Slash-and-earn retail model isn’t working: Report

Instead of deep price discounting and unrealistic marketing campaigns, retailers are looking at new technology to figure out who their customers really are and what they actually want.

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Paula Rosenblum has worn many hats during her long career working in the technology trenches of the retail industry.

She’s a co-founder and managing partner at Retail Systems Research in Miami. A blogger for Forbes. A former retail analyst at AMR, Aberdeen and Retail Systems Alert Group. Before all of that, a retail technology executive for two decades, including seven years as a CIO.

Even before any of that, Rosenblum was a teenager in Long Island, dutifully helping her father stock shelves. He was an independent clothing retailer and, as she recalled in a phone interview with me, did brisk business in the 1960s outfitting kids in outdoor gear before their parents sent them off to summer camp in the Poconos every year.

“I used to go buying with him in the garment district in New York,” she said. “I literally grew up in this industry. I’m disappointed in it right now but I know it so well. At its best, it’s an incredibly dynamic industry. Now, it’s an endless race to the bottom.”

She’s referring to the prevailing new model of retailing that’s putting merchants under substantial pressure. As described in a report by Rosenblum and her colleague Steve Rowen, retailers have gone through various mergers and acquisitions. They now have the ecommerce channel to manage as well as the in-store channel. On top of that, the ‘Amazon effect’ has made all shoppers expect a wider, cheaper array of goods delivered to them faster than ever before.

To compete, many retailers are slashing prices deeper and earlier than they used to. How early? Last year Best Buy pioneered the Black Friday in July sale. The trouble is, the slash-and-earn model isn’t really working either, said Rosenblum, so retailers are pouring more resources into marketing, especially via digital channels.

In far too many cases, however, “merchandising can’t deliver on what marketing promises,” she said. “Merchants used to rule the roost because they divined what consumers wanted.” Suddenly, marketing started gaining power and ended up owning the ecommerce channel.

“I have a problem with that,” she added, “because when you buy something, you’re not buying a brand, you’re buying a product. You have a fundamental disconnect (between marketing and merchandising) that isn’t healthy.”

A disconnect on the technology front is partly to blame. Among the 113 retailers surveyed worldwide for Rosenblum’s report, 55 per cent cite “a lack of system integration between digital marketing and merchandising” as a top three operational challenge.

Rosenblum sees a silver lining on the horizon, however. “(We) believe that necessity is driving the marketing and merchandising organizations back together again. They clearly need more shared data to truly come together,” she said in the report.

Merchants seem ready to make this change; more than half of those surveyed are considering replacing their current core merchandising IT. As Rosenblum’s report states, retailers finally see that “shifting from a product-centric merchandizing organization to a customer-centric one … (and) understanding consumer behaviours across the entire selling environment really is the key to future success.”

Instead of deep, early price discounting and unrealistic marketing campaigns, retailers are looking at new technology to figure out who their customers really are and what they actually want.

Is IT a magic bullet to solve all their current woes? No, said Rosenblum. Still, she’s hopeful retailers will make progress if they demand clear explanations, metrics and pilot tests from IT vendors, and change their own internal workflows to put the customer at the centre.

“I would never say that technology on its own can solve a problem at a retail organization,” she said. “As long as they’re making (IT) investments with their eyes open, that’s not a terrible thing at all.”

That’s the only good thing about a race to the bottom. Once you decide to walk away from it, there’s nowhere to go but up.

Image courtesy of Free Digital Photos

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