Retailers have had a difficult few years, especially the small shops that make up the bulk of the Maryland Retailers Association's membership. As the trade group's president since June 2010, Patrick Donoho has seen the effects of the recession as many longtime members were forced to close shop. Now with about 250 members, including hardware stores and other independent merchants, grocers, department stores and national chains representing 1,200 locations, the trade group is rebuilding.
For Donoho, steering the trade group represents a return to retail. He spent the early part of his career in the 1970s in state government relations for the National Association of Chain Drug Stores, then worked for Revco Drug Stores. Back in the industry after two decades, he's come to appreciate the challenges small businesses face even as he gets a better understanding of changes underway in the dynamic industry from the bigger retailers.
The holiday season can be a make-or-break time for retailers, and this year the National Retail Federation forecast a 4.1 percent sales increase. Are Maryland stores in the trade group generally expecting improved sales as well? Why or why not?
Maryland Retailers Association is predicting an increase in sales over the holiday shopping season of 2.5 percent to 3 percent as compared to 2011. Consumer confidence seems to be returning to the marketplace as the economy recovers slowly and disposable income is also rising.
Maryland retailers have slightly increased hiring for the holiday season, which indicates a positive outlook for the holiday season. Thanksgiving week saw strong sales and increased consumer traffic in Maryland stores. Our hope is that the success of Thanksgiving will continue through the end of the holidays.
The association saw its membership decline during the recession, in some cases because store owners closed their doors. Which segments of retail were hardest hit? How are others managing to survive or grow?
The recession has been particularly tough for Maryland retailers, some of whom saw a severe decrease in sales during the economic downturn. Retailers have been confronted with two simultaneous challenges — the dramatic downturn in the economy and the radical changes that the Internet has brought to the industry. Particularly hard hit during the recession were furniture/home furnishing stores and others associated with the housing industry. Jewelers were also adversely impacted by both the economic downturn and the increases in costs of precious metals, thus costs of inventory and sales prices.
Retailers had to adjust to both the decrease in sales and the significant changes that technology has brought to promoting and marketing their stores. Retailers looked to lower their cost of doing business and trimmed as much as possible during the recession. In many cases, that meant fewer staff and substantially less profit. To be successful in today's marketplace, retailers have to rethink their promotion and advertising and solidify their niche in the marketplace. In addition, they have to be ever vigilant on maintaining strong cost controls on their operations.
Has the growth of online shopping been more of a challenge or an opportunity for traditional "brick and mortar" stores that belong to the trade group? Where do you see retail headed in the future?
Online shopping is only a visible segment of the changes that have occurred to both retailers and, more importantly, consumers over the last five years. An online presence is a requirement today for successful retailers. This presence has to be incorporated into their promotion and marketing plans. Not all retailers are engaged in e-commerce [the ability to purchase online from that particular company], but they also pay attention to their online competitors. For many retailers, e-commerce has brought new customers to their company, ones that would not have shopped with them because of location.
However, the greatest change has been with consumers. For example, Maryland leads the nation for e-commerce on smart phones. Shoppers have become better educated about their purchases and more "value" conscious. Consumers expect all retailers, "brick and mortar" and online, to be price competitive. Online retailers provide them with an idea of what merchandise prices are, but they are willing to shop at local retailers that provide additional "value" to them. That can be customer service, location [convenience], pleasant shopping experience, knowledgeable staff, and a variety of other factors that meet their needs and wants. Consumers are beginning to want to build a "relationship" with retailers in helping them meet their "values" when shopping. It is a fundamental change in the paradigm between retailer and shopper.
Online commerce has also substantially changed marketing for retailers. There is a growing divide between age groups on how people get, use and evaluate information about retailers and their products. Social media, online advertising, direct marketing, traditional advertising and other venues provide an ever changing challenge to retailers' marketing dollars. But retailers can better target their potential audiences across a multitude of different settings. Multichannel marketing is one of the bigger challenges/opportunities for retailers.
"Brick and mortar" stores are hopeful that our laws on sales and use tax and those governing relationships between states will be updated to better reflect the current marketplace and to level the playing field with online retailers. Under current Maryland law, Maryland retailers are required to collect and remit sales taxes on purchases of taxable items. For online retailers who are not in Maryland, that responsibility shifts to the consumer. Under current Maryland law, citizens are required to file quarterly sales taxes for all purchases of taxable items, on which the sales tax has not been collected, such as online. MRA and its members hope that elected officials will update the laws to shift that responsibility back to the online retailers.
Other than price and selection, retailers often say they compete on customer service. Do you think most consumers feel satisfied with service? And how much of a priority is customer service for retailers?
Customer loyalty is extremely important to retailers and service is an integral part of building that loyalty. Every retailer knows that "if consumers are not satisfied, you are likely to lose them as a shopper in your store." Retailers place a strong emphasis on training their employees to work with customers and be as helpful as possible. Consumers have more options today, than any time in the past. Retailers have to compete everyday against those options. Their success as a business is dependent on how well they can satisfy their customers.