Enterprise

7 Predictions for Retail This Year

ForbesJanuary 29, 2020

As we enter 2020, we look back at a retail landscape that has endured much change in the last decade. Starting with the 2008 financial crisis, the country entered into an era of frugality fueling the hunt for deep discounts across every sector of retail and spurring what some deemed the “retail apocalypse.” Amazon answered the call by offering consumers lower prices coupled with two-day shipping through Prime, and discount stores like Dollar General rose. Adding fuel to the fire was the rising generation of younger, tech-savvy Millennial consumers who took the reins from Baby Boomers as the largest generation of shoppers, and layered on an expectation for convenience and seamless omnichannel experiences connecting in-store and online shopping. 

It was also the decade when direct-to-consumer digital brands emerged and then extended from clicks to bricks, raising the bar for in-store shopping experiences. Players unable to shift their models to meet the needs of new retail went bankrupt or closed thousands of stores or both. Malls emptied as anchor stores like Sears, Kmart, Party City, Walgreens, and Barneys announced store closings just this past year. 

Now, as Generation Z enters the workforce and begins to spend its own disposable income, we are seeing that they are bringing differentiated shopping expectations all their own and often much different from those of Millennials.

If we can take one lesson from what we’ve learned in the last decade, it’s that knowing and understanding the customer is the only way retailers will ever be able to stay ahead. Traditional models no longer work, as their supply chains are too slow, they are too disconnected with personalized experiences modern shoppers seek, and they do not bring diverse-enough opinions on new products, about which businesses must consider every element of the consumer shopping decision, from style to sustainability.

That said, there are signs that many retailers are beginning to “get it.” And what I stated in my 2019 predictions still rings true: “… the glass is more than half full, and that these challenges also present opportunities for savvy retailers and brands willing to face the winds head on.”

Here are seven key points of view on what the retail industry should expect in 2020.

1. Consumer spending may surprise you

Regardless of your political views, the uncertainty heading into elections in the U.S., as well as the U.K. with Brexit, will breed political turmoil and market volatility, and consumer spending particularly in the second half of the year starting with back-to-school in July may surprise you.

While there are different schools of thought when it comes to economic performance heading into an election year (past research shows that since 1952, the Dow Jones Industrial Average has climbed 10.1% on average during election years when a sitting president has run for reelection) we are far from entering into a “normal” election cycle. According to this recent story in Fortune, a country split politically creates a high degree of uncertainty, which typically leads to a controlled spend by consumers. At the same time, the economy is and has been SUPER STRONG. The question it leads to is, Do you play it safe? If so, and you are short on a long win … you WILL LOSE. There is very little room for error on this bet that most CEOs will have to place on one side or the other. The key here will be getting good data reads on the consumer.

2. Privacy regulation will reshape personalization

The much-touted California Consumer Privacy Act of 2018 (CCPA) has just been put into effect as of Jan. 1, 2020. Similar to GDPR, it mandates that companies secure consent from their consumer base when it comes to collecting and using data.

The regulations come on the heels of several high-profile data breaches at major retailers. According to this article in eCommerce Times, since the beginning of 2018, at least 19 retailers and consumer companies were hacked — Poshmark in August 2019; Macy’s and, in separate incidents, Saks Fifth Avenue and Lord & Taylor in April 2018, to name a few — and likely had information stolen from them. Other states including Nevada, New York, Washington and Texas are working to put similar regulations in place.

This recent piece in Fortune explains its impact on retail pretty clearly: The CCPA “could play havoc with the online economy, since so many companies — from tech giants to ordinary retailers — rely on targeted ads. If people demand that companies delete their data, those ads would be less effective. Walmart, for example, could miss out on sales because its online ads wouldn’t be as personalized as before. Google, meanwhile, risks losing a big chunk of its revenue because generic ads command far lower prices than the ones targeted using personal data.”

This begs the question: How can brands and retailers offer personalized experiences that consumers expect, while having to navigate through regulations to gather data necessary to make this happen? As I’ve written previously, “while most consumers in the United States would welcome personal data protection rights similar to GDPR, research found that on average, 71% of consumers express some level of frustration when their experience is impersonal.”

Retailers unprepared to meet in the middle in 2020 could encounter a huge issue. Take a look at how Walmart, Kroger and Target are exploring how they might use the customer data they possess to build an advertising business, with the aim of both increasing basket value and using ads in the age of heightened data-privacy regulations. Finally, on this topic, make sure you select a good technology partner or risk getting pulled into something very messy.

3. E-commerce/mobile shopping will accelerate even more

In-store retail will be driven by an unexpected ally: e-commerce growth. For years, online-only brands and direct-to-consumer models pitted online and in-store retail against each other. But as we discovered in 2019, 55% of the people we asked said they prefer to shop at Walmart versus Amazon, up from about 47% a year earlier. The percentage of people who favor Amazon has dropped to 45% from about 53% in 2018. A likely differentiator here is Walmart’s convenient local footprint, which enables consumers to buy their items online and drive over to pick them up — often faster and easier than waiting for the Amazon delivery. And as more brick-and-mortar stores enable consumers to buy online and pick up in-store, or enjoy curbside pickup at places like Walmart as well as Target and Nordstrom, this extension of e-commerce purchase will fuel growth in physical stores.

In fact, Target Corp. released that its third-quarter 2019 curbside-delivery fulfillment volume increased more than 500%, and it has 800 more Target locations offering curbside pickup compared with Q3 2018. Fulfilling online orders with curbside is more cost-effective for the retailer than shipping them, Target stated.

The latest e-commerce growth forecast from eMarketer suggests that e-commerce sales will represent 16% of all global sales in 2020. This is an increase of 19%. As we move into the next decade, it’s going to look less and less like online retail is cannibalizing in-store sales, and more like a hand-in-glove relationship. Finally, retailers are figuring this one out, just two decades later.

4. Mass/small-batch customization will pick up market share

While it’s still in a nascent phase, we are starting to see more retailers adapt aspects of mass customization for retail. The idea isn’t necessarily a new one. In fact, according to this article by WhichPLM, five years ago, Siemens USA CEO Eric Spiegel “declared that U.S. manufacturing was in the midst of a software revolution that would lead to global mass customization of products.” The same year a Time magazine article proclaimed: “Soon You’ll Be Able to Order Anything, Exactly How You Want.”

But putting this idea put into practice required supply chains and consumers to catch up. Consumers are starting to get on board. According to the same article, last year, an analysis of U.S. consumer perception about personalization by a global public opinion and data company, YouGov, found that 26% of U.S. consumers had personalized products and services. That compared to 17% in 2015. The percentage of personalizers was even higher for apparel and footwear at 29%. More than two-thirds of that group said they’re willing to pay more to personalize apparel and footwear.

Heading into 2020, I believe that instead of customization by customers, collaborations in customization will lead to unique products. One example is Vans shoes, which now enables consumers to pick their shoe, its color and patterns.

This will, in turn, have great impact on supply chains, which will need to evolve manufacturing platforms to accommodate small batches versus large runs to support collaborations similar to Chuck Taylor/Comme des Garçons, Reebok/Victoria Beckham, Puma/Balmain, and Prada/adidas. Here are a few other collaborations from 2019.

That said, not every collaboration makes sense. Pepsi’s collaboration with Kendall Jenner and U2’s Collaboration with Apple were considered high-profile failures. It’s important to get it right when picking collaborations, and understand what customers value at the intersection of two brands.

5. Sustainability will become standard practice

Driven by the growth of disposable income among younger Generation Z shoppers, sustainability is strengthening its foothold. Once a trendy nice-to-have that helped shoppers feel good about a purchase they probably would have made anyway, sustainability has moved to the center of the decision-making process for many younger shoppers. According to eMarketer, which quoted data from CGS a year ago, shoppers are increasingly considering sustainability when making purchases as 68% of U.S. internet users deemed product sustainability an important factor in making a purchase. Our own soon-to-be released data show that this idea has become more entrenched even in the span of a single year.

To keep up with consumer expectations, retailers and brands will be focusing on more-sustainable business practices including waste reduction, sample reduction, and using 3D CADs vs physical samples. The key will be tapping into Voice of Customer technology to align with anticipated consumer demand far earlier, reducing waste while increasing profitability.

6. Gen Z’s are now IN

The last decade could probably be called the Decade of the Millennial. As this generation came of age, they drove colossal changes that forever altered the landscape of retail. For example, often deemed “category killers,” Millennials’ demand for fast fashion brands like H&M and Zara have been blamed for department stores such as Macy’s and Sears closing hundreds of stores across the U.S. Now as they move through life, gain greater disposable income and start to have families, their differentiated purchase decisions move from “me” to “we,” affecting sectors like home goods, children’s wear, grocery, and toys. We are already seeing the fallout, as Millennials are being blamed in part for bankruptcies like Toys R Us

On the heels of this generation, however, are the rising Generation Z consumers whose oldest cohorts are currently entering the workforce. 2020 and the coming decade could very well be owned by Gen Z, so retailers and brands cannot rest on their accomplishments for long. Generation Z isn’t just another bunch of Millennials. Raised by Generation X, these soon-to-be consumers will not only wield even more influence than Millennials and Baby Boomers on retail, they are also much like their parents: “practical, penny-pinching pessimists” as described in this Bloomberg article.

According to a Business Insider survey of 1,800 Generation Zers, which echoes this sentiment, when deciding where to shop, their primary motivator is price. But since they document their life on social media, they feel a pressure always to have new clothes — which is fueling less-expensive and more-sustainable options like rental and resale.

7. Retailers, brands will continue to pay lip service to customer-centric models

Last year at this time, I felt optimistic that more retailers would be putting customers at the center of their decisions. However, I was sadly mistaken, as we saw an endless train of retailers and brands launching offensive designs that clearly were out of sync with their customers. The glass-half-full version of the outcome was that these missteps shed light on critically important changes that needed to be made at the core of these companies, ranging from a more diverse workforce to addressing oversight gaps in the design process. Sadly, while I believe that retailers and brands understand that connecting with the voice of their customers is important, and they like to talk about how they are doing it, very few actually are or will. I anticipate that these offensive mis-steps will continue well into 2020 and probably beyond.

The impact, however, will be felt more deeply than in the past. Generations now have a record called the internet and can refer back to the past mistakes that companies have made that they have taken offense at, and will use that in our social world to call out the offenders in our industry. Retailers and brands: Please stop the madness and ask consumers what they think before you make million-dollar bets without any checks and balances.

As we embark on a new decade, opportunities will be abundant for retailers and brands able to keep pace with consumers’ wants and needs. Even amidst economic uncertainty, those who are able to match their product designs, sustainability practices, and seamless, personalized experiences to customer expectations will have the greatest opportunity to capture market share while minimizing costs. Here’s to 2020 and the next decade!

This article was written by Greg Petro from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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