My 2021 Retail Predictions: So How’d I Do? — Steve Dennis

  1. The Great Acceleration Moderates (B+) The pandemic did not fundamentally transform retail but it did accelerate many important trends, most notably e-commerce adoption. Predictions of 10 years acceleration in a few months turned out to be quite wrong; it was more like 2 years for most categories and closer to 5 for online grocery shopping. I believed that we would see a significant slow down in e-commerce growth and that some of the categories that saw a huge spike in spending would see a clear reversion to the mean. I’ve been mostly right here, but the combination of the knuckleheads who won’t get vaccinated, and the emergence of the Omicron variant, continues to keep spending on grocery and other so-called essentials at higher rates than I expected.
  2. Physical Retail: Still Not Dead. (A). I’ve been challenging the “retail apocalypse” narrative for as long as it’s existed and take this head on in my best selling book, which came out in April (but I finished writing and editing before the year began). While sales rung up in a digital channel will continue to grow much faster than those transacted in a brick-and-mortar location, all the metrics for physical retail in 2021 were strong. US sales achieved record levels. Stores were involved in some 90% of all retail transactions. Store openings exceeded closings for the first time in several years Legacy retailers across a spectrum of categories and formats opened thousands of new locations, and many recognized the hybrid role stores (as advertising, fulfillment centers, etc.) play in driving brand success and invested heavily in existing locations. Disruptive brands like Warby Parker, Allbirds and dozens more have announced the opening of hundreds of new outlets.
  3. Bifurcation 2.0 and the Hollowing Out of the Mediocre Middle (B+). I started writing and speaking about retail’s great bifurcation years ago, when I noticed that success was increasingly being found at either end of the value spectrum and that retailer’s that offered neither low price and convenience, nor an elevated experience and unique products, were losing market share at an increasing rate. I expected we would see a widening gap in performance between retail’s haves and have nots (which did happen) and that more retailers in the unremarkable middle would disappear, file for bankruptcy or engage in massive retrenchments. While there were some notable filings-and quite a lot of store closings-government stimulus and the booming stock and real estate markets drove distorted consumer spending that prevented struggling retailers from the harsh reckoning I predicted.
  4. The Hybridization of Retail Takes Center Stage. (B). Retail has gone from being largely dualistic in nature, i.e stores and e-commerce (and their supporting supply chains) operating in largely parallel universes to more of a hybrid eco-system that blurs the lines between channels and requires a harmonized customer experience. What is emerging more recently is the eschewing of sole purpose brick & mortar locations and product fulfillment facilities to move to more clearly multi-purpose operations. In addition, some retailers are moving away from one-size-fits all format strategies to service only (Nordstrom Local), dark stores, complementary specialty stores and leveraging their stores for e-commerce fulfillment and home delivery. Here I got this mostly right, but the degree of format and supply chain innovation (e.g. roll-out of micro-fulfillment and sortation centers) was not as profound as I imagined.
  5. Grocery Wars Escalate (B). With more consumer interest in home delivery broadly, and online grocery shopping in particular, along with huge investments on the part of retailers and tech providers alike an epic batter seemed to be in the offing. With the launch of Walmart+ and Amazon’s expanded same day and next day offering, fast delivery was becoming table stakes, despite the generally horrible unit economics. In addition, Amazon began rolling out its Fresh format while traditional leaders like Kroger and HEB were upping the competitive ante. It’s clear that the competitive intensity has increased. But with greatly amplified grocery spending persisting the degree of head to head battling I anticipated hasn’t manifested so far.
  6. Work From Wherever Rewires Retail Real Estate Strategy (B-). Work from home has a huge impact on retail spending. Aside from the rocket fuel provided by massive government stimulus, consumer discretionary income hit records levels as many households greatly lowered spending on their commutes and had their savings accounts boosted by not spending on travel, going out and other COVID hampered activities. How and where we spent was greatly impacted by being home more-and major urban cores took a huge hit. While the extended work-from-home phenomenon did shift spending to different trade areas and day-parts, we have seen pretty significant recoveries in major cities like New York. And a dramatic shift in real estate investment has yet to materialize. The operative term here is “yet” as I failed to completely account for the time it takes for retailers to pivot given the nature of their lease commitments.
  7. Cheap(er) Real Estate Creates New Brick & Mortar Opportunities (A). As discussed above, physical retail got even more attention than in recent years pretty much across the board. While it’s hard to say that favorable lease rates and far more flexible lease terms are the main driver, investment in new store formats on the part of legacy retailers and digitally native vertical brands is accelerating markedly.
  8. Without a Return to Fun, We Won’t See a Luxury and Fashion Recovery (A-). In retrospect, I should have said a “full” recovery since most luxury and fashion players have seen huge increases over 2020’s abysmal numbers. Yet, a return to pre-pandemic numbers in higher end apparel and accessories now rests on more engagement in international travel, special events, going out to more formal dining and other “see and be seen” activities that are important drivers of category spending.
  9. Penney’s Kicks the Can Down the Road (Incomplete). I am convinced that had Brookfield and Simon not bailed Penney’s out, they would have liquidated or radically retrenched during the course of 2021. As they are now private we can’t fully analyze their performance, but a few things seem clear. One, they are the weakest among the already staggeringly mediocre moderate department store players and all indications are that their relative performance continues to be poor. In the last few years they have done nothing of any real consequence to win, grow and keep profitable customers. They have not articulated a compelling path to transformation. And there is not enough time nor money to stem their inevitable march into oblivion. Dead brand walking.

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Keynote speaker & strategic advisor on retail innovation. Top 10 retail influencer. Senior Forbes contributor. Best selling author of “Remarkable Retail.”

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Steve Dennis

Steve Dennis

Keynote speaker & strategic advisor on retail innovation. Top 10 retail influencer. Senior Forbes contributor. Best selling author of “Remarkable Retail.”

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