoppers in the factors that lead to them deciding where to shop. After price, quality is the second most important factor. The research also found that shoppers increasingly want to purchase brands they trust. During COVID shoppers have gravitated towards private label brands, which have experienced a sales increase of 7%. Shoppers like the value provided by private label and once they started using the products, they found that they are very high-quality, which also positively impacted their perceptions.  

Retailers need to use science to price their private label products competitively with the national, well-known brands, engaging shoppers with a relevant price so they can compete more aggressively in this area of opportunity for retailers.

Inventory management for fashion retailers and other sectors is very challenging currently. These retailers need to manage their pricing strategy while generating a profit and be able to react to the unexpected. But if they are not using technology with embedded science to help monitor inventory levels, including more dynamic markdown optimization capabilities, they will struggle – and they were already struggling with markdown challenges even prior to COVID.

Retailers are also looking at their distribution centers, and one of their bigger problems is the surge in Buy Online, Pick Up in Store (BOPIS). And with the next COVID wave likely coming along with the regular flu season, retailers need to know where to put their inventory while simultaneously ensuring that the price is shopper-centric.

The holidays are very promotion-centric and we are seeing emerging shopper preferences for Buy One, Get One (BOGO) offers as opposed to traditional dollars-off preferences. Retailers are struggling with this shopper preference as the shopper are very particular about “what is the offer and where are you reaching me with the offer”.

As Ray noted, “We are seeing shoppers’ trends shift due to COVID such as the rising demand for BOGO, which signals that the buying patterns have changed a lot, but the retailers’ models have not changed and they need to. They need to adjust to meet consumers’ demands and preferences.”

buying patterns have changed a lot, but the retailers’ models have not changed and they need to. They need to adjust to meet consumers’ demands and preferences.

R “Ray” Wang, Constellation Research, Inc.

Cheryl talked about the increasing need for retail agility and dynamic solutions. “Fixed models for retailers are becoming obsolete very quickly, so there is no one-size-fits-all. With consumer behavior changing rapidly, retailers need to change their models which predict shopper behavior and machine learning is key to helping them do this, as they can tweak their pricing and offers constantly and move towards a dynamic model. Retailers’ predictions of shopper behavior can’t be done manually anymore – we tell our customers provide us with your financial targets and our science will tell you how to price and promote.”