Abstract blur background : interior of Shops and people are shopping in department stores or shopping mall.Getty
As we head into 2019, we’re facing a pretty uncertain time. While 2018 was a year of growth for many retailers and brands accelerated by tax cuts and low unemployment, we’re entering a more precarious year. The stock market is in flux, many retailers are facing the reality of steepening tariffs, emerging markets are flexing their muscles as they take on a greater share of global growth, and it’s anyone’s guess on which way the wind might blow fickle consumers and their expectations for connectivity around every transaction.
That said, one could also say that 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 10 key points of view on what the retail industry should expect in 2019.
1. Retailers Will Get Personal with Zero-Party Data
Consumers are becoming more aware of their rights thanks to Facebook and GDPR, which is making way for a new age of privacy and personalization. If 2018 was the year that marketers were forced to wean themselves off third-party data sets, 2019 will be the year they shift to “zero-party data.” Zero-party data is information intentionally shared by the consumer, which is empowering marketers to build direct relationships with consumers, and, in turn, better personalize their marketing efforts, services, offers and product recommendations without the guesswork.
A recent survey found that 64 percent of consumers are actually fine with retailers saving purchase history and personal preferences if more personalization is offered. Forrester agrees, noting in a recent report that it is possible for personalization and privacy to coexist, and in 2019, the industry will “say goodbye to third-party data and hello to zero-party data. Data customers own and willingly provide to brands.”
2. Small is the New Big
Digitally-native and niche brands have come on the scene over the last couple of years, and 2019 will be the year that the growth of these brands will eclipse the growth of traditional retailers. And this growth is not only in their online businesses. A study by Retail Dive found that digitally-native brands plan to open over 850 stores in the next 5 years. In comparison, traditional brick-and-mortar-based retailers closed approximately 7,000 stores and opened approximately 3,000 stores in 2018, nearly all of which were in the value category (Dollar General, Five Below, Aldi, etc).
These niche brands are the future of the retail industry, and the smart traditional retailers are finding ways to participate in this growth. Walmart’s acquisition of Bonobos is one example of what I believe will be a wave of interesting partnerships and consolidations in this space.
3. Customer-Centricity Will Go Mainstream
Retailers have been saying they want to “put the customer at the center of everything they do” for the past two or three years, but have struggled with how best to scale this. In 2018, retailers learned that simply monitoring social media is not enough. We believe that, thanks to the adoption of technologies like Voice of Consumer (VoC) Analytics, 2019 will be the year that the industry actually makes the customer-centric model happen, as it offers a robust solution that enables them to determine what their customers want and also to deliver it – with speed and at scale.
Recently, Kalypso’s 2018 Digital Innovation Research found that 84 percent of retailers say VoC analytics are important and 59 percent are investing now or will be by the end of 2019. Salesforce research backs this up as well. In their predictions for 2019, they note that “Retailers must have a full picture of their customers, and act on that picture, to compete effectively. Why? Because merely competing on price (and even product) is a losing proposition.” As the retail industry moves through 2019, they will be looking to data to help ensure they offer the products and pricing consumers expect.
4. Retailers and Consumers Will Begin to Feel the Weight of Tariffs
In 2019, we’ll start to see the real impact of the Trump administration’s tariffs on $200 billion of Chinese exports – which will increase from 10 percent to a hefty 25 percent. The Retail Industry Leaders Association is seeking exemptions to the levies on products as companies warn that they’re almost certain to pass on costs to U.S. shoppers. Samsonite and Gap, which have large manufacturing operations in China, have said they plan to raise their consumer prices, for example.
Retailers will be faced with making decisions in 2019 to determine the categories and products where they raise prices and push the cost increases onto the customers, and where they need to absorb the cost increases themselves. This may force retailers to evaluate whether it makes sense to exit certain categories if they cannot sell product profitably. Further, they’ll also be considering whether the intrinsic value of a “made in the USA” label is enough to warrant shifting some product manufacturing to the US. We shall see. The UK and EU face many of these same challenges in 2019.
5. Algorithms Take Control
Retail has long been driven by savvy merchants who had a penchant for following their “guts” to the right product selections, and it has been an art far more than a science. But as more retailers implement innovative tools to leverage consumer data – whether to confirm the merchant’s gut feeling, or to guide decisions altogether – 2019 will be the year when the true science of retail takes hold.
In its 2018 study entitled How Analytics and Digital will drive Next Generation Retail Merchandising, McKinsey stated, “Winning decisions are increasingly driven by analytics more than instinct, experience, or merchant ‘art’. By leveraging smarter tools—those beyond backward-looking, “hind sighting” analysis—retailers can increasingly make forward-looking predictions that are quickly becoming the “table stakes” necessary to keep up.”
While data has long been available to retailers, it wasn’t until the industry learned the hard lessons from Amazon, whose assortment decisions are made exclusively using data and ‘bots’, that retailers started to see what was truly possible through technology. Amazon has more data on more customers than any other retailer, and they use this data to build tailored assortments and target them effectively to drive conversions. For Amazon, there is little to zero intuition – it’s all data. The example that they continue to set will drive retailers toward the science of retail even more this year.
6. Millennials will flock to Brands – they will be Luxury
Millennial purchasing power continues to increase. By 2025, Bain & Co. forecasts that Millennials and Generation Z will represent 45% of the global personal luxury goods market. This is a great opportunity for luxury brands, but it’s also a challenge since younger consumers think and shop differently than their parents.
Millennials seek and find brands they want, regardless of channel. Of course, they prefer to shop online, but they also value experiences and will enter a store if it delivers something unique. Claudia D’Arpizio, a Milan-based partner at Bain & Co. and one of the study’s lead authors, stated: “The brands that are well positioned to capture the Millennial market are moving away from the old luxury habits: from celebrating their own heritage to celebrating consumers’ passions; from looking obsessively into their past to providing futuristic aesthetic visions; from ‘shouting their name’ to enabling consumers’ self-expression.” Gucci is a great example and is resonating with Millennials.
7. Baby Boomers will constrict spending in a much bigger way
Along with the growth of Millennial spending comes the decline of spending by Baby Boomers. Millennials are expected to overtake Boomers in population in 2019 as their numbers swell to 73 million and Boomers decline to 72 million. But the Boomer segment is still a huge cohort whose spending habits drive the economy.
The oldest Baby Boomers will turn 73 in 2019 and many of the younger Boomers will enter retirement. Spending in retirement typically declines by over 35%, and Boomers have an average of less than $150,000 in retirement savings.
All of this points to an acceleration of the decline in spending by Baby Boomers in 2019. Retailers need to find a way to provide value to this important group of aging consumers, while attracting Millennials and Gen Z consumers. It is a challenge we are seeing many of our retail partners facing, as they work to develop product assortments that appeal to both groups.
8. Apple Jumps the Shark
A warning to Apple aficionados: The Crown of Cupertino is losing its luster. We haven’t seen any real innovation from Apple in years – with only incremental enhancements to the iPhone and Mac since 2010. Apple has grown revenues by increasing prices – the average selling price of an iPhone in 2018 was $765 which was up 20% from 2017, while unit sales have flattened out.
Increasing prices is not a sustainable way to continue to grow the business. I believe this points to the beginning of a decline for Apple unless it can find a way to do what it did so well in the past: introduce an entirely new product category we didn’t realize we needed until Apple launched it. Of course, this involves risk – and how much risk will shareholders and the Apple management team be willing to take?
9. Amazon: Prime Membership Plateaus and Prices Increase
Amazon’s growth of Prime membership is showing signs of slowing down. At 55 percent, just over half of the U.S. is subscribed to Prime, which is about the same as in 2017. This was the first year that Prime membership did not increase. Some of this may be due to the fact that Amazon raised the Prime membership price in May to $119, but it is more likely a function of reaching a saturation point in the U.S. market.
The next step for Amazon will be to begin to raise prices. Shoppers are now conditioned to start their shopping journey with Amazon and expect that Amazon’s prices will always be the lowest. Amazon will leverage its vast trove of data to identify products and categories where consumers are less price sensitive and will start to implement price increases. Non-Amazon retailers will be wise to monitor this and take advantage of situations where Amazon may shoot too far. Although it’s hard to beat Amazon at its own game, data and analytics are the only way to make it a fair fight.
10. The Final Divide of Retail Winners vs Losers
2018 saw additional retail bankruptcies, and 2019 will be the year of the final shakeout. Most of the winners and losers have been decided, but several more will hit the mat this year. Sears filed for Chapter 11 protection in October, and I believe the company is facing such strong headwinds that it may not make it. Others that may join the ranks in filing Chapter 11 are Pier 1 and J Crew, as they have lost their way, are in cost-cutting mode and fail to invest in the future. We have not seen this approach work.
Finally, some thoughts regarding the overall economy and the possibility of a recession in 2019. An early mentor of mine once said, “perception is reality” and then added, “my perception becomes your reality.” I didn’t like the statement then and to this day I still dislike it, but to some extent it was true. How does this relate to the economy?
We may see “perception” become “reality” with our economy. The media continues to hype the market’s volatility and a potential recession while corporate earnings and unemployment figures continue to speak differently. At the same time, the Federal Reserve is raising rates to allow them to “have something to work with” if a recession were to occur. Retail growth is over 4% and the economy is healthy; however, this sustained “perception” has the potential to create the “reality” of a recession later in 2019. I don’t want to be among the many that helps to create this inaccurate “perception”, so I am focused on the facts (stated above). As in any year, 2019 will have tremendous opportunity for those who spot the trends and position their companies to capitalize on them.