In-Store Retail’s Slow Start To 2015

Googling the phrase “the fate of physical retail,” will not tell one much about the fate of physical retail – though it will give one a fairly good insight into what the chatterati were all in agreement about vis a vis retail at any given point in the last 10-15 years.

At various points in time the following were all true.

• e-commerce was a fad and physical retail an unchangeable reality
• physical retail is dead and e-commerce the wave of the future and
• in its current instantiation – physical retail is not dying, nor is e-commerce ascending, but instead they are evolving into a new shopping experience that is both on and offline, digital and physical.

Or at least that is the accepted wisdom – but then that accepted wisdom has changed a few times in the last decade, too. While crystal ball watchers have, at best, a mixed track record when it comes to actually predicting anything about the future of retail; wiser eyes are perhaps turning to them now.

After all, there is something to be said for predicting tomorrow by getting a better look at today.

And that is the sweet spot that a firm like RetailNext seems to occupy. When the data analytics firm launched a little over a half decade ago, they had a fairly straightforward goal – to give physical retailers access to the same kind of Big Data information that their online counterparts were regularly making use of. Seven years, and the data of 800 million shoppers worldwide later, RetailNext has a unique vantage point on the brick-and-mortar store experience.

However, while their view is good, it seems the data they are looking at coming out of 2014 and into the first month of 2015 is less than wholly inspiring. RetailNext has just released its first Retail Pulse Report for 2015, and at first glance it appears as though what the report shows is a lot of downward pointing arrows.

January 2015 saw a 7.7 percent decline on average in both sales and traffic in U.S. physical locations when compared with the same time period last year.   Average transaction value (ATV) and sales per shopper were also both down, though the decrease year to year was very slight – 0.1 percent. The worst week of the month was also the first with a sharp 8.5 percent drop in traffic and an 11.4 percent hit to sales figures in the first week.

“[Starting the year] we’re seeing the same sort of trends we saw throughout 2014. The fiscal year closed with the same trends of traffic and sales being down. Conversion was very consistent, up .2 percentage points, and Average Transaction Value (ATV) and Sales per Shopper were essentially flat,” RetailNext’s head of business analytics Chitra Balasubramanian told PYMNTS in a recent interview on its newly released Pulse report. “We’re seeing the same kind of declines we’ve seen all year. Hopefully once new spring collections are introduced and weather patterns begin to stabilize, we’ll see some changes in these numbers.”

The weather has certainly not been a friend to retailers, particularly in the Northeast where declines were seen more sharply – sales were down almost 13 percent from the same time last year, while traffic was down 11 percent.

“Weather was certainly a contributing factor, particularly in the Northeast region,” Balasubramanian noted. “For example, for the first three days of winter storm Juno, the Monday through Wednesday sales were down 40.8 percent year over year, with a 35.6 percent decline in traffic.”

However, while weather will explain some of the picture – particularly in the Northeast – which, if CNN is to be believed, has been in the grips of a snowpocalypse for the last three weeks – it does not explain all of it. For example – sales in the Midwest were up, slightly, year over year – perhaps owing to the warmest winter on record there since 2003. Then again, even a warm Midwestern winter is still probably much colder than California, but the West also saw declines in January – traffic was down 6.8 percent and sales fell by 9.3 percent, despite a slight uptick in conversion.

“The Midwest had favorable weather for what it’s used to, but in the West region, the weather was kind of typically mild,” Balasubramanian explained. “Most important, I think, for the West region, is that the over overall dynamic of the retail industry, the move to the omnichannel shopper, really effects all regions equally.”

And yet it is that movement in consumer habits, and that gradual migration to omnichannel that might be the understory to this Retail Pulse report. When asked directly if, given the volume of declining numbers, this report represented a reason to worry for retail, Balasubramanian didn’t think so. Part of that is just the inevitability of changing physical conditions – it can’t snow all the time, even in Boston.

“While some demand has switched to online channels, I suspect retailers will see some pent-up demand come through stores once the winter weather subsides or at least stabilizes a bit.”

However, more than that Balasubramanian says, is the fact that retail is changing in a way that the new report hints at, but doesn’t fully illustrate.

“The Pulse represents just one piece of the puzzle, the brick-and-mortar piece. Most retailers have multiple channels in which they sell, and we think store trends, along with other, more broad economic trends seen at the end of year, signal to [the] retailer the importance of incorporating technology to better reach and relate to customers and create an omnichannel cohesion,” Balasubramanian said. “As we have seen throughout 2014, we believe these trends are signaling the strength of other channels. For retailers as a whole, they need to look at all the channels and do more to bridge those channels together.”

It might be easy to write off January as a weak month, but conversions were consistently on the rise according to the Pulse – at an average .2 percent.

“With traffic declines, one can make the assumption that those shoppers who are making it into the store are more likely to convert. They have access to a lot of information, more than they’ve ever had before, and have multiple options in how they can get their products. The fact they’ve chosen the physical retail store as their choice channel can be reflected in this trend of improving conversion.”

It would be difficult under normal circumstances to judge the entirety of the upcoming 2015 retail year on the basis of January’s results, and given the weather in parts of the U.S. this year, January has not exactly represented normal circumstances.

Except of course, that is actually has – the trends playing out this month match fairly closely the trend that wound down 2014 – less traffic, fewer sales, better conversions. And yet RetailNext’s Balasubramanian thinks that retailers still have much to be optimistic about.

“I’m personally optimistic about those retailers who are able to successfully bridge the online and offline shopping experience. Those who have made efforts to create the infrastructure to bridge the gap between channels are going to be the ones who really succeed in the coming year,” she noted. “Shoppers’ behaviors have already changed. Retailers have yet to fully respond to those changes, but many are well on the way to doing so, and they’re beginning to see immediate benefits for their efforts.”