With the first wave of 2009 e-Commerce conferences now behind us (eTail West and the shop.org Strategy & Innovation Forum), I was intrigued by what I heard from retailers. Clearly, the economy was front and center at both events, but it was striking to hear retailers voicing two very different approaches to how their businesses are moving forward.

Where to go from here: two schools of thought

“Back to Basics”
In what I’ll call the back to basics view, some people expressed that these times demand that retailers concentrate on making sure they are doing everything they can in their core online business to optimize operations, streamline costs, and focus on converting the shoppers who are already on their site, rather than attracting new customers. They see reduced spending in their offline channels, with continuing increases online, so are carefully shifting resources to their online channels, while focused on controlling costs.

They acknowledge that their sites are currently experiencing increased traffic online, as shoppers are considering and researching more before pulling the trigger on a purchase (whether the purchase is made online or offline). But online conversion rates are decreased or flat, thus the need to focus on minimizing abandonment. Yet, with expectations that the downturn could extend at least into 2010, they have no crystal ball to guarantee either the success of their conversion improvement efforts, or continued online traffic growth. So, they are doing whatever they can to preserve cash, even while trying to optimize their stronger performing channels.

“Carpe Diem”
And then, we have the very bullish “seize the day” crowd. They say that now is the time to invest and differentiate – to take this opportunity to make critical changes that will help retailers stand out from the crowd and build the supports that will catapult them to success in the future, when the economy will inevitably (eventually) recover.

OfficeMax CMO Bob Thacker, a shop.org keynote speaker, said, “We may need to sacrifice, but must we suffer?” A Mckinsey analyst offered, “Though there’s no escaping some pain, moving quickly to improve performance can reduce the odds of a deep dip in sales and position retailers to participate fully in the inevitable upturn.” And Forrester analyst Brian Walker noted in a session that 35 percent of retailers recently surveyed are planning to re-platform within the next 2 years. At eTail, a speaker from RSR showed similar results from their recent holiday survey.

Where do you fall?

So which path should you follow? McKinsey advised retailers to start by assessing their company’s overall health and the maturity of their retail format (brick and mortar/Web mix, capital expenses, etc) and the category they play in (apparel, electronics, luxury, etc).

Strong financials/high growth potential
Clearly, companies with both strong financials and a high growth potential sit in the best position. Now is the time for you to invest, differentiate, and create a strategic advantage. Think broadly and consider new channels, new markets, including international expansion, and even new brands or services. The retail world is being reinvented, and you can lead the charge.

Strong financials/mature category
For companies with a strong financial position but operating in a more mature category, now may be the time to optimize your existing operations by adding live help solutions (voice and chat based) to your web site . Identify those investments that can deliver short-term conversions and revenues and solidify your financial position even further. Companies should also look to selectively invest in areas that enhance your overall customer experience and solidify your share of the mature market.

This is also a great time to focus on driving customer loyalty and repeat purchases. Learn from the best loyalty program providers and consider ways to translate loyalty best practices to your own business.

Weaker financials/high growth potential
Companies in a weaker current financial position but with a high opportunity for growth will likely take the “cash is king” approach and look for ways to reduce short-term costs while maintaining market share. Low cost, fast delivery, high impact investments – such as an automated recommendations service – should be prioritized. This will likely lead to a point-solution approach with companies adding select capabilities focused on delivering sales.

Weaker financials/mature market
Finally, companies with weaker financial standing and in mature market segments may have to make the most significant changes. This may be the time to reassess channels and operations. Companies who make the hard decisions now will have the best chance of weathering the economic storm and re-establishing their companies for the future.

For more guidance, check out the McKinsey Quarterly report, How retailers can make the best of a slowdown (requires free registration to access).