Stores expected to offer ‘real bargains’ to compete in shorter holiday season

December 2, 2013 at 12:00 AM EDT
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JEFFREY BROWN: Some perspective on these early reports and what it says about the economic health of the American consumer. We turn to Jerry Storch. He has his own advisory firm. He’s a veteran of the retail industry, including as former chief executive of Toys ‘R’ Us.

So, welcome to you.

So even as we await for firmer numbers, what are you seeing so far in terms of just how tough a season this will be?

 JERRY STORCH, retail industry veteran: Well, there’s no doubt that it started off slow.

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Whether it was up a few points or down a few points, it really wasn’t as good over the weekend as people had hoped. We will get final numbers later. But there’s no doubt that bricks-and-mortar retailers didn’t see the growth in footsteps and in traffic that we had all hoped to see.

Meanwhile, the big winners as usual were online, with a large growth in smartphone and tablet shopping. Overall, it’s moving online rapidly.

JEFFREY BROWN: Well, tell us first — go back a step to the big box stores that you’re talking about. They’re offering steep discounts. What are they doing to lure people in?

JERRY STORCH: They’re doing everything in the book. We used to have just Black Friday. Then we added green Monday opening earlier on — – Green Thursday — sorry — opening on Thanksgiving day. They’re using the whole box of Crayola crayons now. Every day will its own color with own color, with different sales, different promotion.

Every weekend, they say, it’s just like Black Friday. If every Saturday is like Black Friday, then every day of the year is going to be highly promotional. With that six fewer shopping days between Thanksgiving and Christmas, then we know that it is going to have to go rapidly on each day to even make up that shortfall. Six days fewer is a drop of 18 percent in the number of shopping days.

So each day has to be 18 percent higher to make up for that gap. That’s a lot of growth for each day. And we haven’t seen it — we haven’t seen it yet.

JEFFREY BROWN: well, so what’s the strategy — what’s the strategy, though, in trying to lure people in with deep discounts? They’re expecting — they’re accepting a lower profit margin?

JERRY STORCH: Well, for a long time, the consumer has said, I want to see big sales or tremendous value at the off-price type of stores, so they’re looking at discounts that are 40 or 50 percent off, or nobody’s even shopping.

Now, no retailer wants to plan for weak gross margins, but given the consideration of the season, given the state of the consumer right now, retailers know that if they want to drive the top line, they are going to offer real bargains, not just fake ones, but real bargains. And retailer after retailer has made an announcement that they expect weak gross margin rates for this holiday season.

And as everyone knows from history, you don’t want to lose that top line. The last thing the retailer wants to do is give up the customer to someone else. So, the competitive environment this year is very fierce and consumers are going to be the big winners.

JEFFREY BROWN: And you mentioned the continuing move online. So where are we now in this continuum of online vs. brick-and-mortar shopping? Where is the line now?

JERRY STORCH: Well, most of the shopping still takes place online. But you — I’m sorry — still takes place in the stores. At least will 85, 90 percent of the shopping is in the stores for almost every category.

Unless a product can be digitized, like books or pre-recorded music, where the Internet has a natural huge advantage, for everything else, 85 to 90 percent is still in the stores. But the stores are struggling just to stay flat, while the Internet is growing at 15 to 20 percent year after year, season after season.

You heard some of those numbers on your preamble to this discussion. So the Internet is growing. It’s all the growth. Meanwhile, the stores are flat or declining, and that shift is taking place gradually but certainly in the balance of power.

JEFFREY BROWN: Now, I know that a lot of this battle is now being fought over delivery, right, who can deliver most quickly, most efficiently.

JERRY STORCH: Well, that’s true.

And one of the things to remember is that when we say that the battle is moving online, that doesn’t mean it’s moving to online-only retailers. A lot of the growth we’re seeing online is from the online outlets of the bricks-and-mortar retailers, so Wal-Mart.com, Target.com, ToysRUs.com, Saks.com, Macy’s.com.

That is where a lot of the growth is too in addition to Amazon.com, because the stores over time have an advantage in that fight, because they are physical locations. You can choose to pick the product up in the store. You can order it from the store and have it sent to your home. Over time, what we have termed omni-channel retailing is a winning model, certainly can hold up very well against the online-only model.

JEFFREY BROWN: All right, Jerry Storch, thank you very much.

JERRY STORCH: Thank you.