As the decade ends, it would be useful to reflect on how the retail industry has changed since 2010. With the wisdom of hindsight, we can now say what trends were rightfully chased and what claims were distractions that proved counterproductive.
Two things rightfully received a lot of attention:
- Retail has changed tremendously. At every retail conference in the last decade, at least one speaker would recite some variant of this sentence: "Retail will change more in the next decade than ever before." (My conservative estimate would have it said 10,000 times since 2010.) The upshot? Traditional indoor malls just aren't as important as they were 30 years ago, and physical retail that still exists is often about services like medical offices, fitness studios, and restaurants. Nearly 20% of retail is now online, and most companies, fortunately, got on the e-commerce train years ago. Those companies are seeing a good amount of revenue from e-commerce (grocery excepted, I discuss below), but the next big retail challenges are rightsizing store footprints and building brands that last in a highly fragmented, flash-in-the-pan world.
- Omnichannel is important. Actually, omni (specifically inventory visibility and flexibility across channels) is more than important -- it is an inevitable cost of doing business. While retailers have historically been pretty terrible at managing inventory (to their defense, it's tough to know where something is in a store when customers touch and move merchandise), winners from the last decade like Best Buy and Target have used their stores as warehouses, and enabled click and collect which has been the biggest unlock for national chains since the UPC code. But omnichannel excellence is a journey, not a destination, and most retailers still aren't good at it. Just you watch: we'll keep talking about this through 2030.
On the other hand, there were a lot of things said about retail that were unhelpful, distracting, or just plain wrong, such as:
- We are in the midst of a retail apocalypse." How do I disprove thee? Let me count the ways. First, in 2019 alone, there were lots of bankruptcies in other industries, but media coverage seemed to focus on retail. In fact, 19 of the biggest bankruptcies of 2019 were in non-retail sectors. However, Barney's, a company with a whopping .006% of retail received so much attention (255K results in Google search) you'd have thought there would never be a retail store opening again (even though the new Nordstrom flagship in NYC replaced it singlehandedly a few weeks ago).
- Meanwhile, I'll bet no one in retail has ever heard of Windstream Holdings which is way, way bigger than Barney's and was the second biggest bankruptcy of the year (behind PG&E). Lucky company, it got far less attention (159K Google search results). Second, the net number of physical stores is actually increasing, thanks to services businesses like restaurants. So while 9,000 stores may have disappeared in retail bankruptcies, thousands of others opened in their stead. The negative news gets readership but isn't helping the retail industry. If you still remain unconvinced, there's lots more data refuting any apocalypse here.
- "Everyone's going to buy their groceries online." We have Amazon's acquisition of Whole Foods to blame for this. Years later, even Amazon is no better at-home grocery delivery than anyone else. Furthermore, grocery is fragmented -- there's Trader Joe's, Aldi, ethnic grocery stores, farmer's markets, and so much more. And most of these purveyors have fiercely loyal followings and little digital presence. In fact, few people regularly buy groceries online (Forrester estimates only 4% of grocery sales are online, the vast majority being non-perishables like chips), and when people do, they are most likely to pick up an order in their own car from the nearest Walmart. Grocery delivery is just too expensive in the US, grocery store shopping is way too easy and grocery margins are too thin for anyone to succeed with on-demand online ordering. We think in the near future, grocers will realize this and stop subsidizing delivery which will keep online grocery at a low penetration level.
- "You must invest in a mobile app." At the beginning of the decade, apps were all the rage. You'll recall there was much whining over dismal mobile conversion rates (there still is) and apps seemed to be a logical solution. Only when companies realized that a mere handful of apps were ever downloaded, did they see it made absolutely no sense for companies with infrequent engagement (i.e. most retailers) to support mobile apps. Fortunately the mobile web got a lot better and apps were finally scratched off retailer to-do lists. This is not applicable to Walmart, Target and the largest mass retailers which admittedly do have very good and successful mobile apps.
- "You must be where your customers are." With little critical thinking or skepticism, retailers went whole hog into the bear trap set by the Tech Titans, digital agencies and software vendors who all made a ton of money taking the data and customer information of retail's best shoppers. If ever there was hogwash, this is it. Not only did retailers naively relinquish their biggest competitive advantage because they thought they would get incremental new customers (more often, it was just an extra tax on existing customers), the Titans themselves were rarely "where their customers are." They are all closed platforms with a slew of federal and state investigations on their tails. In the most egregious examples of the Titans telling retailers to "do as I say, not as I do," Amazon's iPhone app does not actually sell Kindle downloads because Apple takes too big a cut of digital sales. And Apple is now busy trying to prove the App Store is not a monopoly. Meanwhile, the retail industry overlooked the countless stories of great retail success with super limited distribution (e.g. Lululemon, Adidas, Rolex) that should have been their role models instead.
- "The Titans are all-knowing." Well, this is technically true because Big Tech has been stalking all of us via maps, email and universal logins, but this point is about the deference paid to their supposed brilliance. I hope by now we all realize they aren't smarter than the rest of us and have had a slew of failures. While there was at one point sheer frisson at the mention of an audience with Sheryl Sandberg (pre-Cambridge Analytica of course, when some hoped for her to be the first female US president), there is now indifference, even disgust with anything Big Tech-related. With more than a decade behind us, we should all reflect and realize that most of what came from the Tech Titans and their Silicon Valley brethren wasn't essential to retail success nor a savior from failure. That's right – not Facebook stores, not Dash buttons, not Alexa skills, not Google buy buttons, not Messenger bots, and not even iPhone apps. Not drones either.
- "Your shipping can never be too fast." Oh yes it can. I continue to be puzzled by retailers' obsession with fast shipping. Not only do most consumers just want free, not expedited shipping, but they are increasingly aware of the high costs (to themselves, to hapless drivers and even to a former Amazon CFO who lost her life to a delivery truck) of ultra-rapid delivery. If the fear of harming humans doesn't put some sense into the retail industry, perhaps what will is the realization that there is an FTC rule about fat fines for not sticking to a promised delivery date.
- "Marketplaces rule." In the US, retailers and consumers were so deferential to the First Amendment and the "first sale doctrine" (that which allows you to resell things you own) that no one realized that much of what was happening in retail (Airbnb, Uber and of course the Amazon Marketplace) was the explicit result of two other things: 1) a federal law that gave marketplaces special immunity (and therefore a unique advantage) when selling third-party goods online (Section 230 of the Communications Decency Act of 1996) and 2) sloppy product distribution by the world's best brands. That was all very 2018. Recent successful challenges to resellers, Congressional efforts to restrict sellers on marketplaces, and Nike's flipping the bird to marketplaces will make life harder for retail marketplaces in the future. And brands will no longer be able to throw up their hands crying "whack-a-mole" and excusing wild distribution and pricing of their goods online. The era of Econtrol has finally arrived and it's here to stay.
So what's next? Hopefully, retailers will have learned from history and will avoid becoming victims of hype, which will save them time and money and let them focus on meaningful, not Silicon Valley-initiated, drivers of change. But the challenge will be that history rhymes and doesn't repeat. That means that the next hyped developments won't look the same as anything above. And unless retailers recognize patterns, they'll be off on wild goose chases in the next decade as well.
For more predictions and insights from Forrester's retail team, please see the full report. To understand the major dynamics that will impact firms next year, download Forrester's Predictions 2020 guide.
This post was written by VP, Principal Analyst Sucharita Kodali, and originally appeared here.