Retailing will change dramatically between now and 2020.  The following outlines some of the anticipated changes and the impact these changes will have on retailers.

Millennials are in charge- In 2020, Millennials will be reaching their late 30’s and will be the main focus for retailers.  Millennials value quality over quantity, have a real passion for social causes, and have grown up using the Internet for everything.  In order to succeed, retailers need to offer this group products and experiences that are valuable and meaningful.

Consumers continue to trade up and down-Retailers positioned in the “middle” need to rethink their strategy as customers are leaning more toward luxury retailers and value priced retailers. Middle market retailers have seen their market share shrinking.

Emerging markets provide opportunities for growth-While the middle market in the U.S. is shrinking, it is growing in some emerging markets like Brazil, China, and India.  This is an exciting growth opportunity for middle market retailers.  However, there are political and cultural barriers that might make it challenging for retailers to enter those markets.

Too much space.  Too few sales- In 1980, shopping centers covered 3.3 billion square feet.  In 2010, that number was 7.2 billion.  The rise of retail space was faster than overall sales growth rate and today mall vacancies are up significantly.  By 2020, this space problem will continue to get worse as retail growth is primarily driven by online transactions.

E-commerce challenges the business model of most “brick and mortar” retailers- By 2020, online sales will account for 20% of all nonfood retail sales.  This growth is primarily due to increases in the use of online shopping and mobile platforms.  Traditional, brick-and-mortar retailers will struggle to define themselves in the multi-channel arena.  Brick-and-mortar stores that have historically differentiated themselves on price will no longer have an advantage as the Internet has neutralized the price wars.

Mobile platforms, smart sensors and social media enable new ways of shopping-  Online shopping and increased usage of mobile platforms allows retailers to connect with consumers on a more personal and localized level.  In addition, more retailers are now optimizing in-store Wifi technology to encourage customers to use smart sensors throughout the store to locate products, find complementary products and search product availability.  Mobile technology also allows sales associates to become “solution specialists” who can match products with customers’ exact needs.

Four giants reshape the retail landscape- Traditional retailers have to adapt in order to challenge online competitors who excel in speed, flexibility, technology, and business models.  The biggest threat to traditional retailers will come from four giants that are controlling the shopping experience and will continue to dominate towards 2020.  First, Amazon offers the broadest selection through its products and marketplace relationships.  In addition, Amazon Prime provides customers more convenience and value.  Second, Google dominates the search process and will continue to be the first place customers go to initiate the purchase search process.  Third, Facebook knows what customers “like.”  Facebook will continue to find ways to monetize this asset and influence customers’ shopping behavior.  Finally, Apple Inc. has set the standard for the in-store experience.  Apple excels in store design, customer service, and knowledgeable sales associates.

 

In order for today’s retailers to enjoy longevity into 2020, retailers need to begin strategizing now.  To gain a competitive advantage, retailers need to:

• Find a way to appeal to Millennials as they will be the primary shoppers in most product categories.
• Invest in building a strong brand that offer a basis for differentiation.
• Reduce the amount of retail space by downsizing, recycling, repurposing, or eliminating unproductive space.
• Make it easy for customers to shop.
• Speak to customers personally by making sure customers understand the brand message. Engage with customers in a consistent dialog.
• Invest in sales associates who solve customers’ problems. Retailers have reduced payroll spending, often to their detriment.  Sales associates need to be enabled, empowered, and able to engage customers with the retailer.

Discussion Questions:

1. What will the retailing environment be like in the future?

2. What can retailers do to maintain a competitive advantage in this new environment?

SOURCE: BM Sales and Distribution, Thought Leadership White Paper