Consumers will be calling the shots. And operations will get a much-needed makeover.
Those are the two dominant forces that provide the foundation for AlixPartners’ report, “After a Dramatic Year of Change, What Does 2021 Have in Store for Retail,” which lists the firm’s retail predictions for 2021.
“The consumer has always been important for our industry,” stated Alexa Driansky, senior VP, AlixPartners and author of the report. “But consumer behavior now fluctuates faster than ever before, which forces retailers to make operational changes quicker. At the same time, consumer expectations have never been higher. ... In 2021 consumers will be even more demanding of complete fluidity across all purchase and pickup/delivery options and less forgiving of any snafus.”
On the operations side, now that retail has now learned to live with disruptions, the next step for the industry is to start anticipating them and preparing accordingly, according to the report.
“This year, retailers will need to embrace agility across their entire organization to better sense and respond to changing consumer preferences and industry trends,” stated Driansky This will mean fixing operational issues that have marred performance and profitability for years.”
Here are Alix Partners’ retail predictions for 2021, divided according to consumer behavior and operations. (The list is edited. For the complete version, click here.
Omni stops being an afterthought: For any retailer expecting to succeed in 2021, features such as curbside pickup, buy-online-pick-up-in-store, ship-from-store are absolute table stakes.
Profitability becomes priority: Integrate your inventory so there is seamless movement across all channels, which will eventually help grow merchandise margins. The proliferation of buy-online-pick-up-in-store and the expansion of curbside pickup will create a "win-win" answer of speed and convenience for customers and reduced shipping costs for retailers.
To win market share, taste the new: In 2021 retailers and brands will join a myriad of marketplaces, as selling through your own channels won’t be enough. Consumers are generally more likely to buy on a platform where they already have loyalty or subscription perks. Retailers will grow paid loyalty programs like Amazon Prime and Walmart+, which provide a recurring revenue stream and drive consumer purchase frequency. Social selling on platforms such as Instagram, TikTok, and Snap will continue to grow, as will livestream shopping. Brands will continue to partner with last-mile marketplaces, such as Instacart, and DoorDash, to increase delivery speeds and remain competitive.
Value for money is key as consumers buy less; As the economy tightens, expect spending to remain slow, especially for mid-market retail. Retailers prepare by reviewing and resizing their assortment appropriately and making fewer deep buys, which will hopefully result in fewer markdowns and better gross margins. Retailers will also increase private label penetration to provide value for value-conscious consumers. One segment expected to recover quickly is luxury, as consumers with higher discretionary incomes will continue to spend.
Sustainability comes back into focus: While the pandemic understandably consumed much of the focus in 2020, demand for sustainability and transparency—both in product and supply chains—will be back. Retailers will continue to embrace resale options, as value-conscious and sustainability-oriented consumers flock to the secondhand market.
Science outweighs the art of retailing: The old ways of working are broken, which means retailers cannot rely on past performance to predict the future. This understanding will result in a widespread adoption of advanced analytics, machine learning, and digital transformation—not just nominally, but as a holistic change that has a direct impact on business decision-making.
Real estate transformations sustain: As sales kept shifting online in 2020 and with several stores closed, many retailers used the opportunity to shed unprofitable store locations. To ease shipping bottlenecks, they also remodeled to build mini distribution centers in store backrooms. This trend will continue and accelerate in 2021. Moreover, retailers that had previously sold their locations will explore repurchasing locations as commercial real estate prices fall.
Direct-to-consumer continues ascent. It is finally clear that DTC is not just a channel but part of a larger brand strategy. In 2021, expect brands to bypass department stores and make more direct contact with consumers. Brands will deprioritize department stores as a way to generate sales volume, instead utilizing them as something of a mini marketing vehicle. In turn, department stores will expand concession models with their brand portfolio, reducing store costs while allowing brands to show off a wider product range and offer unique customer experiences.
Logistics become big part of the puzzle: Online return rates are twice higher than those of in-store purchases. So, as the growth of online sales continues, retailers will look for more efficient reverse logistics solutions. This could be through partnerships that don’t require consumers to even provide a box or a label (e.g., Narvar’s partnership with UPS and Amazon’s partnership with Kohl’s). Amazon will also begin offering Prime Air services to rival retailers, picking up the slack from UPS and FedEx to leverage its investment in aircrafts.
The cash blinders come off: Retailers will realize that a cash hole is burning through their balance sheet as they make new investments to meet consumer preferences. These growing investments and high debt loads, combined with increased competition and the inherently lower profitability of the online business, are adding to the strain. Retailers will need a maniacal focus on indirect spending to manage their bottom line. But in the meantime, many more retailers will file for bankruptcy, while those with deep pockets will make opportunistic acquisitions or consolidations.