90% of consumer spending is still happening in the real world
Admittedly, retail leaders are constantly talking about the rise of e-commerce and it consumes much of the head space when planning merchandising strategies, but according to U.S. Census data more than 90% of consumer spending is still happening in the real world. A significant trend that is impacting the American economy this year is struggling retailers undergoing major store closures. In the first few weeks of 2017, companies including Macy's, Sears Holdings, The Limited, American Apparel and several others announced store closures at a significant scale. Target issued a bleak outlook for 2017 after posting disappointing results in 2016 with decreased foot traffic as a main driver.
After Black Friday in 2016, the National Retail Federation came out with data that foot traffic to malls and stores was down 3.7%. What this tells us, is that the majority of people are still visiting brick and mortar stores and spending there. Even if they do research online beforehand and in the store, there are many reasons to drive to physical spaces. Trying on clothes, testing and discovering products, the social aspect, and the ability to drive home with all your items are mainstays that, if retailers get right, will play along nicely with e-commerce shopping in a total omnichannel ecosystem.
Target announced last month they are investing over $7 billion in capital over the next 3 years and about $1 billion in annual operating profits beginning in 2017, to grow sales faster, gain market share, adapt to guests’ rapidly changing preferences and give them even more reasons to choose Target. The investments will cover digital retail, plans to remodel more than 600 locations, and opening 130 small format stores over the next 2 years.
“We’re investing in our business with a long-term view of years and decades, not months and quarters,” Brian Cornell, CEO of Target said. “We’re putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands we’ll introduce over the next two years. We’re confident our strategy meets the challenges of today and will lead us well into the future.”
Like it or not, Target is perceived as a "higher-end" mass-retailer - almost the goldilocks of stores: not the cheapest, but not the most expensive. We are seeing trends consistent with the bifurcation of the economy: Brands that are gaining foot traffic are at the bargain end of retail, such as Dollar Tree and Big Lots, Marshall's and the like. And at the high end, brands like Lord & Taylor, Saks, and Neiman Marcus are up. It's the middle players that are being squeezed as the middle class is under pressure. Target's investments should be able to grab customers from the Marshall's crowd and hopefully from the higher end shoppers. Now that the panic over slower sales at Target has calmed down from a few weeks ago, we're ready to embrace this change together and invest with Target's long-term growth.