Customer loyalty is something of a holy grail for retailers, especially as high customer acquisition costs make the value of existing shoppers all the more evident.
Loyalty programs have traditionally been a key way to retain shoppers, but the strategy of those programs has shifted over the years as some retailers move away from store credit cards or introduce paid membership models. The perks associated with membership have also changed, with experiences and services often making an appearance instead of purely discount-based offerings.
As the landscape becomes more competitive, retailers have experimented with integrating their loyalty programs into stores, creating expansive membership models to mirror the success of Amazon Prime and tying their loyalty offerings to key partners. In 2022, however, customer loyalty has become more tenuous as high inflation causes many consumers to pull back on discretionary spending and emphasize price above all else.
We’ll discuss all this, and more, in the collection of stories below.
Rising prices have made shoppers choosey, budget-minded and less loyal — but they’re still spending
With some relief at the pump for consumers in July, retail sales held steady against inflation. But the rest of the year could be tough as the holidays approach.
By: Daphne Howland• Published Aug. 18, 2022
Inflation has been the story of the summer for any retailer selling discretionary goods, as higher prices on essentials have led to swift, stark shifts in shopping behavior. But retail sales in July — up nearly 10% since 2021 and a little better than flat since June, according to numbers from the Commerce Department — indicate that consumer spending has held up despite record inflation.
It helped that gas prices in July began edging down, leaving more cash in people’s wallets. Plus the numbers look better than they really are because the federal government doesn’t adjust them for inflation. But they do include the first real gain in volume — actual goods sold — in three months, according to research from Wells Fargo economists.
“Overall, demand is not falling off a cliff and our view that retail is landing softly remains,” GlobalData Managing Director Neil Saunders said in emailed comments.
Natalie Kotlyar, national leader of the retail and consumer products practice at consultancy BDO, said she is not surprised to see retail holding steady in recent months. But there are also signs that retailers will be dealing with a changed consumer for the foreseeable future, she and others say.
”There is an interesting phenomenon going on right now with inflation rates increasing and customers continuing to spend on discretionary goods,” Kotlyar said in emailed comments. “Summer vacations are certainly a driver of this, as are the relatively strong performances of off-price retailers. Consumers are finding a way to get the products they want and need for a price they are comfortable paying. This tells me that while consumers are willing to spend, they’re savvy – they are looking for savings when and where they can.”
That includes waiting for markdowns and switching brands, according to researchers at rewards marketing platform Blackhawk Network, who found that 46% of consumers they surveyed are buying more things on sale, and 22% say they’re buying less from their favorite brands.
Shoppers were careful in July, foregoing purchases, especially bigger-ticket items, per GlobalData research. And they went online, where they could easily find the best deals and conserve gas by staying home. While e-commerce growth had been ebbing this year as shoppers returned to stores, in July online sales rose nearly 30% from a year ago.
The question for retailers as the holidays loom is whether consumers’ fragile strength can hold. Wells Fargo economists Tim Quinlan and Shannon Seery said in a research note that their staying power should last into Labor Day, but that once kids return to school and bills come due, households will begin to tighten their belts.
“Even as inflation is showing signs of moderating, it will do so only slowly,” they said.
If so, consumer budgets will shrink again as winter approaches and energy bills rise, according to GlobalData’s Saunders. The traditional autumn lift in apparel sales may be elusive in 2022, in part because winter and fall clothing tends to be more expensive than summer garb, he said.
Consumer retrenchment has been happening at the same time that retailers’ own expenses are up, pressuring margins and profits, Saunders also warned. That has already led to dramatic inventory adjustments and even layoffs in the industry.
“Equally, with lower volumes coming through, the spoils are being spread more thinly which is why there is now quite a variance in sales performance between various retailers,” he said. “Unfortunately, we see both these trends continuing to be in play until at least the year end.”
The consumer predicament that has scrambled demand and disrupted loyalty will be testing retailers as they begin to merchandise their stores for their all-important back-to-school and holiday seasons.
“The volatile economy could put a halt to consumer spending ahead of these critical times for retailers,” BDO’s Kotlyar said. “Alternatively, retailers may find that sweet spot with their customers where they’re aligned with product availability and cost, and then the sales will come and the margins will follow.”
Article top image credit: Daphne Howland/Retail Dive
Bath & Body Works launches nationwide loyalty program, app
By: Kaarin Vembar• Published Aug. 23, 2022
Bath & Body Works in August 2022 announced the nationwide launch of its loyalty program, dubbed My Bath & Body Works Rewards, according to a company press release.
The retailer also announced the My Bath & Body Works App, which allows shoppers to shop, earn points and view exclusive content. An in-app wallet holds rewards, offers and gift cards for shoppers.
Bath & Body Works found that, in test markets, loyalty customers had higher spend and retention rates than an average customer.
The program went through beta testing with some members and associates prior to its expansion to around 1,750 locations nationwide. “They helped us craft this and that makes it even more special,” Brand President Julie Rosen said in a statement.
Loyalty program members earn points with every purchase ($1 equates to 10 points), and early access to events and new fragrance launches. Members also get an annual birthday gift, sneak peeks at product drops and first access to limited product offerings. They can also redeem a free product of their choice, up to $16.50, when they spend $100 or earn 1,000 points.
“We have numerous incentives and fun programs in place to encourage the buzz and enrollment,” Interim CEO Sarah Nash said regarding the program on a call with analysts.
The company is hoping to enroll a “significant number” of its nearly 60 million customers in the first year.
Many shoppers reacted positively on social media to the rewards rollout.
The fact that bath & body works is now doing rewards ???????????? omg finally
“We know that customers expect fun and engaging experiences whether shopping in our store, online or in the app, and we’ve crafted our program to deepen the engagement and connection with our customers,” Joanne Friess, senior vice president of marketing strategy, said in a statement. “I’m especially excited to underscore that a key differentiator from other loyalty programs is that our members can redeem their rewards for free full-size products, not just sample sizes.”
In the second quarter in 2022, Bath & Body Works said sales dipped slightly with a 5% year-over-year decrease, coming in at $1.6 billion, while net income was $120 million, down 68% compared to the same period in 2021.
The company said that it was eliminating around 130 roles, the majority of which are leadership positions, in order to simplify its operating structure. At the same time, Chief Operating Officer Chris Cramer resigned his position “to pursue other opportunities.”
The retailer’s CEO, Andrew Meslow, announced his resignation in February.
Article top image credit: Cara Salpini/Retail Dive
Walmart picks Paramount as streaming partner for membership plan
Starting in September, Walmart+ customers can access the ad-supported Paramount+ Essential tier at no extra cost.
By: Peter Adams• Published Aug. 16, 2022
Walmart has partnered with Paramount Global to bundle a streaming subscription into Walmart+ at no extra cost, a news release announced. Users of the retailer’s membership program gain access to the Paramount+ Essential plan, which carries a limited ad load, beginning in September 2022. Financial terms of the deal were not disclosed.
The addition of the streaming benefit does not change the $12.95 per month or $98 per year Walmart currently charges customers for Walmart+. Paramount+ Essential on its own costs $4.99 per month while a premium, ad-free tier of the streamer goes for $9.99 per month.
Paramount+ hosts content tied to franchises including “Star Trek,” “Paw Patrol” and the “Sonic the Hedgehog” live-action movies, along with sports offerings like NFL games broadcast on CBS. The platform has over 43 million subscribers, Paramount Global said in a quarterly earnings report.
In a press statement, Chris Cracchiolo, senior vice president and general manager of Walmart+, described the platform as carrying “the premium content and broad appeal that our members are looking for.” Jeff Shultz, chief strategy officer and chief business development officer, Paramount Streaming, similarly described Paramount+ programming as “broad and popular,” with “something for everyone.”
Walmart hasn’t broken out the subscriber numbers for Walmart+ after debuting the service in September 2020, but claims it has seen positive member growth every month since launch. Walmart+ has other incentives to keep users engaged, such as a six-month trial of Spotify Premium, free shipping and fuel discounts at select gas stations.
In Walmart’s quarterly earnings for Q2, total revenue was up 8.4% year over year to $152.9 billion, e-commerce growth was at 12% and the company's global advertising business was up nearly 30%.
Article top image credit: simpson33 via Getty Images
Retail CMO budgets increased in 2022: Gartner
By: Dani James• Published Aug. 17, 2022
As retailers face economic challenges from inflation, chief marketing officers are allocating more money on social media as well as offline advertising, according to research from Gartner shared with Retail Dive.
The survey of 405 marketing decision makers across the globe between February 2022 and April showed that retail CMOs are spending 11.2% of their budgets on social advertising, more than any other channel and ahead of search ads. Sixty-three percent of retail respondents said they increased offline co-op and partner ad spend, demonstrating confidence for in-store shopping, according to Gartner.
Overall marketing budgets have increased to 9.1% of company revenue since they were slashed to 6.3% in 2021, but they are not back to pre-pandemic levels (10.4%) based on Gartner’s 2019 survey.
Retail CMOs have seen a rough few years, even before the impacts of the pandemic set in.
Gartner’s latest survey shows that marketing budgets are back on the rise, but the market research company suggests keeping lessons from pandemic cuts in mind given the current economic environment. Increasing attention to efficiency at an operational level and in marketing channels might help retailers stay agile.
Social marketing is a key focus for many retailers right now. Gartner suggests that retail CMOs invest in analytics capabilities for online and offline since shopping journeys often involve both channels.
Social commerce is growing rapidly, with some research suggesting it will grow 3 times as fast as e-commerce. Brands are turning to platforms like Instagram, TikTok and Youtube to grab larger audiences and develop stronger brand awareness, per Gartner. Youth retailer Pacsun recently hit 2 million followers on TikTok as part of a larger social media strategy. Twitter, Pinterest and Snapchat have all expanded commerce functionality over the past few months.
Article top image credit: Stephen Chernin / Stringer via Getty Images
Back-to-school challenges marketers as shoppers focus on savings
Brand loyalty is out the window amid economic distress, tasking brands and retailers to find new ways to court once-faithful customers.
By: Jessica Deyo• Published Aug. 11, 2022
Inflation is a top concern for parents this back-to-school season, but signals are mixed on how big an impact this will have on purchasing decisions. As a result, brands and retailers are focused on finding a message that promotes value without sacrificing sales.
The beginning of 2022 teased a sunnier outlook for back-to-school season following years of pandemic-related challenges, but health stressors have been swapped for fears of a recession. Still, projected spending doesn’t reflect a hurting economy, with the market forecasted to hit $34.4 billion, 24% higher than pre-pandemic levels, according to Deloitte’s 2022 back-to-school survey.
Parents are expected to pay $661 per K-12 student this season, up 8% from a total of $612 a year prior. Further, 50% of parents admit they plan to splurge (down from 93% in 2021), per a 2022 NerdWallet study. But these seemingly bright spots come with a twist — 33% of consumers report their household incomes have worsened since 2021, per Deloitte’s findings.
“There’s a lot of people complaining about inflation and a lot of consumers complaining about inflation, but they’re not changing their behavior for the most part, in spite of that inflation,” said Sucharita Kodali, vice president, principal analyst at research consultancy Forrester.
As a result of the economic uncertainty, a more-for-less attitude has been adopted as consumers reevaluate their relationships with companies they once considered tried and true, ready to be courted by another if it offers better value. Seventy-seven percent of consumers say they will switch brands if prices are too high or if the item is out of stock, according to the Deloitte survey.
“Inflation has impacted every aspect of back-to-school shopping this year, and most retailers’ strategies seem to reflect the influence of inflation on consumers’ ability to invest in school supplies and apparels,” said Dave Bruno, director, Retail Market Insights at retail technology company Aptos in an email.
E-commerce behemoth Amazon quickly saw an opportunity to swoop in with a back-to-school campaign featuring Kathryn Hahn. The 30-second spot urges parents to “go ahead and spend less” on back-to-school supplies as they try to keep up with ever-changing trends and needs. Following suit, Target has flexed hefty discounts this season and a store-wide sale similar to that of Prime Day, and also extended saving opportunities for teachers.
“Amazon’s Prime Days have become the unofficial starting point for the back-to-school shopping season, and despite what seemed like less advanced marketing and promotion from Amazon, they still generated around $12 billion in revenues during the event,” Bruno said. “Retailers that staged competing promotions during Prime Days were very focused on the discount message, with many advertising ‘Black Friday in July’ deals.”
The price for ‘normal’
Spending in retail categories is expected to show kids are in need of apparel items, while having other areas, namely tech, more than covered. K-12 parents are predicted to spend increased amounts on clothing and accessories, up 18% year over year, and school supplies, up 7% alluding to the end of at-home learning, per Deloitte findings. At the same time, tech spending is projected to decline 8%, with 81% of parents saying those needs will be fulfilled by their child’s school.
“A significant part of school, especially for college, is electronics, and electronics have actually deflated,” Forrester’s Kodali said. “It’s one of the few categories where there’s deflation.”
Some stores are pulling back on casual wear following a boom in athleisure, making clothing buys necessary for those desiring to freshen up their look. Retail behemoth Gap for the 2022 back-to-school season is promoting vintage looks, like loose denim, pocket tees and varsity jackets to allude to modern prep, Chief Marketing Officer Mary Alderete told sister publication Marketing Dive in July.
Value isn’t just about the discount
As many brands frame their campaigns around inflation by offering discounts, other brands are looking to communicate value in less direct ways. L.L. Bean’s back-to-school campaign, “Dear L.L. Bean,” pushes for an emotional connection, retrieving a letter written in 2007 to the brand by a now 23-year old consumer inquiring about how to destroy the brand’s popular Book Pack bag so that her parents would buy her a new one. The 30-second commercial uses the letter as narration as it recreates the event, with the message that no matter what, the bag can’t be destroyed.
Gap’s 2022 back-to-school campaign, “Everyone Belongs,” plays off a similar message, marketing “hand-me-down approved” items with a collection of clothing. In its 30-second national spot, kids share what it means to them to be different, pushing the brand’s long-adapted theme of inclusivity and “modern American optimism” throughline to relate to the numerous styles kids may take on.
Value to consumers may also mean an emphasis on more niche categories. Parents concerned with their child’s mental health are expected to spend 8% more than average this season, per Deloitte. Parents are also growing more concerned about sustainability — those that are will be expected to spend 22% more than average. The change of heart may allude to a shift in priorities brought about by the mental overload spurred by the pandemic.
Nature Valley, long known for its sustainability efforts, took advantage of the opportunity with an environmentally-friendly back-to-school campaign that challenges consumers to post a video of themselves on TikTok doing something sustainable with the hashtag #ReTokForNature for the chance to win access to its Nature Valley ReTok Store, where they can shop for free back-to-school gear, including items in collaboration with brands like L.L. Bean and Stasher.
Where the consumer goes
As consumers act in fear of a recession, advertisers are following suit. Ad spend for the first time in 2022 dropped in June, breaking a 15-month growth streak. While back-to-school is an ad-heavy season, Forrester’s Kodali sees the cutbacks sticking around as long as fear of economic turmoil continues, she said.
“I think advertising was down because companies are panicking about a recession,” Kodali added. “Usually when there’s a fear of a recession, companies try to hunker down and save cash and marketing is an easy place to save money.”
Despite the losses, retail ad spend remains at a record high, according to Standard Media Index’s latest Core Data, rising 5% with discount stores quadrupling investment year over year. As marketers assess the ad categories they invest in, it’s worth noting that consumers have signaled a return to in-person shopping — 49% of spending is set to be in-store this year, up from 43% in 2020 and 2021, according to Deloitte. Still, it remains lower than pre-pandemic levels of 56% in 2019.
With the increase of in-person shopping, online spend is projected to decrease for the first time since 2017, amounting to 35% of spend in 2022, down from 39% the year prior. That isn’t to say there’s a lack of interest, as 42% of shoppers plan on using emerging technologies to do their shopping, per the survey, with the most common use cases being digital wallets, shoppable content and cashierless stores and least common being augmented and virtual reality – suggesting that despite its growing popularity in other markets, metaverse activations may not be the way to go for back-to-school campaigns.
The top three stores named as parents’ chosen back-to-school destination this season include Walmart (63.5%), Target (53.3%) and Amazon (50%), per a JLL annual back-to-school survey, indicating that assets like free, fast shipping and convenience are still holding strong.
“Prime Days and competing retailers’ promotions certainly took their share of the back-to-school spend online,” Aptos’ Bruno said. “But the post-pandemic return to the store is still significant and meaningful, and we do expect to see a material transfer of some spending from online back into the store.”
Still, online shopping is unlikely to crumble anytime soon as many parents have grown accustomed to convenience factors like fast and free shipping.
“This is less about the marketing channel and more about shopping patterns as they stand today,” said Steve Rowen, managing partner of Retail Systems Research, in an email. “If the default is ‘I’ll order it online,’ then it would take a pretty compelling marketing campaign to get people out to stores. If that hasn’t yet become a shopper’s default, then there’s still great opportunities there. But from what our research shows us, if people go to stores right now, it’s because they actually want to. Certainly not because they have to.”
Despite what appears to be a series of uphill battles, finding a way to reach consumers and land the sale may not require a trip to the drawing board. Consumers appear to be paying the price for normalcy — perhaps warranting a revisit to blue prints from years past by marketers.
“I think they treat (back-to-school marketing) like they did back in 2018 or 2019,” Kodali said. “It’s a competitive landscape, but there’s a lot of money up for grabs, so if you want to grab it, you’ve got to have a compelling message, you’ve got to have compelling pricing, you’ve got to reach customers at the right time.”
Article top image credit: diane39 via Getty Images
Amazon hikes Prime membership by $20 to $139
By: Daphne Howland• Published Feb. 3, 2022
Citing the expansion of member benefits and rising labor and transportation costs, Amazon said the annual price of its Prime membership will rise from $119 to $139 as of Feb. 18, 2022, the first hike since 2018.
Amazon's operating expenses grew 12.9% to $134 billion in the fourth quarter, according to a company press release. Online store sales fell 1% to $66.1 billion, sales at physical stores rose 17% to $4.7 billion, and product sales were flat year over year at $71.4 billion.
Operating income fell 49.7% to $3.5 billion, while net income ballooned 98% to $14.3 billion, thanks in part to an investment windfall.
Amazon took it on the chin at the holidays, with GlobalData finding that it lost market share to physical retailers, especially those with strong e-commerce of their own, curbside pickup or other omnichannel options.
Experts note the company is leaning harder on service fees to make up for that, and the cost increases it faces itself. As a retailer, (outside of its cloud services, where revenues rose 40%) the company is seeing more growth from fees it takes in from customers and sellers than from product sales. Revenue from its third-party services rose 11% to $30.3 billion, and subscription revenue (including Prime membership fees) rose 15% to $8.1 billion and advertising revenue rose 32% to $9.7 billion.
Observers think Amazon's Prime members will likely take this fee hike in stride. The monthly fee will increase from $12.99 to $14.99. For current members paying annually, the increase will apply after March 25, on the date of their renewal, per the release.
"History has shown that when Amazon raises the fee for Prime membership, consumers barely seem to notice," Brendan Witcher, Forrester Research principal analyst, said by email. "This is likely a reflection of Amazon doing its due diligence and understanding the elasticity of the program's price before making the change. Total income from Prime at the top line is larger than most retailers’ total sales — so having the confidence to increase the fee can almost always can be seen as a positive for Amazon."
But the e-commerce giant may have to take care that the membership is worth it, according to GlobalData Managing Director Neil Saunders, who called the Prime fee bump "reasonable." On a call with analysts, Amazon Chief Financial Officer Brian Olsavsky noted that Prime benefits are expanding, as with its new prescription delivery services, improvements to its video and music streaming services, and more products available for fast shipping.
According to research from loyalty provider Clarus Commerce, fast, free shipping was the top reason for renewing Prime, and the video streaming service was second. The latter will remain important as long as the pandemic continues, according to Clarus Commerce CEO Tom Caporaso.
"While it's inevitable that some shoppers could discontinue their memberships with a price raise, I'd expect most Prime members to stay enrolled," Caporaso said.
Some of the company's massive cost increases came from the expansion in its warehouse and fulfillment capacity to meet demand in the fourth quarter, another bet that could pay off given consumers' appreciation for speedy fulfillment, according to Julian Skelly, retail lead at digital consultancy Publicis Sapient.
"Although Amazon's revenue growth has slowed down since the height of the lockdown, it continues to climb at a good pace," Skelly said by email. "Amazon has done well by investing heavily in hiring, while others have struggled to bring on additional capacity. But if online shopping habits that consumers have developed over the past 2 years change, Amazon may be stuck with a large cost base and declining revenue."
Amazon nearly doubled its operations capacity in the past two years, expanding its fulfillment center footprint and "adding significant transportation assets to ensure fast, on time delivery," Olsavsky said, adding later, "the onus is on us to get our operational efficiency back."
Amazon also now has to contend with meaningful competition in retail, GlobalData's Saunders said.
"Perhaps the most interesting thing about the numbers is that they show there are limits to Amazon's growth," Saunders said. "What's now clear is that Amazon must work much harder to generate future gains, especially as competitors are making much more effort with their omnichannel and digital services. This is one of the reasons why Amazon is starting to pull on some alternative growth levers."
Article top image credit: Courtesy of Amazon
How Nike execs think through its digital ecosystem
Recent collaborations with Megan Thee Stallion and Dick's Sporting Goods have built on the brand's efforts to craft a connected shopping experience across its channels.
By: Cara Salpini• Published Nov. 11, 2021
Nike's recent effort to tie together its loyalty program with one of its key wholesale partners, Dick's, is representative in a lot of ways of Nike's strategy at large. One of the key spokes in Nike's wheel is effectively connecting its shopping experience so that a customer shopping on the app, online, in stores or even at its wholesale partners remains in its central ecosystem.
Daniel Heaf, vice president of Nike Direct, put the retailer's aim succinctly during a media event. "We're using digital services to create a Nike distinctive experience that blurs the line between digital and our stores," Heaf said.
Central to making the effort work is Nike's membership program, which now has over 300 million members. Customer data is key to Nike's ability to keep customers within its environment, and Nike uses its membership to actively personalize a customer's experience by recommending products or pushing shoppers to content on its training apps.
According to Iris Yen, vice president of Nike Direct Digital Commerce, Nike is also using the customer data it's collecting for highly specific promotions to increase loyalty. On the retailer's SNKRS app, for example, Nike sent out personalized purchase offers for its Off-White Dunk, 90% of which went to members who had previously missed out on an Off-White collaboration.
Nike executives pointed to a recent collaboration with Megan Thee Stallion as a prime example of what kind of connections they're trying to drive: The athletics retailer created wellness and workout content with the artist for its training apps, then also created a curated collection of apparel with her that customers could shop.
"If a member engaged with us through one of Megan's workouts, we could immediately connect her to the inspirational story or curated looks on our commerce channels," said Steve Scarpetta, vice president and general manager of Nike Direct Digital Commerce for North America.
That effort in particular was targeted at Gen Z, a demographic Nike is also going after with one of its newest Nike Live stores in Williamsburg, New York. Nike's membership and apps are closely tied to the store experience at its small-format stores, and each location is built to be customized to the neighborhood. In Williamsburg, that means targeting Gen Z women.
The company opened the store mostly because it noticed high engagement in the area with its training apps, but no physical touchpoint for those shoppers. The store has local partnerships with gyms and fitness studios, and products are also personalized to Gen Z's preferences, with an entire floor merchandised in a gender-neutral way, according to Vice President of Nike Direct Inline Stores for North America Frank Ha.
"Nike Live is where we will see our most significant store growth, expanding across many of our key cities," Ha said. "This small format allows us to be part of the consumer's shopping journeys, specifically in the neighborhoods where they live, work and play. Our Live stores have a sharp point on women's and is our best retail expression for women across all of our concepts."
While Nike Live stores are perhaps the most obvious in their use of data to personalize the shopping experience and assortment, Nike's other key concepts are likewise data and digital-heavy. Nike's House of Innovation flagships, while much larger than Live stores, offer many services through the app, along with in-store customization options. Nike Rise is a similar concept to Nike Live, but personalizes on a city-level rather than a neighborhood-level. According to Ha, that store concept will be coming to North America in the near future.
In fact, a lot of things will be coming to North America soon. Nike is planning up to 200 smaller stores globally in the coming years, and executives said that many would be in North America, where Nike is "growing fast and deliberately."
"In November and December alone, we will open nine new stores, and this is more stores in two months than some years pre-pandemic," said Shannon Glass, vice president and general manager of Nike Direct for North America.
According to Glass, the openings will span both Nike Live and Nike Rise, as well as its Nike Unite concept, which is a value-oriented store described as an "evolution" of the old Nike Factory stores.
Overall, the message was much of the same from Nike: Digital channels and its direct-to-consumer stores will continue to lead its growth efforts. And the goal of creating a connected ecosystem is as present as ever.
"Nike Digital is not a separate or siloed body of work," Scarpetta said. "Digital is truly the throughline to our One Nike Marketplace vision and it's central in our consumers' everyday lives."
Article top image credit: Courtesy of Nike
Inflation drives shopping changes for 85% of consumers: survey
By: Tatiana Walk-Morris• Published Aug. 18, 2022
Indicating a shift in consumer shopping behaviors, a new Morning Consult survey of 15,000 adults in the U.S. and other countries found that 85% of U.S. respondents said rising inflation had affected their shopping habits.
Consumers have taken action to save money recently: 79% said they looked for discounts, 77% had cut back on their shopping and 68% had consolidated their driving trips, according to the survey.
Higher-income shoppers are more insulated from inflation and are less likely to alter shopping behavior. But as retailers prepare for the upcoming holiday season, they must grapple with consumers pulling back on discretionary spending to focus on essentials, the report found.
While high-income consumers aren't as affected by inflation, lower- and middle-income consumers will begin shifting their shopping behavior, which could affect the upcoming holiday season, Morning Consult noted in its report. Among the other changes consumers are undertaking are shopping at discount stores (68%), purchasing generic brands (67%), avoiding shipping costs (66%) and postponing minor purchases (65%).
The report also said that while some consumers are concerned about more categories than others, inflation threatens the sales of every product category. Ninety-two percent of U.S. survey respondents said they were somewhat or very worried about inflation of grocery prices, followed by 62% who said the same about apparel and shoes, and 56% about personal electronics.
The decline in consumer sentiment, particularly in the grocery category, comes as more shoppers shift spending back to stores as e-commerce growth normalizes. According to the survey, 83% of consumers prefer to shop for their groceries and household goods in stores, while only 15% prefer to do so online. And when it comes to buying personal electronics, just 37% of respondents said they prefer to buy online, compared to more than half (55%) who said they’d rather do so in stores. Fifty-nine percent of respondents cited enjoyment and 49% cited product comparisons as the top two reasons for shopping in stores, according to the report.
Still, research suggests that e-commerce will reach new heights this year. FTI Consulting previously predicted that e-commerce would exceed $1 trillion by 2025, but it recently released a report projecting that e-commerce would reach $1.07 trillion this year. Meanwhile, Adobe also predicts that e-commerce sales will surpass $1 trillion in 2022 and will make up 70% of all retail sales by 2027.
Article top image credit: David McNew via Getty Images
‘Something is changing at Ulta’: The legacy Mary Dillon leaves behind as CEO
She grew the beauty retailer from a regional player to a national powerhouse. Her departure marks the end of that high-growth phase.
By: Cara Salpini• Published June 7, 2021
When Mary Dillon joined Ulta in July 2013, the retailer had just raked in $2.2 billion in net sales for 2012, on the back of several years of strong net sales growth.
"Ulta has enjoyed tremendous success for the past several years, executing a well-defined strategy. And that includes accelerating store growth, introducing new products, services and brands, enhancing our loyalty program, broadening our marketing reach and increasing our digital focus, including ulta.com," Dillon said on her first earnings call as CEO. "I don't plan to make any radical changes to this strategy, but rather I plan to expand and build upon this solid foundation."
Dillon did just that. Under her leadership, net sales growth would continue, maintaining a 20% or higher growth rate from 2013 to 2017. In 2018, growth slowed to 14%, and in 2019, it was 10%. But Dillon was also at the front of a larger shift at the retailer, from a regional mass beauty player to a company that offered premium beauty brands as well.
"With consumers shopping high and low cosmetics, Ulta is actually even better positioned I believe than Sephora. Ulta is the number one destination for teens right now," Erin Schmidt, senior analyst at Coresight Research, said in an interview, citing Piper Sandler's annual teen survey. Coresight Research estimates that Ulta makes more in revenue now than Sephora, though it's hard to ultimately tell since Sephora doesn't divulge its financials.
"She changed their entire brand image from being a drugstore retailer into something completely different," Schmidt said.
Dillon made Ulta an experiential destination, multiple experts said, and brought more professionalism to not only the lineup of brands but also the salon services business. Stephanie Wissink, a managing director at Jefferies, still remembers a moment about two years after Dillon took over that foretold that shift at the retailer.
"I remember being at an event when Mary walked into the room, and I watched the head of Estée Lauder, L'Oréal, Elizabeth Arden, Bare Minerals — I watched all of them turn and look," Wissink said. "And I remember thinking, 'Something is changing at Ulta. Mary is changing things at Ulta.'"
And change they did — mostly for the better. In her eight years at the helm, net sales, operating income, net income, comps and store count increased every year except for the last, which was marked by mass store closures as the pandemic took hold and forced businesses to temporarily shut. Even so, net sales in 2020 were down about 17%, hardly catastrophic considering a global health crisis that bankrupted many companies.
By almost any measure, Dillon has been a solid leader for the beauty retailer and was one of only a few female CEOs, even in the female-focused beauty space. The company will undoubtedly miss a lot about Dillon, but the possibilities are still beautiful for Ulta.
From drugstore to destination
Analysts knew this day was coming, but it still was a surprise to many when Dillon announced her plans to step down in March 2021, including JPMorgan analyst Christopher Horvers.
"Mary, you're still young. You own a lot of stock in the company and the business is clearly poised to recover here in 2021. So, I think a lot of investors look at the announcement and think this is at least a year early," Horvers said on a call in March after the CEO announcement. "Can you share your thoughts on why — further, why now?"
Dillon didn't give much away, other than that it felt like the right time and that her successor Dave Kimbell (who officially took over the first week of June 2021) was ready. Kimbell's been in the C-suite at Ulta the whole time Dillon has and helped her build Ulta's brand to be a destination for discovery. They created the 21 Days of Beauty event, built up the loyalty program, and — a crucial piece to Wissink — Dillon convinced premium beauty brands to sell at Ulta.
"I think to Mary's credit she has figured out a way to establish and reinforce those relationships to reassure Estée Lauder and L'Oréal Luxe and these premium brands in beauty that it's okay to coexist in an environment with Morphe and Makeup Revolution and Elf and CoverGirl and Revlon," Wissink said. "It doesn't degrade the value of Estée Lauder to be in the same space as those value price brands. The same reason that H&M can fit in a shopping mall next to a Burberry or next to a Gucci store or a Louis Vuitton. Why? Because the same woman that's carrying a Louis Vuitton handbag is wearing a pair of jeans from H&M."
Dillon also introduced a space for up-and-coming brands to live, resulting in an assortment that features traditional brands in addition to indie ones, mass brands in addition to prestige. Ulta's strategy became establishing itself as the "partner of choice" for hot new DTC brands to sell through brick-and-mortar for the first time and finding innovative ways to highlight those brands in stores and online.
She was a "high-growth CEO," as Wissink calls it, raising Ulta to be a national retailer, partnering with major brands, and leading the company through a digital transformation. The store count more than doubled while Dillon was there, net sales and operating income more than tripled, and net income more than quadrupled (excluding the year of the pandemic).
E-commerce was "a fraction of a percent" when Mary arrived and will make up 25% of the business when she leaves, according to Wissink.
The pandemic also helped fuel that e-commerce adoption. According to a report from 1010data, Ulta's e-commerce sales grew 67% year over year, compared to 25% at Sephora, driven by cheaper prices at Ulta and Ulta's mostly off-mall store base. Prices at Sephora were almost 54% higher than Ulta, which made the latter more appealing to customers trying to rein in their finances during the pandemic.
The company's BOPIS sales also surged 277%, while delivery grew 49% in 2020, 1010data said. BOPIS sales grew from 8% of total online salesat Ulta to 17% of total online sales in 2020.
The company has said that omnichannel customers spend more, and Dillon knew the value loyal customers could bring. She not only built up digital operations but also the salon business — whose customers shop twice as often and spend three times as much, according to Schmidt — while improving the loyalty program's perks to create a solid foundation for the company.
Ulta invested in personalization and other data tools to grow loyalty, Schmidt said, leading to a 20 million-member gain over Dillon's tenure. During Dillon's first earnings call at the company, members had just surpassed 12 million, while in the retailer's Q1 earnings in 2021, members grew to 32.3 million.
Practically every piece of the business was improved under Dillon.
"She took it from a regional operator to: It's kind of a national destination," Wissink said. "And that includes everything from assortment to visual merchandising to marketing to in-store experience and services. She was really around for the engendering of those attributes."
But it's not just impressive growth and financial success Kimbell will have to replace. It's also the woman herself, whose influence went beyond the spreadsheet.
Beyond the numbers
"Mary always had the ability to command a room," Wissink said. "She was incredibly approachable. I think you could see Mary on the sidewalk and she would greet you with a hug and have a warm smile and a welcoming conversation. You would never know that she's the CEO of a multi-billion-dollar company. She's incredibly humble. And it was through her humility that she had tremendous influence."
Schmidt likewise recalled that Dillon knew "everybody by name" at an analyst event she attended. She was likable, approachable: "the kind of person everybody wanted to talk to."
That's a harder skill set to replace, and part of Dillon's legacy will undoubtedly lay beyond the economic success Ulta has generated under her leadership. As one of the most prominent female executives in retail — joined recently by the likes of Sonia Syngal at Gap and Lauren Hobart at Dick's Sporting Goods — Dillon will also be remembered as one of the first major female CEOs at a retailer.
"Her legacy as the CEO of Ulta will go beyond Ulta. You see it a little bit with the CEO of Kohl's, Michelle Gass: These are ceiling busters," Wissink said. "And they're making it possible for women across retail organizations to rise up into positions of prominence."
Even now, many women in executive positions in retail are relegated to HR roles, and while the representation of women in spaces like beauty is arguably higher than others, that final leap to the C-suite or to the top CEO spot can still be elusive. Almost as soon as Dillon joined Ulta, the representation of women on the board jumped to 50%, while the executive team also improved.
"When Mary went to assemble her executive committee, there was a tilt in that room," Wissink said.
"When you start changing the language of an organization, you start to notice a posture change."
Managing Director at Jefferies
Kimbell is one of four men on Ulta's executive team, and several high-ranking positions at the company are filled by women. According to Wissink, the head of e-commerce, head of stores, head of services, and the two heads of merchandising are all women. Patricia Hong, partner and managing director in Alvarez & Marsal's Consumer and Retail Group, praised the leadership team as one of Dillon's "biggest achievements."
In emailed comments, Hong said Dillon's team is "well-prepared and diverse" with more than half women and close to a quarter people of color by Hong's count.
It's well-known as an important part of Ulta's mission — in fact, one of the retailer's core values is to "champion diversity" — and Dillon has been a big part of furthering diversity and inclusion efforts at Ulta. That includes outside of the company's corporate walls.
"Even the terminology that they use — they talk about their customers as guests. When you start changing the language of an organization, you start to notice a posture change," Wissink said. "And I think the same was true around diversity. I think she started to instill a different language around the importance of it, and all of a sudden, it became central to the DNA of the business."
The next CEO
Needless to say, Kimbell has big shoes to fill. And thanks to Dillon's transformation at Ulta over the years, the retailer has more competitors than ever.
The shift to more online spending means more competitors from the brands Ulta sells as companies try and build out their own DTC operations. Ulta's shift into prestige brands has made it a formidable competitor to Sephora, and some of the two companies' recent decisions have pinned them even more directly against each other.
In addition to expanding its off-mall presence, there's "minimal" overlap with the retailer's Kohl's shop-in-shops, meaning less chance of cannibalization. The stores are also twice as big as Ulta's Target stores, according to Coresight Research, but both retailers will likely benefit from their respective deals.
In talking through the partnership in the fall of 2020, Kimbell said he sees it as another opportunity to deepen loyalty with its shoppers, thanks to the added convenience of Target. And, importantly, a way to drive customers back to its own stores. It should also help expand Ulta's footprint outside of its own store base, which has grown extensively over the years but is slowing down as the company reaches its ideal base.
"The opportunity gap in opening more stores is far, far smaller. I think they can be 1,400 on the bottom end. If they're a little over 1,200, there's not a lot of growth left from new units," Wissink said. "So it's really about maximizing the productivity of the existing fleet that you have. And then, they've just established this partnership with Target. What is that going to mean for opportunity? What does it mean for cannibalization? How did they think about acquiring new customers through that partnership? Those are all things that the new CEO coming in is going to have to resolve."
Ulta's store count has grown substantially since Mary Dillon joined
Hong believes Ulta is beating Sephora in the battle for the young consumer, including through housing those young brands. Both have strived to nab exclusive partnerships with hot new brands — Ulta's permanent and temporarily exclusive products made up 13.5% of annual sales in fiscal 2020, according to Coresight — and both are fighting to improve clean beauty offerings and the diversity of their assortment.
Ulta's Fifteen Percent Pledge came about a year after Sephora signed on as the first retailer. (However, Coresight noted that as of February 2021, Sephora offered just nine Black-owned brands.) Clean beauty has come into focus at both through Ulta's Conscious Beauty program, which launched in July 2020, and Sephora's Clean at Sephora label, which debuted in 2018.
As of February 2021, Sephora's program had over 1,600 products (about 4% of the total assortment), Coresight wrote in its report. The analysts also noted that Ulta's program is stricter than Sephora's, but both play to consumer trends that are ever more important in the beauty space.
That alone would be enough to occupy Kimbell. Then there's the continuing question around makeup.
As the beauty industry emerges from the health crisis, some think makeup is poised for a comeback, which would be good news for Ulta, as cosmetics made up 45% of its business as of May 1, 2021. Online sales of makeup at least increased in 2020, as shoppers turned online to shop a category that's frequently bought in stores. Makeup — including eyes, face and lips makeup — grew 40% in 2020, while self-care — including hair, face and body — grew 59%, according to a 1010data report. Monthly online beauty sales surged 75% in April, 68% in May and 97% in June as stores reopened.
But there are still lingering questions about the category, and makeup is still "pretty weak," according to Wissink. The post-COVID atmosphere, in general, remains somewhat of a question mark, and despite Dillon's incredible growth at Ulta, the profitability rate of the company hasn't expanded. This, and more, will be Kimbell's job to tackle.
"He's definitely extraordinarily equipped for this role and has deep knowledge of Ulta and its strategy, so for sure I believe that he will lead the company into its future," Schmidt said. She expects an increased focus on digital — and so does Kimbell.
During a company conference call, Kimbell outlined some of his priorities, which include omnichannel experiences, operational excellence, members and the company culture. At the same time, Dillon took her last conference call at Ulta to reinforce her support for Kimbell.
"His role as chief marketing officer, chief merchandising officer and president has given him a much better understanding of the category, demand creation and the needs of our guests than I had when I assumed the CEO role eight years ago," she told analysts.
No one's particularly concerned about Kimbell taking over the CEO role. It will just be — different. Will he be as charismatic? As approachable? As visionary? Ultimately, it may not matter.
"There aren't big hollow gaps in their business to the extent that you're going to need that in a way that's binary in its outcome. They needed to get those premium brands, so her approach became very important. It was an asset. They have the big brands now. So it's about amplifying and claiming share and really managing a business," Wissink said.
The days of high growth that Dillon oversaw are over. It's a different era at Ulta now.
"She's a builder," Wissink added. "And when you have a builder CEO in a managed model, a builder CEO is going to get restless."
Article top image credit: Courtesy of Ulta
Nike and Dick's tie loyalty programs together
By: Cara Salpini• Published Nov. 3, 2021
The next step in a long partnership, Dick's and Nike are tying together the Dick's Scorecard and Nike Membership loyalty programs within the Dick's app so customers of both can connect their accounts and receive loyalty perks from both retailers.
Through the joint loyalty experience, customers can shop an expanded selection of Nike footwear and apparel, access exclusive product launches and collections, and attend in-store events at Dick's House of Sport locations and other stores.
The retailers both expect to reach more customers through the combined loyalty offering, and will work together in both the physical and digital environments to "deliver enhanced convenience, new experiences and content for customers.”
"Dick's and Nike have a long and successful history of working together, and this partnership represents a significant strengthening of our relationship," Lauren Hobart, president and CEO of Dick's, said in a statement. "We are both focused on delivering best-in-class experiences and products and creating the best omnichannel experience for our athletes. Combining our capabilities in these areas will create a unique experience in the market for athletes who shop with Dick's and Nike."
Indeed, as Nike has moved further away from wholesale over the years in favor of its own channels, Dick's has been one of the few partners it has prioritized. In June 2021, Nike named Dick's among three other "large strategic partners" it works closely with, alongside Foot Locker and JD Sports. That strong relationship has been a big part of Dick's success as well, according to analysts.
Nike's loyalty programs and approach to data have been another spoke in the wheel as the retailer has worked to craft an entire ecosystem around its shoppers. Many of its store concepts incorporate the Nike loyalty program to such an extent that customers that aren't members are at somewhat of a disadvantage.
"You don't have to be a member to shop in the Nike Rise store," Daniel Heaf, vice president of Nike Direct, said over the summer about one of Nike's newest concepts, "but it is unquestionably a better experience if you are because you can access all the services."
This move to tie its loyalty program to Dick's mobile app is another way to improve the experience for shoppers. According to Sarah Mensah, vice president and general manager of North America at Nike, the brand's loyalty program "fuels deeper engagement" and gives customers access to "the very best of Nike." The integration with Dick's mobile app will help expand that offering to wherever Nike's customers like to shop, and allow Nike to continue to control its relationship with shoppers.
"Nike Membership is how we serve our consumer personally," Mensah said in a statement.
Nike and Dick's are not the only ones to pursue a joint loyalty experience. Ulta and Target, in addition to opening beauty shop-in-shops within the mass merchant's stores, also announced plans to integrate their loyalty programs in some way so that Ulta members shopping at Target can still benefit from their Ulta membership and vice versa.
Article top image credit: Courtesy of Dick's Sporting Goods
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