Five Ways That Retailers Battle Slowing Sales Growth And Tightening Margins
Retail sales growth in the US has been gradually decelerating, and retailers are feeling the squeeze. In our newly published report, 2023 Retail Competition Tracker, US, we examine offline and online sales growth at 65 leading US retailers and take a close look at tactics to improve profitability. We found that over three-quarters of these retailers saw their margins drop in 2022 and more than one-third saw their sales decline. Here are five ways that retailers are battling slowing growth and tightening margins:
- Grocery stores have been raising prices to combat margin compression. Kroger, for example, expanded margins in 2022 by raising prices to match rising costs, effectively driving consumers to its own higher-margin private-label brands. In our tracker, four of the seven supermarkets were able to maintain margins in 2022, while the rest were able to keep margin declines to a minimum.
- Retailers optimize their physical footprint. About half of the brick-and-mortar retailers in our tracker reduced their physical footprint between 2019 and 2022 by closing stores and/or moving toward smaller-format stores. Retailers are making the most out of their reduced footprint — prioritizing better locations, emphasizing smarter layouts, and focusing on optimal product assortment.
- Retailers build curated experiences to drive more profit. Retailers have expanded their role beyond simply being transactional by building unique experiences to drive emotional connections with consumers. For example, lululemon athletica drives consumers to its stores by blending shopping, fitness, and dining experiences, resulting in an increase in sales per square foot of 9% over the past three years based on Forrester analysis of company data.
- Retailers prioritize click-and-collect sales to manage e-commerce expenses. Retailers are using their physical locations to fulfill online orders. It allows them to meet consumer demands of speed and convenience while also reducing costly last-mile delivery expenses. Order management systems, updated store operations, and associate training are key to getting click-and-collect right.
- Brand manufacturers develop DTC channels to drive growth. There are several upsides for brand manufacturers to sell direct to consumer (DTC): It helps with profitability, it acts as insulation from underperforming wholesale retailer partners, and it gives brands access to valuable consumer data. But getting DTC right includes investing in people and skill sets, tech, operations, logistics, data management and analytics, customer service, and — not least — organizational buy-in and goals realignment.
Learn more in the 2023 Retail Competition Tracker, US, which analyzes total retail sales, online retail sales, and offline retail sales for 65 US leading retailers in the US, with additional data on margins and store selling space. Be sure to download the accompanying Excel spreadsheet for the full details.
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