The 7,000 store closings we saw in 2017 didn’t mark the end of American retail, but they did mark one of the most transformative periods for it. As mass retailers shuttered locations after years (and years!) of hypergrowth, digitally native brands woke up and decided that physical stores are — gasp! — actually an excellent way to acquire new customers (without having to shell out the big bucks to Facebook). Somehow Walmart re-emerged as an underdog fighting against Amazon, while Target decided that smaller may just be better than bigger.
Now, we’re entering the new year on the heels of one of the most profitable holiday seasons the industry has seen (and in fact the strongest season since 2011) and amid “beat the odds” success stories from retailers of all kinds, including Best Buy, Sephora, Ulta and Stitch Fix.
What Does 2018 Have in Store for Retail?
Over the coming months, we’re sure to see lots of stories about the slow death of Sears, Amazon vs. Walmart vs. everyone else, the transformation of malls and questions about whether any eCommerce retailer besides Stitch Fix can thrive online. But what exactly can we expect over the next 364 days? Here are my top six predictions for the future of retail in 2018:
Prediction #1: We’ll Finally Witness the Death of the Death of Retail
If an alien arrived on earth on a random day in 2017 and perused the business news, he would probably have assumed that a beast called Amazon had caused the failure of every retail location on the planet. But I think we’ve hit peak Retail Failure, and it’s time to focus on the success stories we’re seeing in the industry. Sure, we had the largest number of retail locations close in a single year, but many retailers are expanding. Dollar Tree, Dollar General and Aldi, for example, opened a combined 2,000 locations in 2017. That hardly signals the death of retail in the value segment.
In 2018, we’ll finally see the light and put those ominous stories about the death of retail to bed (this series of haunting photos from retail stores across America is perhaps the most ominous of them all). What we’ll find instead are trends that indicate a new era for retail — one in which many retailers are thriving thanks to their reliance on data, their ability to listen to customers and pivot accordingly and their overall willingness to take risks and step into new waters in a calculated way. The trends highlighted in the following predictions will be a few of many that help send calls for the death of retail to the graveyard once and for all.
Prediction #2: 2018 Will Be The Year of the Product
In 2017, Stitch Fix demonstrated that creating a great personalized experience starts with a deep understanding of products and their attributes. Quite simply, the more you know about your products, the more you can create relevant product recommendations and deliver great personalized service.
Netflix recognized (and capitalized on) this relationship early on, creating a system to categorize movies and TV shows, with a wide array of attributes attached to each program. This system, coupled with strong data science, allowed Netflix to make recommendations that were vastly superior to anything Blockbuster could have offered and helped solidify its role as market leader. Now, Stitch Fix has figured out how to do the same thing for apparel.
At the same time as many retailers were thinking about personalization as having subject lines with customers’ names in them (or homepages featuring their local store), Stitch Fix figured out that the key to great service starts with product knowledge (which, funnily enough, any brick and mortar retailer could have told you years ago).
Having witnessed the success this approach has brought to Stitch Fix (and, of course, those outside the industry like Netflix), retailers will start to focus more on product attributes. One of the biggest changes we’ll see here is increasing investments in technology that allows retailers to use their product knowledge to improve personalization.
Prediction #3: We’ll Have a Personalization Reckoning
Alongside the revelation that creating a great personalized experience starts with a deep understanding of products and their attributes, we’ll see a larger reckoning around what personalization really means. Specifically, we can expect to see retailers redefine how they talk about — and subsequently approach — personalization.
As part of this redefinition of personalization, retailers will move away from gimmicks and fluffy forms of personalization that don’t actually support any value proposition, like those based on the weather and time of day. On top of that, the most advanced retailers will expand their focus from narrow personalization efforts like product recommendations and site changes in order to pay more attention to the entire marketing stream. In this new world, retail marketers will think as much about what they don’t send customers as what they do send them. And marketers will obsess over how all of the different pieces of what they do send come together to create a unique experience that adds value by bringing attention to entirely new sets of products or even destinations that data reveals is likely to interest specific groups of customers.
To power this personalization reckoning, retail marketers will not only continue to demand more customer data, but will also begin to demand better tools to connect and activate that data.
Prediction #4: Email Will (Finally) Become a More Strategic Channel
When it comes to email marketing, not a lot has changed in the past 20 or so years. Most of what we spoke about in 2000 with regard to email is still what we do today, and that’s because for the most part it works. If you know the batch merchandising email you’re sending tomorrow will bring in thousands in revenue, why wouldn’t you send it?
In 2018, the story around email will finally start to change, as we see retail marketers begin to evolve the technology behind their email juggernauts. Most retailers will enter 2018 with a hub and spoke model for email technology, with an ESP at the center and several third party providers that got added on over the years tacked on. These third parties typically offer more specialized capabilities, enabling everything from smarter segmentation to better email design to various types of personalization and so on. By the end of 2018 though, we’ll see a convergence to a single (or fewer) modern technologies that can satisfy these needs in a more streamlined way.
The need to think more strategically about the customer will fuel this trend. Instead of thinking solely about email and, within that, different types of emails like batch sends and triggers, retailers will begin thinking about the customer first. As a result, they’ll need to consolidate to a single, more vertical-specific solution that can bring all of these capabilities under the same umbrella. Ultimately, this consolidation will contribute to a shift in email marketing priorities from batch and scale to intelligence and execution.
Prediction #5: We’ll See Consolidation Around Same Day/Last Mile Delivery
Target’s recent purchase of Shipt underscores that the last mile is now a major focus for Walmart, Amazon and Target, which means that other large retailers (ahem, Macy’s) need to make similar investments or risk being left behind from a customer service standpoint. It also means that smaller retailers must work with partners to be able to offer same-day services so that they can compete with (or even outperform) retailers that have not made those investments.
Amidst this growing focus, we’ll also see a shakeout in the last mile space in the form of consolidation to a couple of winners that can offer same day delivery from local stores. Just like Farfetch offered a platform for luxury retailers to offer their wares around the world, we’ll see consolidation in the space of companies that offer same day delivery for a host of local retailers (not just restaurants, which is where the third-party same day (or same hour) delivery services have focused to date).
Prediction #6: Retailers Will Reignite Their Focus on Private Label Brands
Amazon has now rolled out 40+ private label brands as a way to offer proprietary merchandise where consumers can’t price-compare. As a bonus, these labels mean that Amazon isn’t beholden to other retailers for its selection. And it’s not just Amazon that’s caught on to the value of private label brands. Target is also in on the game, as it has a massive hit on its hands with Cat & Jack, the $2 billion+ children’s brand that has kept customers coming back to Target stores. With the success of Amazon and Target in this area well documented, we can expect to hear 12 months worth of rumors about which DNVB Walmart will buy to flesh out its own selection.
Meanwhile, department stores, which have long used private label brands as a core piece of their apparel assortment, should refocus on these brands, as many of their wholesale brand partners are pulling back on the assortments they provide to department stores to focus on their own distribution channels. Department stores have under-leveraged these assets over the past few years, but it’s time they take another look at their investments in private label brands.
And then there’s Bonobos, which offers yet another model for DNVBs. Prior to selling to Walmart, Bonobos partnered with Nordstrom (also an investor in Bonobos) as an exclusive department store partner. Might Everlane be able to drive growth through a similar arrangement with a department store?
Are You Prepared for the Future of Retail to Take Hold in 2018?
Only time will tell exactly what 2018 has in store for the future of retail, but we can be sure that it will be another year of major changes — mostly for the better — for the industry. And among all the predictions, the one I can confidently say is less of a prediction and more of a certainty is that we will be back here again in a year’s time, because despite all the naysayers of 2017, retail most certainly has a future.
What else is poised to shake up retail in 2018? And how can retailers respond? Check out our take on the new path for retail: Co-existing with the force of Amazon.