Brick & mortar retailing had a disappointing year and holiday season. We are witnessing a sea change in consumer buying which we can learn from.  Shift to e-commerce and specialty store sales weighing heavily on department store results. First, let’s take stock of the announcements made in the past few weeks. Hudson Bay Co., the Canadian department store giant which owns Saks Fifth Avenue and Lord & Taylor, suffered its worst stock decline in a year because of dismal holiday results. Same store sales declined 0.7% and lower than expected sales are projected through fiscal year ending Jan 2017. Macy’s last week cut its forecast and pushed ahead on closing 100 stores and cutting 10,000 jobs.  By the time they are done they will have closed 200 stores since 2010. Ascena Retail Group Inc. cut its outlook after slow customer traffic forced the company to deepen discounts. Shares of the retailer, which owns the Ann Taylor women’s apparel brand, plunged as much as 16 percent to $5.07. Private equity firm Sun Capital Partners announced shut down of The Limited’s 250 stores and cut jobs.  E-commerce remains open with speculation it will close when merchandise is sold off. Kohl’s has said its holiday sales were weaker than expected. Neiman Marcus Group, meanwhile, abandoned its plans to go public. Long-struggling Sears Holdings said Thursday that it would close 150 more stores and that it had sold its nearly century-old Craftsman brand to Stanley Black & Decker. A recently release study by McKinsey & Company analysed 450 companies and interviewed 150 fashion industry leaders.  In McKinsey’s 92 page report, State of Fashion 2017, I have cherry picked and quoted directly a few of McKinsey’s findings:

• With 2016 revenue growth forecast at just 2 – 2.5 percent, the industry generated its worst operating profit since the financial crisis in 2009, while profit margins (before tax) stagnated at just under 10 percent.
• 62% of executives surveyed say they will invest in omnichannel integration, e-commerce and digital marketing in 2017;
• 27% of executives surveyed say they will reduce costs in 2017 by increasing employee productivity and leveraging lean processes
• One of 10 Fashion industry trends – Shrewder shoppers: Working harder to keep up with smarter shoppers: ‘always-on’ consumers will become ever-more sophisticated, more technology- driven, and harder to predict.
• Off-price shoppers account for 75 percent of apparel purchases across all channels, and some traditional retailers now have more outlet stores and discount stores than full-price shops.

The McKinsey Report is online at the following link: https://www.businessoffashion.com/site/2016/11/The_State_of_Fashion_2017.pdf As I reflect on the sea change, here are some lessons I believe for every multichannel business:

1. It’s all about the merchandise. Consumers are looking for unique product.  I am working with two businesses under $10 million in sales that design and manufacturer their own product.  Both had sales increases of more than 20% and are making money.  One has $135 AOV with 1.5 items on an order; and the other has $175 AOV with 1.1 items per order.  It’s unique product;  it’s not discounted; and its Internet based.Retailing goes through major changes.  In the 1970s specialty stores like Ann Taylor, The Limited  and Toy R Us emerged and reduced department stores merchandise categories.  Big box stores and shopping clubs came on the scene and changed retail again. Internet shopping in mid-to-late 1990s is just the latest trend but its shaking retail to its core. The Internet has leveled the competitive field. As an internet shopper you see it every day.  Tens of thousands of small Internet companies have emerged because the cost of entry is not prohibitive for many businesses; and certainly not compared to starting and building a specialty store chain of stores.  Yes, companies like Amazon and Wayfair have “eaten brick & mortar stores lunch” but it’s also the tens of thousands of competitors which are getting a piece of disposable dollars being spent.  Keep in mind those future competitors that will keep emerging.

2. The customer is in charge. Internet has made price comparison and item availability simple.  No more trips to multiple stores only to be disappointed in assortment, lack of availability and lost time.  As McKinsey says the customer has become shrewd.

3. Too many stores. Sales per square feet for many brick & mortar retailers have been declining for many years.  There were too many stores in the late 1970s and 1980s and far too many today to sustain earnings.  Macy’s company acquisitions of long term competitors has many marginal locations and at the same time the pressure to expand into new shopping center complexes.

4. Omnichannel is mandatory for traditional retailers to survive. Overall sales might be flat or down but traditional retailers I have knowledge of have had excellent e-commerce and omnichannel growth 8%-20% annually. Because direct-to-consumer is not their business model it requires large investment in infrastructure and a shift in thinking.

These are exciting and challenging times for retailers and e-commerce companies.  Put your emphasis on creating unique product and services which are competitively priced.  For me that is a key strategy which serves B2B and B2C marketers well.