Last year I started making annual retail predictions–some more provocative than others. For a first-timer I must say I think I did pretty well. Undaunted, I’m now back with my 2019 list of (mostly) bold predictions. Here goes…
- Apocalypse? No. Yes 2018 was yet another year of massive store closings and retail bankruptcies. And while I expect the pace to moderate this year we will still witness many hundreds of store closings and several major Chapter 11 filings. Yet it will become crystal clear to all but the most click-bait hungry that much of physical retail is pretty darn healthy and that the overall idea of a retail apocalypse is ridiculous . In fact, in addition to the more than 800 stores that digitally-native vertical brands (DNVB’s) will open, traditional retailers will open thousands of stores and brick & mortar overall sales will be positive.
- The collapse of the middle continues apace. Repeat after me:Physical retail isn’t dead. Boring retail is. Which is why we continue to see the vast majority of store closings and bankruptcies concentrated among those brands that remain stuck in a sea of sameness. In an era of digital disruption failure to be remarkable eventually leads to failure as a going concern– as Sears, ToysRUs and others learned all too well. Good enough no longer is. Retailers that fail to pick a lane and execute against the essential elements of remarkable retail are on their way to the retail graveyard.
- The stores strike back. It turns out that when retailers see their stores as assets to be leveraged rather than liabilities to be optimized–and recognize that the customer is the channel–the combination of strong digital capabilities and re-imagined brick & mortar is often pretty powerful. Walmart, Best Buy, Nordstrom and others accept that silos belong on farms and that by embracing the blur they can drive superior outcomes, even in the face of Amazon’s growing presence. Well harmonized customer journeys can often be superior to anything that online-only brands offer, particularly when the unique advantages of brick & mortar are done right.
- Isn’t ironic? For DNVB’s now it’s mostly about brick & mortar. Recentlymore folks started to understand that much of e-commerce is unprofitable and that scaling pure-plays is mostly impossible. In an ironic twist, many of the digitally-native brands that raised hundreds of millions on the premise that stores were unnecessary are now not only opening stores, they are starting to realize most of their growth from physical locations. In fact, without a robust brick & mortar strategy many would be in serious financial trouble and be awaiting a call from Walmart.
- Better is still not the same as good for Macy’s, et al. Macy’s, Kohl’s and Dillard’s comparable stores sales showed signs of life in 2018. And they may continue to do so in 2019. But let’s not confuse better with good. Macy’s is finally doing some interesting things and should be applauded for being more aggressive about innovation. Yet all three of these chains, to varying degrees, are gaining from the shuttering of competitors’ locations, a strong economy and the mess that is JC Penney (see below). These are largely unsustainable benefits. Without moving more strongly from me-too and mediocre to relevant and remarkable, trouble lies ahead.
- It’s do or die time for JC Penney. While in many ways JCP is the poster-child for being stuck in the boring middle–and was dealt a nearly fatal blow by the failed turnaround strategy of Ron Johnson–it still amazes me that they have not performed better, particularly as arch nemesis Sears rides off into the sunset. Lack of a coherent vision, a way under-developed e-commerce strategy, undifferentiated merchandise, look-a-like marketing and poor store execution need to be addressed in a big way STAT. While the maturity of Penney’s debt gives them some running room, without major forward momentum the story of Penney’s by the end of 2019 will be much the same as Sears today . Dead brand walking.
- An Amazon and Walmart showdown. Across the last 18 months or so Walmart realized it needed to dramatically up its digital and harmonized retail capabilities, which led to significant store, e-commerce and supply chain investments and a series of acquisitions (most notably of Jet.com). At the same time Amazon saw that in order to sustain its growth and improve profitability it needed to double down on its physical presence. While the two biggest retailers in the US have been intense competitors for years, this year they will find themselves in a rapidly escalating battle, particularly in grocery. Whether it turns out to be a race to the bottom remains to be seen.
- The emerging BOPIS crunch. It’s been clear for awhile that BOPIS (buy online, pick-up in-store) offers something many customers want, while also holding the promise of mitigating retailers’ growing costs of direct-to-customer fulfillment. It can also drive incremental store visits. By one estimate holiday BOPIS sales up 47%. and we are seeing a sharp uptick in retailers that are implementing this capability. The only problem is that many brands are not ready to handle this out-sized growth. In most cases doing BOPIS well puts pressure on processes and staffing while challenging the ability to dedicate convenient and adequate space. The complexities of BOPIS will wreak havoc with quite a few retailers this year.
- Stores as theater. More and more it will seem like all the store’s a stage as brands create highly immersive and memorable experiences that can only be found in their brick & mortar locations . Some will be highly focused like Canada Goose’s “cold rooms.” Others will introduce theatrical elements on a grander scale like Nike’s House of Innovation, The key will be to avoid gimmicky “lipstick on the pig” approaches and, instead, deliver something highly relevant, on brand, Instagram-worthy and remarkable.
- Micro-markets start to shine. Yes, many customers want everything, right now at the cheapest price. But the mass-ification of retail (be that via Amazon or big-box “category killers”) means the proliferation of a lot of average stuff for average people–and who wants to be average? The long-tail has plenty of advantages in making remarkable products available anytime, anywhere, anyway to just about anybody, but that is much more about search and discovery rather than delivering a memorable value proposition to highly targeted segments. Enter concepts like Phluid that focuses on gender non-conforming customers. Or Bottletop that delivers sustainable fashion. Or the Akola Project, the first 100% social impact jewelry brand. Or any of the dozens of new brands that innovate in a very particular way to pursue not the largest viable market but–at least initially–the smallest.
- It’s the end of the mall as we know it, and I feel fine. Plenty of malls are dead or dying. A lot are doing incredibly well. Mostly malls are evolving rapidly or getting entirely repurposed. Shift happens. When the dust settles (if it every truly does) there will be still be hundreds of malls that will be nicely profitable. But gone (and mostly demolished) will be many of the anchors that were key to the ascendency of regional malls decades ago. The specialty store mix will evolve, with more Allbirds, Warby Parkers and Caspers and fewer Gymborees, Gaps and J.Crews. Entertainment will continue to be dialed up and pilots of hybrid/pilot formats like Platform, Brandbox and Neighborhood Goods will get expanded.
- Wayfair crashes back to earth. The cracks in the pure-play model at scale become more evident as we get to see more public companies report concerning numbers (I’m looking at you StitchFix and Blue Apron). But, if you pardon my French, the cream of the crap is Wayfair. The difficulties of their underlying model were first exposed by the excellent work of Dan McCarthy and Peter Fader. Subsequent quarters reveal a disturbing pattern of escalating customer acquisition costs. Selling at a loss and trying to make it up on volume is a strategy that eventually hits a wall. This will be the year. But maybe Walmart or Amazon acquires them at a silly valuation. Never underestimate the greater fool theory.
- Voice shopping remains a yawn (for now). The sales of voice command devices are on a tear. According to a recent report from Amazon its sold over 100 million Alexa-powered devices so far. Alas voice shopping hasn’t gained a heck of a lot of traction, at least yet. The use cases remain a bit limited and concerns about privacy may reign supreme. But as US household penetration is still under 25% we have a ways to go before voice shopping truly disrupts the retail industry. But it will happen. Just not in 2019.
- Better metrics start to emerge, albeit too slowly. Nearly a year ago Brent Franson and I wrote a piece that argued that “The Reinvention Of Retail Demands New Metrics.” While I am aware of a few companies that are moving away from the obsession with comparable store sales and sales per square foot that don’t properly account for the effect of stores on digital channels and vice versa, there isn’t a lot of traction here. And given retail’s slow moving ways I doubt the industry will have an epiphany by year’s end. But it needs to happen. Now.
The only thing I know about this list is that several big things are certain to happen that I either missed or that no one could possibly predict. Either way, it’s always worth going out on a limb. After all, that’s where the fruit is.
A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.