The Year Ahead: Issues, trends and insights for 2018

More of the same. That’s the general forecast for retailers as they head into the coming year — more change, more evolution, more disruption. Also, there will be more opportunities and more challenges as merchants continue to adjust to increased online shopping, particularly in the mobile channel, and delivery options — and the ongoing investment that entails in technology, fulfillment and infrastructure across the breadth of the enterprise.

At the same time, retailers in the public arena will be under pressure to leverage their physical assets — not abandoning the channel, but being smart about formats, store sizes, location and the overall experience.

But despite the challenges, one of the industry’s leading analysts said the outlook is not gloomy.

“First and foremost, the future of U.S. retail, whether physical or online, is bright,” said Deborah Weinswig, managing director at retail think tank Fung Global Retail & Technology. “We will face our challenges squarely and find creative ways to evolve out of them.”

Acquisitions: Experts agree that retailers can expect to see continued acquisitions and convergence in the coming year.

“This past year showcased several acquisitions of niche brands by bigger retailers, such as Walmart’s acquisition of several apparel brands,” said Rick Amari, founder of Columbus Consulting. “As we move into 2018, retail acquisitions will only continue; however, expect to see additional players besides retail giants coming into the mix.”

Amari predicts that technology powerhouses will be joining the mix as they try to ramp up competition against Amazon. For example, Google could move away from partnering with retailers and begin making more significant investments to broaden its commerce portfolio.

“At this point, we certainly wouldn’t put it past a big tech company like Google or Apple to move in the direction of Amazon and start acquiring retailers, especially as customer experience continues to grow in importance,” Amari said.

Michael Brown, a partner in the retail practice of strategy and management consulting firm A.T. Kearney, said that consolidations will happen on two fronts as retailers that began as brick-and-mortar merchants acquire new portfolio companies or are acquired by others.

“Smaller retailers who cannot afford investments in omnichannel capabilities to compete against Amazon, Walmart and omnichannel leaders will be acquired,” Brown said. “And retailers who have built successful omnichannel platforms will acquire brands to leverage investment as well as smaller start-ups serving niche customers in what is becoming a highly fragmented market.”

To stay ahead, Weinswig said retailers, physical and otherwise, need to think like a venture capital firm. But that’s not all.

“They also need to be agile like a tech company and launch new business models,” she said.

Brick-and-mortar: Experts agree retailers will continue to adapt their store fleets during the next few years to make them more responsive to the realities of today’s marketplace and the expectations of consumers.

“Store networks will continue to be repositioned,” Brown said. “And store formats will continue to evolve as retailers look to develop models to serve growing urban populations.”

One example is smaller stores with tailored inventories focused on fast-turn merchandise and backed by broad online assortments and rapid delivery capabilities.  Also on tap for 2018, according to Brown, are more partnerships between physical retailers and online retailers to increase traffic to stores and attract new custom-ers. Current examples include Amazon Shops in Kohl’s and The Black Tux shop
in Nordstrom.

The concept of the store as showroom will also continue to grow, especially for retailers challenged with inventory, rent and store space.

“Moving into 2018, consumers will begin to expect services in addition to merchandise when they visit a physical store,” Columbus’ Amari said. “To meet these demands, traditional and online retailers alike will continue to test the concept of showrooming — not only to attract more customers, but to fully utilize their digital and physical channels and evolve their omnichannel capabilities.”

To be successful, Amari urges retailers to think of 2018 as a time to experiment with showrooming — with an eye on finding the right mix of services and merchandise at the right locations to reach the right shoppers.

“In a similar vein, retailers will look for new ways to expand their brand in 2018,” Amari said. “They can no longer simply offer consumers a product; they need to offer experiences that are tangential to their brand.”

Indeed, experience-driven retail will remain a major theme in the coming years, particularly in flagship stores, with customization features figuring heavily in the mix. Consumers, particularly millennials, are looking for unique experiences that differentiate their spending — and they are willing to pay more for it, according to a report by Synchrony Financial.

Weinswig predicts the evolution of what she termed “the store as platform” concept, which revolves around retailers getting customers to think of them outside of pure retail, and more as a service, community or friend.

“It could take multiple forms as the physical store develops new ways to be a resource, but incorporating convenience is a must,” she said. “The idea is to make the store part of their lives, or a store with a bigger purpose — where unique in-store experiences and services where customers can connect with one another and experience the product.”

A prime example is Apple. The tech giant is now referring to its stores as town squares, envisioning them as gathering places. As such, it’s putting as much emphasis on its educational programs and services as its products.

 

The experience, of course, has to be matched to a retailer’s target demographic. American Eagle Outfitters’ new concept, AE Studio in Manhattan,  is looking to entice younger shoppers with options to customize their jeans. For students with a valid ID, there is a wall of washers and dryers where they can do their laundry for free. While they wait, they can study or hang out in the studio bar and seating area.

Mike Kim, director and head of the Center for Data Excellence at AArete, a global management consulting firm, said that the race for consumer experience will be key in 2018.

“Knowing this, physical retailers will
up their game in measuring the experience through data that is derived from a set of discrete and disparate places, such as social media, surveys and other omnichannel sources,” Kim said. “Understanding and quantifying consumer experience and being able to map it to the consumer’s actual in-store spending behavior, will help retailers sharpen their game and increase profitability.”

Sectors: As to what’s in store for one of the industry’s most beleaguered sectors in 2018, Weinswig predicts a redefining of the traditional department store around mixed-use.

“Hudson’s Bay, for example, is a company at the forefront of reshaping the way peo