The consumer has never been more important, or opinionated, than now. Meanwhile, retailers are trying to navigate a tricky political and economic climate.
AlixPartners, New York, released a state of the industry report.
1. Digital natives continue to win share from traditional retailers
Brands that were born on the Internet have data in their DNA and know how to leverage it to understand customer behavior and choices. These digital natives will continue to gain market share in addition to delivering a highly personalized customer experience despite their nimble operations footprint – a feat too hard for legacy brands.
2. Legacy brands turn to M&A/partnerships for capability enhancement
How do legacy retailers compete in today’s tough environment and deliver what the customer wants? Mergers and acquisitions will play a big role, as legacy names try to grow their capabilities to match those of the digital natives, growing portfolios in the process. There will be at least one major acquisition as big players get hungry for growth.
Retailers that don’t have the liquidity to acquire will partner with companies that are experts in data and studying consumer behavior trends. Expect retailers to partner with media giants for data capabilities to get to know their customer better.
3. Growing platforms give brands unprecedented access to consumers
More and more traditional retailers will go all-in on the trend of joining online marketplaces, supplementing their own ecosystems to acquire new customers.
Brands will also leverage subscription-based rental platforms to build a closer relationship with the customer, get direct access to buyer data and preferences and stay close to consumers’ evolving buying behaviors.
4. Artificial intelligence (AI) finally makes an impact on customer experience and supply chains
Consumer-facing technology that enhances buyer convenience and delivers curated results will flourish – machine learning for voice shopping, filtered search, one-click buying, etc.
Supply chains will also go digital, as retailers move to cut development time, presenting top-line growth opportunities for those willing to embrace the possibilities of new technology. Brands will be forced to make bigger investments in automation and other technology in supply chains and stores to offset the labor cost pressures from rising minimum wage.
5. Consumers get louder in demanding more from brands
The consumer will be increasingly more influential and opinionated, forcing retailers to think about product lifecycle, not just from concept to shelf, but from concept to shelf to usage and retirement/recycling. Today’s environmentally conscious and socially responsible consumer will also reward retailers for sustainability, ethical sourcing and eco-friendly practices.
Consumers will continue to use social media to air grievances about brands that violate their values.
6. With an eye on the customer, the store gets a makeover
Retail stores will focus on delivering differentiated experiences to the customer in the front of the house and turn into fulfilment centers at the back of the house. This will render sales per square foot an irrelevant metric.
Stores and distribution centers will receive a surge of hiring in 2019, but things could start looking very different in 2020, as auto-checkouts and robotics change the game.
7. Muddle in the middle—the ends of the barbell continue to win
The two ends serving the consumer spectrum – luxury and discount – will continue to give customers a reason to visit the store, by delivering either a great experience or a high value.
Retailers in the middle-price tiers will get dragged down by too many stores facing under-investment. They will continue to lose market share, getting stuck in a repetitive downward cycle as consumers search for the best value or a differentiated experience.
8. Retailers play whack-a-mole as new costs keep popping up
Retailers will be forced to cut costs in several areas, diverting funds to more consumer-oriented investments. But, online shopping will keep growing, which will mean an increasing number of product returns and reverse-logistics costs. Expect retailers to charge for shipping and/or returns to offset costs. Retailers will train customers to accept paying more for delivery speed.
Brands that continue to favor art over science in merchandising will suffer from lower gross margins (because of bad buying decisions) and higher G&A costs (because of ill-trained buyers). Meanwhile, retailers that harness the analytics revolution will succeed.
9. The possibility of tariffs continues to cause uncertainty
The fog around tariffs on U.S. trade with China resulted in months of uncertainty for retailers at the end of 2018. While it’s still unclear if and what percentage of levies will eventually be imposed on imports from China, sourcing costs have already gone up for many retailers. Expect 2019 to be the year retailers completely re-think their supply chains – prompted by technology, competition and international trade issues. This sourcing competency redesign could include supplier relationships, foreign exchange hedging, upstream management of supply chain, etc.
One thing is certain—simply trying to pass higher costs down to consumers is not an option in today’s hyper-competitive environment.
10. De-globalization trend affects expansion strategies
From international trade skirmishes like the demise of NAFTA to Brexit and beyond, the recent global economic uncertainty will lead to international and marginal territories becoming less important for brands. Many retailers will prefer to stick to the customers they know in the geographies they know.
Clearly, challenge and opportunity are the big themes for retail in 2019. Smart retailers will keep a close eye on industry trends and the health of their business and stay nimble about fine-tuning tactics.