The Supply Side: Product shortages, rising prices create push for shopper loyalty

Rising prices and product shortages continue to change consumer shopping behaviors, forcing retailers to focus more on customer loyalty and acquiring and retaining their shopping base, according to a new report from the online publisher Retail TouchPoints.

The retail marketing consultancy surveyed 115 retail executives and compiled a list of shared concerns and insights regarding how retailers could improve customer retention. For the second year in a row, the report stated that out-of-stocks due to supply chain challenges topped the list of retailers’ toughest customer loyalty challenges at 44%.

“These results certainly make sense: having the products customers want available for purchase, whether in a brick-and-mortar store or online, is almost the definition of a retail fundamental,” the report noted.

The report said that the efforts retailers have made to address out-of-stocks may have hurt customer loyalty in trying to convince shoppers that things are back to normal. In reality, shoppers are still having difficulty finding products they want on retailer shelves two years after the worst of the COVID-19 pandemic.

Retailers like Walmart, Target and Costco are wrestling with too much inventory in critical categories like apparel, seasonal outdoor and electronics while struggling to keep canned goods and fresh meat and vegetables in stock. According to analysts, the inventory imbalance will continue to impact retailer earnings through the rest of this year. Walmart trimmed its earnings guidance by roughly 10% for the entire year.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start on school supplies in Walmart U.S.,” Walmart CEO Doug McMillon said on July 25.

The second most significant concern for retailers is staffing worries, with 41% of survey respondents citing insufficient staffing negatively impacting in-store customer service. The U.S. unemployment rate stood at 3.5% in July, with a labor participation rate of 62.1%. Retail/Trade added 22,000 jobs in July, and that sector’s employment is back to the pre-pandemic levels, according to the Bureau of Labor Statistics.

Another huge challenge for retailers is the persistent inflation that has driven prices higher for virtually every aspect of their businesses and consumers. Retailers have given more significant discounts to try and woo customers, and the survey found that the practice was used as a retention tool by 55% of respondents in 2021 and 73% in 2022. With consumers wanting discounts and retailers also grappling with double-digit inflation in many aspects of their businesses, the report notes it will become more challenging to keep prices down and offer discounts, presenting a considerable threat to loyalty.

Stephanie Meltzer-Paul, a global loyalty exec at MasterCard, said that, too often, organizations have not defined loyalty for themselves and their customers in basic terms. She said defining customer loyalty by quantifying the number of times they shop each week or how much they spend is not the answer.

“For truly impactful loyalty programs that not only drive consumer engagement but evolve and expand with shifting expectations, it’s essential to think beyond the transaction. For us, loyalty is the ability of a customer to experience a rewarding relationship with a business that goes beyond the core offering of what they’re buying. It can build organically into an emotional connection that grows and evolves with the brand,” Meltzer-Paul said.

She said how effective retailers are in collecting and analyzing consumer data is key to their ability to provide a more personalized shopping experience, which can also enhance consumer loyalty.

One of the best ways retailers can collect personal data is through membership programs such as Walmart+, Amazon Prime, or Target’s RedCard. Walmart has not provided its membership numbers for Walmart+. Still, Deutsche Bank analysts estimated there were as many as 32 million members last year. Amazon does give its membership numbers, and as of earlier this year, there were more than 157.4 million Amazon Prime users in the United States who spent, on average, $1,400 per year.

Walmart, Target and other retailers are using omnichannel as their ticket to drive shopper loyalty. Omnichannel (blending stores and online) can also be a winning strategy if a retailer can provide rich experiences, according to Ulta marketing exec Kelly Mahoney.

“Our members are engaged with great experiences, and loyalty is at the heart of our brand,” Mahoney said.

Ulta reported that its 32 million members make up more than 95% of its online and in-store sales. And 45% of that 95% is made up of diamond and platinum members, consumers who shop the most frequently and spend the most with Ulta. Platinum members spend at least $500 with Ulta per year, and Diamond members spend at least $1,200.

Like Ulta, Walmart has invested in technology to link the stores with a broader online selection using QR codes on shelves and augmented reality applications in cosmetics and home furnishings. While that technology is available in some Walmart stores, it has not been rolled out to all stores.

Scott Benedict, an executive with Rogers marketing agency WhyteSpyder, said Walmart’s efforts to use its membership to drive loyalty is a good move. The fuel discount of up to 10 cents per gallon of gasoline at a Walmart or Murphy fuel station paid off amid the high gasoline prices earlier this summer. The membership also provides free delivery for online orders fulfilled by area stores and distribution centers. The retailer’s recent deal to provide a media streaming service with Paramount+ joins the Spotify music streaming benefit Walmart offered earlier this year.

Benedict said loyalty begins with being the first place a shopper thinks of when they need to purchase since a shopping trip can now be as close to them as the phone in their pocket.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.