11 predictions for the future of retail in 2016
'The gold standard is Amazon. ... Retailers will need to find a way to catch up, innovate or evaporate.'
While 2016 may still be in its infancy, the outlook seems clear: change is a-comin’.
As the retail landscape evolves, Retail Dive spoke to nine retail experts and asked them to dish out some predictions for the upcoming year.
Here are their 11 predictions for the future of retail in 2016:
1. Focus on remarkable interactions in a ‘zero-sum environment’
Steven Dennis, President and Founder, SageBerry Consulting: I believe that more and more retailers will come to realize that, in most segments, they are in a no-growth, zero-sum environment. The focus therefore must be on how to steal market share from the competition by becoming more remarkable and more intensely customer relevant.
Given this backdrop two trends are most paramount. The first is a focus on using deep customer insight to execute more personalized interactions. The second is understanding how to "win the moment" and that means accepting that the consumer-decision journey almost always starts online and adopting a "digital-first" enterprise strategy that is well integrated and optimized for the growing importance of mobile.
2. Drama in the department store market
Nick Egelanian, President, SiteWorks: We continue to see an accelerating shift into the post-department store era, with consumers moving away from department stores toward the convenience and diversity of discount stores. While department stores have been on the decline for more than two decades now, we expect to see dramatic acceleration of market share declines in 2016. On the flipside, new discount apparel concepts like Primark will continue to emerge, while established retailers like T.J. Maxx, Marshall's, Ross Dress for Less and Nordstrom Rack will add another 250+ stores in 2016.
3. Discounts and off-line experiences
Jonathan Lapat, Principal, Strategic Retail Advisors, President, X Team International: The two main trends we’re anticipating in 2016 are the continued emergence of discount concepts from traditional retailers and more online retailers opening brick-and-mortar locations.
There’s no question that today’s consumers are value-driven, particularly the millennial generation. In 2015, we saw several retailers either launch or expand discount concepts—from Forever 21 launching F21 red to Nordstrom charting an aggressive growth strategy for Nordstrom Rack stores. New discount players will definitely come on line in 2016.
Retailers that were traditionally online only are opening physical storefronts—a trend driven by yet another consumer preference: the desire for a shopping experience. Warby Parker and Bonobos are a couple of the early adopters of this trend. The bottom line is that an omnichannel presence is critical to success for the vast majority of retailers.
4. New names, new change
Jeff Green, President, Jeff Green Partners: There are plenty of reasons for optimism in 2016, both in terms of the industry itself and with respect to the overall economic outlook. Employment has been improving and will likely maintain or trend up. That said, the New Year also brings a presidential election, which may impact consumer confidence. Wall Street doesn’t like uncertainty either, and the next election looks to have more than its share.
There are several prominent international retail names that are either already in the U.S., or keeping a close eye on the marketplace, from Uniqlo and Lidl, and, perhaps most notably and successfully, Primark. It’s safe to say that 2016 will bring more retail concepts from overseas, but those considering U.S. expansion should tread carefully. Our market is unique, and several retailers have failed in getting a strong foothold here.
5. The mall is about more than just shopping
Jerry Hoffman, Founder, Hoffman Strategy Group: In 2016, it will be critical for owners and developers to integrate more diverse and appealing dining and entertainment options into shopping malls and larger centers. From diverse restaurant offerings and high-end theaters to bowling alleys and go-kart facilities, entertainment looms larger than ever.
Mixed-use projects have started to emerge in secondary and even tertiary markets, and that trend will explode in 2016. From retrofitting traditional malls into residential-over-retail concepts to creating transit-oriented communities in which millennials can live, work and play—even in the suburbs—densification is taking place in major real estate markets and ground-up mixed-use developments are coming out of the ground in some very unexpected locations.
6. Follow the millennials
James Russo, SVP Global Consumer Insights, Nielsen: In 2016, we can expect connected commerce to continue to have an important role in the CPG industry. Retailers and manufacturers are advancing offline and online synergies and creating digital tools for consumers to use both in-store and on the go to help make shopping easier and more interactive. Beyond just e-commerce, the convergence of bricks and clicks will continue to grow and evolve the omnichannel retail landscape into a singular shopping experience for consumers.
Millennial consumers will continue to be a driving force in the marketplace. Today’s millennials are changing how and when they eat. Food away from home, including restaurants, ‘grocerants’ and snacking options, will continue to see growth as millennials fast-paced lifestyles see the dynamics of consumption continue to change.
See also: How millennials are shopping today
Millennials are also planning their next move, only 25% of plan to live in the same area they live in now over the next five years. That means 75% of up-and-coming spenders are planning to relocate, mainly to large cities and college towns. Retailers and manufactures must ensure they are following this generation where they will be living in order to benefit from their growing spending power.
7. Speed is the new advantage
Erich Joachimsthaler, Founder and CEO, Vivaldi Partners: As Peter Senge once said: The only way to win is to learn faster than competitors.
In 2016, retailers will find new ways to further respond to shifting perception of what is value to consumers and hence either enhance or enable or even transform their brand propositions. The gold standard is Amazon. It made new offers every five minutes during Thanksgiving of 2015 (every ten minutes in 2014). It auto-adjusts prices using an algorithm about five times a day. It made about 10 billion price changes during the holiday season, according to a Bain study. Retailers will need to find a way to catch up, innovate or evaporate.
8. Forget about the transaction, it’s about the interaction
Steve Barr, Retail and Consumer sector leader, PwC: Creating a unique customer experience will continue go a long way toward building loyalty in 2016. Shoppers, especially millennials, are craving experiences from brands. For retailers, it will no longer be about having large amounts of inventory on hand. The store will evolve from a hub of products into a distinctive experience that helps the consumer be more connected to the brand and its values.
9. Sears and Kmart face the 'death knell'
Robin Lewis, CEO, The Robin Report: While Sears and Kmart are suffering the same negative issues and challenges, both macro and micro, that have challenged retail growth for over a quarter century — and they’re not about to go away in 2016— the decisive death knell on these brands will happen more because of the lack of leadership, vision and strategy there. Over the past few years, Eddie Lampert has run out of sleight-of-hand financial tricks and asset sales to turn a quick buck and appeal to short attention span investors. Far more cash is bleeding out than is being generated, and that’s unsustainable. What I see in their future is no-future.
It’s hard enough for smartly managed retailers, those who are reading their customers, investing in all the right capabilities, and offering products that consumers want, to succeed in today’s hypercompetitive environment. When it comes to Sears and Kmart, both of which are literally on life support, I’d say their chances of longevity and success are in the zero-to-minus range. They have had so many of their assets stripped away, and there has been no real investment in either the physical stores or in technology while their owner, Eddie Lampert, the master of business wind-downs and asset stripping, has slowly let the air out of these retailers’ tires. That’s why I believe their end is near—very near, and may actually come to pass in 2016.
10. Personalization will grow up
Erich Joachimsthaler, Founder and CEO, Vivaldi Partners: Retailers will realize that serving an ad at the right time, at the right place, to the right person and to the right device, be it based on social, mobile or digital data, isn’t really personalization. It is still interruption marketing and nothing more than annoying spam. In 2016, retailers will evolve personalization and use digital technology (predictive analytics, beacons, AI, etc.), NOT digital advertising, to connect with shoppers. Starbucks has shown the way with their significant investments in digital technologies such as Mobile Order & Pay.
11. The Internet will only be a small piece of the puzzle
Nick Egelanian, President, SiteWorks: Despite almost nonstop chatter to the contrary, we expect to see continuing deceleration in Internet sales growth. While Internet sales will grow, the common misperception that brick-and-mortar retail is suffering is absolutely incorrect. Retail sales overall will increase three to four percent in 2016, and the portion generated on the Internet will simply be one of many purchasing paths consumers can take, accounting for well below 10 percent of retail sales now—25 years after Amazon's founding in the early 90's.