What will 2020 bring for retail?
The teen years of this millennium were not the easiest on retail. But as with anything, the beginning of a new year is a good time to pause, take an honest look at both mistakes and opportunities, and make choices that will shape what the future may look like. While the last few years have been difficult for the industry overall, there are critical learnings that can shape the trajectory of the coming ones. Here are 10 ways in which we predict retail to evolve in 2020:
- Consumer spending slows
With the presidential election taking place in the U.S. and the U.K. likely leaving the European Union in 2020, political and economic uncertainty will weigh on the consumer. We expect this will cause consumers to become more cautious and for spending to slow. The highest impact will likely be felt in the middle of the market. Discounters and dollar stores will likely continue to perform better than average – in the first four months of 2019 the top three retailers by store openings were all dollar stores. Luxury is also likely to keep winning, although there may be some shifting patterns when it comes to buying channels and product categories.
- Apparel feels the pinch
A disproportionate number of recent retail bankruptcies and store closures has included specialty apparel, which continues to be oversupplied and overstored in the U.S. Apparel also tends to feel the impact of changing consumer tastes quicker than other product categories. We expect this rebalancing to continue into 2020, especially as circular fashion trends such as resale and rental become more mainstream with the millennial and Generation Z consumer and corner an even larger market share. More apparel stores may close or shift their focus in the coming year to accommodate these changing consumer behaviors.
- Store evolution continues
The connected consumers of today have very different reasons for going to the store than their predecessors. Forward-thinking retailers must reimagine the store as the hub of a customer-centric model and relocate, resize, and refresh stores with experiential aspects and services. Technology, especially artificial intelligence, will feature more and more in stores. Click and collect and other store pickup options will grow, potentially providing an advantage over Amazon. In addition, 2020 should be the year retailers implement an omnichannel view of the store, defining value not only through direct product sales, but also the other types of benefits having a physical presence provides.
- Retailers take a price hit
Price transparency was a big 2019 trend. Consumers will continue to be acutely price conscious this coming year, which means retailers must get price-competitive in order to eke out growth and reverse recent declines. This will result in retailers living in the valley of lower margins for some time as they wait for consumers to give them credit for value and eventually regain profits. The combination of targeted pricing strategies, promotions, and dynamic pricing in store will eventually open opportunities to optimize margins. And repeat customers will be rewarded in this markdown environment, spurring more frequent transactions and bigger lifetime baskets.
- Sustainability goes mainstream
Retail has been grappling with questions of sustainability for quite a while, but with consumers loudly demanding tangible action, this coming year might be when environmental concerns become completely mainstream for the industry. The next wave of sustainability is likely to see brands partnering with suppliers to develop more environmental manufacturing practices, in addition to using innovative and recycled materials. Companies will need to begin looking inward and answer the question of cost versus waste when it comes to product development practices. This may be the final impetus that leads to widespread adoption of digital sampling and design tools.
- Inclusive values are the new normal
Sustainability is not the only value consumers will be compelling retailers and other businesses to adopt through the power of social media and other direct interaction. Inclusivity when it comes to product, services, and practices is also a growing trend likely to become much bigger in the coming years. Adaptive apparel and gender-neutral clothing are two new types of products that have been brought to the market. Among examples of other real-life impact that consumer uproar has led to is Walmart reducing gun and ammunition sales. Consumers are not just more likely to purchase from retailers that share their values, but also more likely to trust them and agree to share their data and information with them.
- Product becomes the differentiator
As price and service levels get more commoditized – for example, free two-day shipping becoming the new norm – retailers will need to differentiate themselves from the competition through product. Two examples are sustainable product lines and personalization. When it comes to operations, inventory management will become a lever for strategic differentiation – inventory-less stores will proliferate at one end of the spectrum, while at the other, stores will become more service-driven and increasingly act as localized fulfillment centers.
- Agility is the new speed
Fast fashion is out, which means speed as retail has come to understand it is passé. Instead, agility will become the trendiest buzzword. Agility, which we define as a combination of flexibility, efficiency, and data insights, will be necessary to understand and meet the ever-changing consumer needs. Brands and retailers will overhaul their legacy product-to-market processes to become more focused on the consumer. This will be enabled by increased access and research into consumer data and insights that are then fed into design work, merchandising decisions, buying processes, etc. This will also lead to increased cross-functional and cross-channel fluidity.
- Data gets dominant role
Data will be increasingly important and drive more and more decisions. Retailers will begin to make investments into finding the right insights from consumer data, probably through acquisitions of technology companies that can do this quickly and efficiently. New technology will also drive changes into everything from inventory management to warehousing and logistics to product development. In addition, Kickstarter will play a greater role for new retailers and direct-to-consumer brands to test products without incurring large manufacturing costs and taking massive inventory risks.
- Profitability takes centerstage
In the wake of WeWork’s withdrawn IPO and the accompanying criticism of its business direction, companies will start focusing on profitability instead of chasing growth. Expenses will tighten, and retailers will focus on operational improvement and achieving general and administrative cost reductions without damaging the business. Many retailers will focus on restructuring the business without actually going through a legal restructuring to jettison inefficient and unproductive fixed cost structures. Ultimately, the lesson will be that retail cannot continue its excesses of the past.
While recent years have been hard, the idea of an apocalyptic time for retail is certainly hyperbolized. It cannot be denied, however, that the industry is undergoing a renaissance of sorts. Consumers are more aware, connected, opinionated, and influential. This may sound like a problem at first, but it is, in fact, an excellent opportunity to listen, understand, and deliver. There is success in the future of any retailer willing to take an honest look at its business and make necessary changes.
Compliments of AlixPartners, a Member of the EACCNY