Last Lap For Q3; Three Factors To Watch In Q4

This month marks the last lap of the third quarter. Absent of a substantial back-to-school season and without government stimulus checks, many retailers will be happy to see it go. Retailers who were ready to absorb and capitalize on the digital shift will wish it would stick around before the high-pressure system known as Q4 rolls into town.

But as Q3 fades, retailers are seeing a completely different world than the one they knew last year. And not for the obvious reasons, such as the pandemic that is still keeping consumers home on a massive scale. The reality of Q4 is that the balance of power has shifted from in-person to online. Given that fact, there are three factors to watch as retailing heads into the most critical Q4 of the digital era.

The first is the depth and breadth of the digital shift. The financial press has already bought into the counter argument that the digital shift can’t last. An example can be seen in a Tuesday (Sept. 1) headline from CNBC: “Retailers are reporting record online sales during the pandemic. But it won’t last forever.” The headline undoubtedly achieved its goal of driving clicks. Maybe record online sales won’t last forever. But the digital shift is just getting started and will not give back any of the ground it has gained. The pandemic is the driving reason. Consumers have been clear about what it will take to bring them back to non-essential shopping, and it’s when the coronavirus fades from oblivion or is driven there by a readily available vaccine.

But there are other factors to watch that will keep positive inertia behind the digital shift. One is from department stores — the Macy’s and Nordstroms of the world. It may seem to buck common wisdom that department stores can have an effect on retailing at this date. But they can. Statements from several department stores show that their very existence will depend on online sales.

At this point, eCommerce is where department stores are trying to transition from steep discounts to raising online customer value. Note that Nordstrom, for example, has stopped its 70 or 80 percent price slashing and is now using its website as the lead for its anniversary sale. And note that Macy’s has only promised one thing for Q4, and that’s a return to its Polaris strategy. That strategy is built on eCommerce and exclusive fashion brands. Department stores only have one hand left to play, and it’s digital.

The second factor to watch is retail inequality. Stories about the “big six” retailers have started to appear with regularity. They are: Amazon, Walmart, Home Depot, Lowe’s, Costco and Target. All had record-breaking quarters. One of them pretty much invented the digital shift and the rest are still trying to catch up. It will be hard to know exactly how much market share these six have taken during the pandemic, but they are a group to themselves and five of them have been preparing for a future where they would have to find a way to compete with Amazon or face an existential crisis. For Q2 it all paid off. For Q4 that Amazon-centric strategy may be a huge difference maker.

“Although many factors are behind the record growth, the Big Six all share common performance drivers,” Craig Johnson, CEO of Customer Growth Partners, told WWD. Those shared drivers include traffic growth that is strong and steady, increasing productivity at store level and superior or at least “much-improved online platforms” along with a “balance of discretionary and non-discretionary merchandise as well as a strong understanding of their customers’ needs and preferences.”

The third factor to watch is the rising power of supermarkets. The big six may be built for this moment because of their capital backing, expertise and agility. But they also benefitted from avoiding the “non-essential” tag that was devastating to department stores and other high-profile retailers like Best Buy. Supermarkets also avoided the non-essential tag. They are well-capitalized machines that know supply chain details and customer strategy. They know loyalty programs. They know how to compete with Amazon. Bottom line: they know their customer.

“Suddenly, (with the pandemic) the relationship between supermarkets and their customers became, at the same time more tenuous and vital,” says HomeWorld Business. “Social distancing requirements meant consumers could only shop stores deemed vital and necessary to keep open. Still, supermarkets faced competition from other channels that had developed in-store and curbside pickup as well as delivery options they had not explored. But many supermarkets did something they aren’t normally known for doing: They acted fast. They developed curbside pickup and delivery programs, usually tapping third party delivery services that had been growing, including Instacart and Target-owned Shipt, to get to customer households.”

The fourth quarter will not be a proving ground for retailers who have made it through 2020. It will make or break mid-tier retailers and put pressure for fast revenue on the plates of retailers who entered the year with optimism. And it will be the point at which many companies look closely at their future prospects.