’Tis the season for annual retail predictions and, fear not dear reader, I will be sharing mine early in the New Year. Yet amidst all the prognostication nary a modern day Nostradamus gets fact checked on how well-honed their gift of prophecy actually turns out to be. I don’t want to be that guy.
So here’s a mostly objective–and decidedly self-indulgent–assessment of my Baker’s Dozen Of Provocative Retail Predictions For 2018.
- Physical retail isn’t dead. Boring retail is. This phrase later turned into a Forbes piece, which became my most popular post of the year. And the phrase itself started to catch on, sometimes with attribution, sometimes not (thanks Nike!). Regardless, as 2018 unfolded it seemed increasingly obvious that the retail apocalypse narrative was bogus. Sales in brick & mortar stores are up solidly this year, thousands of stores have opened, digitally-native brands like Warby Parker and Casper are accelerating the pace of their physical presence and Target, Walmart, Best Buy and many other largely brick & mortar-centric retailers have delivered strong results.
- Consolidation accelerates. Precise comparisons on mergers & acquisition activity and store closings are not yet available, but by any measure the pace of merger & acquisition activity was brisk. Macy’s, Target, Amazon, Nordstrom, Albertson’s, Kroger and Walmart were among the large players that scooped up one or more earlier stage, largely tech-driven companies. As growth stalls among mature brands, we’re seeing deals like Kors acquisition of Versace take center stage. The vast over-storing of US retail is also moving closer to equilibrium as thousands of surplus real estate shutters or gets repurposed.
- Honey, I shrunk the store. As predicted, 2018 brought a lot more activity here. Target, Ikea and Sam’s Club, among others, got more serious about opening scaled down versions of their big stores to squeeze into urban centers. Nordstrom announced that it would expand its totally re-imagined, service-centric “micro-concept” called Local. Less interesting–and potentially more perilous–were efforts on the part of over-spaced (i.e. under-customer relevant) retailers to sub-lease parts of their stores in a vain hope to shrink to prosperity.
- The difference between buying and shopping takes center stage. In my view, this trend becomes more obvious by the day, particularly as e-commerce keeps gaining share of “buying” (i.e. a more mission-focused customer journey where price, speed and convenience are especially valued), yet generally struggles with “shopping” (i.e. more discovery-based and tactile journeys where a more immersive experience is desired and face-to-face sales help may be important). Strategically this may have moved to center stage for more retailers (see Amazon’s moves into physical below), but there still is a general lack of understanding and appreciation here.
- Amazon doubles down on brick & mortar. Amazon hasn’t gone quite as far as I expected here (yet), but in addition to making some big changes within Whole Foods (their biggest physical store bet thus far) they introduced the Amazon 4 Star concept, expanded Amazon Books and Amazon GO (while hinting at thousands more to come) and continued to experiment with other expressions of Amazon in the physical realm, like their partnership with Kohl’s.
- Private brands and monobrands shine. The biggest acceleration came from Amazon, as they are on their way to a stable of more than 100 private brands. Traditional retailers continued to accelerate their own brands and/or largely exclusive offerings as an antidote to Amazon. Digitally-native vertical brands continued to shine, announcing plans to open more than 800 new stores. And Nike, among other manufacturers making a big push into direct-to-consumer, debuted their amazing new NYC flagship and Nike Live.
- Digital and analog learn to dance. Legacy brands (think Walmart, Target, Best Buy) that finally learned to embrace the blur and deliver a more harmonized (my, ahem, superior term for what most call “omnichannel”) experience across channels demonstrated great success. Brands that were already pretty good at it (Nordstrom, Sephora) continued to perform well. The upstart digitally native vertical brands continue to kill it, as they don’t care about channels, they care about the customer and use both digital and analog tools to deliver a remarkable retail experience. It appears finally that brand are starting to accept that digital help physical and vice versa.
- The great bifurcation widens. And it’s death in the middle. Well positioned retailers at either end of the price/value spectrum continue to grow sales and open stores. Brands stuck in the boring middle are getting killed. This year hundreds of stores that continue to swim in a seas of sameness have shuttered. Sears filed for bankruptcy. JC Penney finds itself in very serious trouble. It’s time to pick a lane.
- Omnichannel is dead. Digital-first, harmonized retail rules. This is an expansion of #7 above. The smart retailers are realizing that it’s not about being everywhere, it’s about showing up in remarkable and relevant ways where it really matters in the customer journey and eliminating the discordant notes and amplifying the ‘wow’. I did make a mistake in anchoring this prediction on being “digital-first”–which I have since corrected in my keynotes and in my forthcoming book. While leveraging digital technology to enhance the customer experience can be hugely important in many cases, it’s clear that not all customer journeys start in a digital channel and that digital is not always better.
- Pure plays say “buh-bye.” Name a profitable brand of any size that started online and has yet to open brick & mortar stores. Yeah, there are a few, but there numbers are dwindling rapidly. In fact, brands like Warby Parker that once thought they could scale without physical stores are now opening dozens and seeing most of their growth come from their stores. Brands like Everlane that said they’d never open stores are now doing so. Brands like Wayfair are struggling to figure out how to get returns and customer acquisition costs down to remotely profitable levels without a physical presence. And don’t even get me started on Blue Apron. The era of pure-play is, for all intents and purposes, over.
- The returns problem is ready for its close up. Arguably, this area got even more attention than predicted. Earlier this year I revisited the issue I first referred to as the industry’s “ticking time bomb” in 2017. Multiple media outlets featured stories on how the growth of e-commerce is leading to very unfortunate outcomes within many online dominant retailers, including Amazon. In response, we are seeing more venture capital funded companies like Good Returns and ReturnRunners getting funded to scale their solutions to retailers.
- “Cool” technology underwhelms. Did you buy much on Alexa this year, use a “magic mirror” or experience a store through VR? Yeah, I didn’t think so. Voice commerce will be a big thing some day. Artificial intelligence and machine learning will go from basic applications and ways to eliminate costs to truly delivering a more remarkable and personalized experience. And stores will become far more immersive through the application of advanced technology. Just not this year.
- The search for scarcity and the quest for remarkable ramps up. Consumers have access to just about anything they want from anywhere in the world just about anytime they want it. What was scarce a decade ago–price comparisons, product reviews, product access, speedy and affordable home delivery–is now virtually ubiquitous. Yet boring and mediocre retail still abounds. What’s scarce are truly customer relevant and remarkable experiences. You used to be able to get away with being good enough. Today, not so much. The retailers that continue to struggle often find themselves stuck in the middle, trying to cost cut their way to prosperity, hoping to win a race to the bottom. Good luck with that.
2018 clearly brought more and different levels of disruption. 2019 is likely to bring more of the same, despite what I suspect will be some moderation in store closings. But that’s a different post.
Originally published at stevenpdennis.com on December 27, 2018.